Home > Report > Korea Report

  
 
 
   
  Korea Report - April 2008
  Author : Hwang & Co     Date : 08-05-14 16:34     Hit : 43385    
Topics
-General election gave GNP a resounding win.
-President Lee held a summit with President Bush at Camp David and PM Fukuda in Tokyo.
-Korea agreed to import US beef before summit, against wide opposition.
-Chinese attacked Koreans during Olympic torch relay in Seoul.
-H5N1 bird flu spread over the country.
-NK directly denounced President Lee and his policies.
-Syria and NK worked for nuclear reactor in Syria.
-Korea posted trade deficit in April for fifth consecutive month.
-HSBC and Lone Star agreed to extend the deadline on sale of KEB.
-Price of Dubai crude hit $110 per barrel.
-Chaebols increased their investment on the prospect of more business friendly environment.
-Special prosecutors indicted Samsung Group chairman and his executives. Chairman Lee stepped down promising sweeping reform.
-POSCO aims global top 3 by 2018.
-KWon weakened against USDollar.
-Consumer price jumped 4.1% in April.
-Salary for top 3 shipyard workers approach KW70.0 mil.
-Korean small yards face deterioration of profitability.
-A number of contenders prepare for a bidding to acquire DSME

GOVERNMENT AND SOCIETY

Expectations of a better economy and lingering distrust of the previous administration, handed President Lee Myung-bak's Grand National Party a resounding win in parliamentary elections on April 9. It gives President Lee a mandate to push ahead with his plan to overhaul the government and measures to revitalize the economy, such as corporate deregulation, privatization of state-owned firms, tax cuts and more FTA.
The elections resulted in conservatives¡¯ dominance of the National Assembly, as other minor rightist parties and independents also made strong presence, while liberal and leftist parties suffered crushing defeats despite their appeals for the need of parliamentary checks and balances. The conservative GNP secured 153 seats, the main opposition United Democratic Party reaped 81, and the minority leader Park Geun-hye¡¯s faction in the GNP won about 30 seats. The Liberty Forward Party, an ultra-conservative, got 18 seats in the 299-member National Assembly. Voter turnout was the lowest in general election history. Some 46% of 37.8 mil eligible voters participated.
First-time lawmakers will comprise 45.8% with 137 members in the next National Assembly. A record 41 female candidates were elected, including the 27 proportional representation seats.

President Lee Myung-bak and US President George W. Bush held a summit at Camp David on April 19. They shared the view that improving the current Special Measures Agreement system and elevating Korea's Foreign Military Sales status are desirable for maintaining a stable ROK-US alliance, urged NK to expeditiously complete the disablement of its Yongbyon nuclear facilities and to submit a complete and correct declaration of all its nuclear programs. President Bush pledged to make every effort to urge their respective legislatures to approve the Korea-US FTA this year and agreed to realize Korea's participation in the US Visa Waiver Program this year.
President George W. Bush and Korean President Lee Myung-bak celebrated the first success of their new relationship with a dinner that featured a symbolic main course, Texas black Angus beef tenderloin. Less than 24 hours before the night meal, Lee's government in Seoul had announced that it would again allow US beef to be sold in Korean stores, ending a ban of more than 4 years.

President Lee Myung-bak proposed that Korea and USA build a wider alliance firmly anchored to shared values, mutual trust, and joint efforts to promote peace on the globe. Lee had arrived USA on April 15 for a 7-day tour to USA and Japan.
UN Secretary-General Ban Ki-moon met with President Lee at UN headquarters. Ban pledged the UN would consult the office of the UN High Commissioner for Refugees to protect the rights and freedom of NKorean fugitives. The secretary-general called for Seoul to step up cooperation in UN peacekeeping efforts and overseas development assistance. Ban also called for more support in fighting global warming, as SKorea is one of the top global emitters of green house gas.
The president also urged the legislatures of both counties to ratify the bilateral FTA which would greatly benefit 2 economies. President Lee invited young Korean-Americans to help develop the economy and improve education in the country. He also called on financial experts to join Korea's efforts to more efficiently operate its national pension funds so as to improve its profitability.
President Lee pledged to deregulate and to stabilize labor relations, as he appealed for US businesses to invest in Korea, ensuring a business-friendly environment. He spoke to about 800 US business people in New York.

Seoul and Washington signed an agreement during President Lee's state visit, to allow Koreans to travel to USA visa-free later this year. The US Visa Waiver Program allows foreign travelers to stay in the country for up to 90 days without visas. Korea is planning full-scale introduction of electronic passports by Sept this year.
Korea agreed to open its doors to foreign accountants as early as late June. The revision bill aims to allow foreign certified public accountants to provide services and operate accounting firm. The revisions are to take effect as soon as the FTA is ratified. The certificate would allow them to provide consulting services under international accounting rules. 5 years after the FTA has taken effect, US accounting firms will be allowed to invest in Korean accounting companies, but their share cannot exceed 50%.
President Lee Myung-bak considers appointing a number of foreign economic experts as his policy advisers to help increase foreign investment in Korea and revitalize the Korean economy. At present, British financial expert David Eldon is serving as a top competitiveness policy adviser to Lee.

President Lee Myung-bak and Japanese Prime Minister Yasuo Fukuda agreed to restart top-level "shuttle diplomacy" and aimed at enhancing economic partnership, as part of their joint efforts to promote a more "mature, forward-looking" relationship. Bilateral visits by leaders have been suspended since 2005 due to conflict between the countries involving history and territorial claims, as well as differences in dealing with NK. Lee arrived in Tokyo after his 5-day visit to USA for a summit with President Bush. The talks between Lee and Fukuda laid the groundwork for significantly more economic exchanges and greater regional cooperation, while shelving a number of sensitive and complicated historical matters. On the regional front, 2 leaders highlighted the need to create a trilateral dialogue among Korea, Japan and China.

President Lee Myung-bak has designated ruling GNP Rep Kwon Chul-hyun and career diplomat Shin Jung-seung as the new envoys to Japan and China, respectively. Ambassadorial posts to the two major partner countries have been left vacant upon the designation of former ambassador Yu Myung-hwan to Japan as the foreign minister and Kim Ha-joong, ex-envoy to China, as the unification minister.

The vote by the US House of Representatives 224-195 to indefinitely delay consideration of a FTA with Colombia, which was originally signed in Nov 2006, raises uncertainty for the Korea-US FTA. Bush administration, wanting to expedite FTA ratification of 3 major trade deals, with Columbia, Panama, and Korea, this year before his term ends. Seoul and Washington on June 30, 2006, just on the brink of the July 1st expiration of Bush's fast-track trade authority, managed to sign a trade deal that would be the biggest ever for both sides. The Bush administration hopes to have the Korea-US FTA enacted before Congress adjourns, currently set for the end of Sept. The Korean deal is the last of the 3 FTAs signed, following Colombia and Panama.

The USA insisted that a resolution of the beef dispute is crucial to persuading US legislators to pass the pact. Seoul seeks to resume the imports of bone-in beef, except for certain cuts believed to have a high risk of transmitting mad cow disease to humans. The government previously imported only boneless beef from cattle of less than 30 months old, but Washington demands Seoul immediately lift all restrictions on age and the cut of beef.
Seoul and Washington officials reached a last-minute agreement on beef trade, removing the major hurdle for a separate trade pact and opening up the country's beef market to USA and allowing bone-in beef of any age, except for select parts deemed to have a higher risk of transmitting mad cow disease. Seoul expects to resume beef imports in mid-May. The breakthrough came a day before President Lee is set to meet US president Bush, during his visit to USA.
The government announced a set of measures to assist local cattle farmers, as in enhancing the quality of homegrown beef and distinguishing itself from cheaper US meat. The ministry will provide farmers with financial per each cow for the production of premium Korean beef. Restaurants which sell fake Korean beef could face up to KW30 mil in fines and a 3-year prison term, along with suspension of operations.
The opposition UDP has been looking to use the issue in its defense against ratifying a Korea-US FTA deal. They accused the government of "giving away our rights to life, and to sovereignty over quarantine to offer a present to USA ahead of the Korea-US summit. Rep Kang Ki-gap from the Democratic Labor Party is on a hunger strike in front of Cheong Wa Dae, denouncing the bilateral beef accord, which he believes will be "murderous" to farmers. 3 opposition parties along with farmers and civic groups agreed to push for a parliamentary hearing to question the government's decision to resume imports of US beef, accusing "the full opening of the beef market is directly related to the health and food safety of the populace."
The ruling GNP proposed a TV debate among the government and ruling and opposition parties to inform the public of the pros and cons of the beef agreement and let them make their own judgments, criticizing opposition politicians for trying to stir up public sentiment using inflammatory words.

Korean Trade Minister and EU Trade Commissioner met in Tokyo and agreed on the need to step up efforts to narrow the differences on sensitive issues concerning tariff concessions on goods, rules of origin, and services for the early conclusion of the talks. They also agreed to hold their seventh round of FTA talks from May 12-15 in Brussels. Korea and the Association of Southeast Asian Nations resumed another round of talks for a FTA, with the focus on major issues surrounding the area of investments, aiming the conclusion of negotiations by the end of this year.

The Olympic torch relay in Seoul was marred by demonstrations and scuffles involving anti-Beijing protesters, Chinese students and residents. SKorea is the 17th leg of the relay, followed by Pyongyang. NKorean defectors attempted to block the event in protest against China's crackdown in Tibet and human rights abuses committed against NKorean defectors in China. Human rights activists here are protesting the Olympic torch relay because China is sending defectors back to NK where they can be tortured or executed. More than 6,000 Chinese residents rallied in support for the Beijing Olympics as the flame made its way through the city to finish in front of City Hall in central Seoul. Wearing red and waving Chinese flags, they welcomed the torch, and even threw rocks at SKorean demonstrators and swing the pipes. More than 8,300 police officers were mobilized to prevent possible disruptions of the 22-km march.
The government expressed "strong regret" to Chinese government over the violence by Chinese demonstrators in Seoul. During the process, a journalist and a police officer were hit on the head with a weapon carried and thrown by pro-Chinese supporters. 4 people, including a Chinese student hurling a stone at protesters, were arrested. The government was considering deporting some Chinese for their violent behavior during Olympic torch relay. The Chinese Foreign Ministry issued words of comfort to console those who were assaulted by Chinese demonstrators, but held back from issuing a formal apology.
Civic groups requested police investigate the Chinese ambassador to Seoul on charges of abetting student violence during Olympic torch relay. They denounced the embassy for actively mobilizing students and taking no preventive measures, even though the violence was expected. Korean Prime Minister Han Seung-soo ordered "strong disciplinary measures" to prevent a recurrence of violece.

The government confirmed, on April 7, a second outbreak of H5N1 avian influenza in a southwestern duck farm. The authorities slaughtered a combined 240,000 chickens and ducks in 19 farms. The test results showed that the H5N1 strain caused the death of ducks in Jeongeup, following Gumje on April 3. The first H5N1 outbreak was on April 3 at an egg farm in Gimje. Then the government confirmed the 12th case of the deadly H5N1 strain of avian flu in Pyeongtaek, 60 km south of Seoul, which stokes fear that the virus is spreading widely in the country. Korea had 19 cases of the highly virulent strain between 2003 and 2004, and 7 between 2006 and 2007. Korea has killed 4.85 mil birds since the deadly bird flu broke out earlier April for the first time in more than a year. Korea killed 5.29 mil poultry in 2003.

A local court handed down a 10-year jail sentence to the man who set fire to Namdaemun gate, the 610-year-old national treasure. The defendant, Chae Jong-gi, 69, set fire to the two-tiered wooden structure on the landmark gate on Feb 10. Chae admitted setting fire to Namdaemun, but claimed he was driven to the crime out of frustration over the amount of compensation he had received in a housing development project in March 2006.

Korea's first astronaut, Yi So-yeon, returned home after her 10-day mission at the International Space Station and recuperation in Russia. Yi took off on board a Russian Soyuz spacecraft from the Baikonur Cosmodrome in Kazakhstan on April 8 and returned to Earth on April 19, making Korea the 36th country to send a person into space. Yi was the 49th woman to reach orbit and the 158th person to visit the ISS. The 29-year-old biosystems engineer still has a backache from the turbulent, off-course landing. The space capsule carrying Yi with 2 other astronauts missed the designated landing zone by 420 km, had communication problems and was found lying on its side.

Korea¡¯s GDP 13th in the world in 2007, a notch lower than a year earlier. Korea¡¯s GDP amounted to $957 bil last year, up from $888.4 bil in 2006. Its ranking, however, was a step down as India outpaced Korea with its GDP totaling $1.1 tril.
Korea's grain self-sufficiency level stood at 25.3% in 2003, the third lowest among 29 member states of OECD. Japan with 22.4% and the Netherlands with 21.2%, trailed behind Korea. Iceland ranked at the bottom with zero self-sufficiency.

NORTH KOREA AND NATIONAL DEFENSE

NK directly denounced President Lee Myung-bak for the first time, blasting his key NKorean policies. Calling Lee a "rebel," Rodong Shinmoon accused, "The Lee regime must take full responsibility for bringing about an irrecoverable catastrophic situation and damaging the peace and security of the peninsula with their pro-U.S. and anti-North maneuvers." The NKorean mouthpiece directly mentioned Lee a total of 49 times in the editorial. NK took issue with Lee's "reform 3,000" policy, which states that the South will help raise NK¡¯s per capita income of to $3,000 within 10 years of denuclearization.
The North also lambasted Lee's emphasis on the need for NK to open up, and his foreign policy team's staunch support of international pressure on NK's human rights abuses, as well as closer trilateral cooperation between the South, USA and Japan.
President Lee dismissed NK's recent provocative rhetoric, emphasizing that saber-rattling will no longer work with Seoul. Lee emphasized that NKorean brinks-manship tactics would no longer squeeze concessions from the South. Lee said that, although he is willing to separately provide humanitarian aid based on this nation's "brotherly concerns" for the health and well-being of NKoreans, he would not slow down the efforts to get NK to comply with the terms of the 6-party talks.
President Lee reiterated "Our government supports sincere dialogue with NK. But we cannot be successful unless NK commits to change. We are not proposing for only the North to change, but also for SKorea to change as well, and for both countries to communicate based on changing international trends." Experts see the new president's stance as falling short of demands from hardcore right-wingers, but still significantly stronger than the engagement policies undertaken by the previous Roh administration.

President Lee Myung-bak proposed installing a permanent diplomatic channel between 2 Koreas in an interview with the Washington Post during his trip to USA, aiming to facilitate regular dialogue between 2 countries. North's official paper described Lee's offer as a "shallow tactic to dodge its responsibility for worsening inter-Korean ties and to distract public opinion", calling Lee's idea an "anti-reunification antique." Lee made the proposal in an interview with the Washington Post, saying such a regular dialogue channel would help improve inter-Korean ties.

Nuclear negotiators from USA, 2 Koreas, China and Japan gathered in Beijing for bilateral talks over the latest progress on Pyongyang's declaration list. Top negotiators Christopher Hill of USA and Kim Kye-gwan of NK arrived there after lengthy bilateral discussions in Singapore on the declaration of Pyongyang's nuclear programs.
Despite having seen "definite progress" in the latest bilateral discussions between Washington and Pyongyang, members of the 6-party talks appear to be taking time to consider the latest version of the North's nuclear programs list.
Washington must accelerate its removal of NK from the states sponsoring terrorism list, and terminate the application of the Trading with the Enemy Act. It has been considered crucial to earn the support from the Congress, some of whose members have opposed to a declaration list that would encompass details of NK¡¯s plutonium stockpile and acknowledgements of its uranium enrichment program and proliferation activities.
Presidents Lee and Bush said after a 2-day summit in Camp David that they still expect the North to fully declare its nuclear weapons programs. Lee stressed that there will be no letup for Pyongyang to fulfill its obligations at the 6-party talks to declare its nuclear programs.

The Bush administration disclosed details of suspected cooperation between Syria and NK on a nuclear reactor that was destroyed in an Israeli airstrike last Sept. White House spokesperson issued a statement saying that the administration is convinced NK assisted Syria's clandestine nuclear activities.
US hawks claimed that the NK-Syria connection proves that NK cannot be trusted and would build a case against the 6-party process.
Even its involvement in the Syrian nuclear program was made public, Pyongyang had been in the talks with the US team which had just visited NK. The US decision to disclose NK-Syria nuclear connection, breaking nearly 8 months of silence, was intended to press Pyongyang to come clean on its atomic weapons programs, putting NK on notice, "to make it abundantly clear that we may know more about you than you think." The Syrian ambassador to USA immediately dismissed the claims, calling them a "ridiculous story."

SKorea selected Boeing's F-15K fighter jet for a KW2.3 tril ($2.3 bil) project to purchase 20 new advanced jet fighters. The SKorean Air Force has sought to purchase 20 multi-role fighter jets between 2010 -2012 to reinforce airstrike capabilities. The deal follows SKorea's first phase of F-X in 2002, in which the Air Force will introduce 40 F-15Ks by this year.
SKorea and USA were near an agreement to suspend the reduction of US troops on the peninsula, keeping US troops at the current level of 28,500. In 2004, the 2 countries agreed to downsize the number of American troops from 37,500 to 25,000 by this year, as part of worldwide US troop realignment plans.

Korean cargo bound for Europe could be transported by rail from the NKorean city of Najin from Aug. Najin is a port city that shares borders with Russia and China. The governments of SKorea and Russia agreed to form a joint venture to repair the 54 km rail link between Najin and Russia's Khasan in June and begin test runs in Aug. From Khasan, the cargo will use the Trans-Siberian Railway to reach destinations in Europe. Once the project gets on the way, transportation could cut down the 40 days required to Europe by sea to 17 days. SKorean products will be transported to Najin by sea from Busan as 2 Koreas do not have an agreement on using the Trans-Korean Railway. The costs of the project, estimated at $100 mil for repairing the railroad and $50 mil for the works on Najin port.

NK recently asked China to provide massive rice aid for its hungry people. Pyongyang has decided not to request rice and fertilizer aid from SKorea until Seoul moves to improve ties.
A UN relief agency has appealed for more international food aid for NK, that is minimum 1.66 mil tons short until this year¡¯s fall harvest. The FAO reported that NK will need massive food aid in the coming months to avert widespread hunger.
A NKorean military officer has defected to SKorea through the inter-Korean border near the Panmunjeom for the first time since 1998.

ECONOMY AND POLICY

Finance Minister forecasted that Korea's growth will slow down in the second quarter because of high oil prices and the weakening world economy. The IMF revised down its growth predictions for Korea to 4.2%, as it lowered its prediction for the US economy to 0.5% this year. World Bank predicted Korea¡¯s economy to grow 4.6% this year and 5% in 2009, as Korea is more exposed to the US subprime-related assets than other East Asian countries. The Korea Economic Research Institute forecast that the SKorean economy will expand 4.5% this year, compared with its Dec projection 5.1%, far below the government¡¯s target of some 6% growth.

Korea posted a trade deficit in April for the fifth consecutive month as the swollen import bill for oil and raw materials offset a record gain in exports. The export increased 27% on year to $38.02 bil, but imports rose 25.9% to $38.06 bil, leaving the country with a $46 mil deficit, narrowing the gap from $820 mil in March. April's 27% increase in export is the highest since Aug 2004.
Korea purchased 1.4% less oil in April on year, or 67.1 mil barrels, but the import bill shot up 57% to $6.69 bil because of high prices.
Korean carmakers¡¯ exports to Eastern European nations rose more than 13 fold between 2001-2007 from the 32,206 units in 2001 to over 447,000 units in 2007, where became the country's third-largest automotive export destination, accounting for 15.7% of last year's car exports, from 2.1% in 2001.
Korea¡¯s trade deficit amounted to $5.94 bil during the Jan-March period, a turn around from a profit of $2.44 bil recorded in the same period a year earlier. Exports during the quarter increased 17.5% on year to $99.54 bil, while imports grew 28.2% to $105.4 bil.
The nation's current account deficit narrowed sharply in March on strong exports and reduced spending on overseas travel though its account balance remained in the red for a fourth month. The deficit reached US$53.7 mil in March, compared with a $2.35 bil red in Feb.

Financial authorities strongly advocated plans to combine banks, including the state-run Korea Development Bank, to form an investment bank befitting Korea's status as Asia's fourth-largest economy. Korean banks currently rank around 70th place in the world, making it difficult to secure foreign capital. The Financial Supervisory Commission has plans to sell a 49% stake in the state-run KDB by the end of 2011. The Strategy Ministry favors combining the KDB with the Industrial Bank of Korea and Woori Bank, which are also owned by the government. Such a large financial holding company, if established, could rank as the world's 30th largest financial company, having more than KW500 tril in assets.

The FSC approved 3 asset management firms, BlackRock, Alliance-Bernstein and Lazard Korea, to establish a Korean unit with equity capital of KW10 bil. They are making inroads to Korea where the pension market is expected to boom soon with the growth of an aging population. The FSC is also reviewing other 4 consulting firms, including LS Asset Management, IMM Asset Management, AIG Asset Management and Deo-Keo Asset Management, whether to allow them to switch over to asset management companies.
Shinhan Financial Group plans to set up a reinsurance company with National Pension Service and CV Starr & Co. Shinhan Private Equity may obtain about KW200 bil ($200 mil) from each partner to set up Pan Asia Re in May, creating the country's second reinsurance company after Korean Reinsurance.
Calpers, the largest US pension fund, will contribute $100 mil to a Lazard Asset Management Plc fund that invests in Korean companies and seeks to raise shareholder value by improving their corporate governance. Calpers' investments in Korea's publicly listed companies total $1.1 bil, while it also has an estimated $133 mil in private companies. The Lazard fund's holdings include Daehan Synthetic Fiber, its parent Taekwang Industrial and Dongwon Development.

The amount of credit card use hit a new record high in March, totaled KW25.8 tril ($26.5 bil), a 25.5% increase on year.
Korea¡¯s national debt grew over KW16 tril ($16.1 bil) to KW298.9 tril in 2007 as the government raised more funds to stabilize the local currency market. The figure is 33.2% of the nation¡¯s GDP.

The Financial Supervisory Service plans to clarify existing restrictions on business outsourcing activities, as part of efforts to create an effective regulatory environment and a market-friendly business atmosphere. Financial companies are currently barred from outsourcing core business activities as well as other minor activities. The FSS is to to help offshore investors better cope with regulatory hurdles and step up supervision to ensure the stability of the financial system and to improve the safety of financial companies. The FSS was set up in 1999 by local financial companies, including banks and brokerages, to monitor the capital market and the financial health of firms. It is an executive agency of the state-run FSC, although not a government office. Earlier the year, the FSC split from the FSS.

HSBC Holdings Plc and Lone Star Funds agreed to extend their deadline on the sale of Korea Exchange Bank by 3 months to save the $6.2 bil deal from collapsing. The original deadline was to end of April. There will be no change to the purchase price and the terms of the original agreement. Financial Services Commission reiterated that the regulator is proactively seeking ways to break the deadlock. Until recently, the FSC had refused to approve the deal, citing a pending court ruling on Lone Star's acquisition of KEB and its credit card unit.

The Iraqi government announced KOGAS and 34 other international firms qualified to bid for oil and gas projects in the world's largest oil reserve, while a consortium led by Korea National Oil Corp and SK Energy failed to gain approval, as the ministry threatened to cut current deals and block upcoming deals with 20 groups which had signed oil contracts with the Kurdish government.
State-run Korea Resources Corp plans to invest $276 mil in the El Boleo mining project in Mexico by purchasing a part of the 10% stake held by Baja Mining.
Korea Resources Corp and LG International Corp jointly took over a Philippine copper project. The combined stake in the Rapu Rapu project rose to 70% from 26%. LG International now holds 42% of the project and Korea Resources 28%. The Korean group will spend $43.4 mil. The mine started output in Feb last year with an annual capacity of 11,000 tons of copper and 13,000 tons of zinc.

The price of Dubai crude oil rose to a record of $110 a barrel, after BP Plc shut a North Sea pipeline, carrying 40% of the UK's oil production after a strike at the Grangemouth refinery cut power supplies, and gunmen attacked police guarding Nigeria's largest oil and gas terminal, where output has dropped by 50%.

CHAEBOLS

The country's top 30 business groups are poised to invest a total of KW92.8 tril ($93.5 bil) this year, up 23% on year. The increase is attributed to the prospect of a more business-friendly environment after the deregulation promised by the new government, highlighted by the separation between the financial and industrial sectors, and the equity investment cap on affiliates.
The head of Korean Federation of Industry called on the government to consider abolishing inheritance tax, reigniting debates over the revamp of Korea¡¯s income taxation regime. He insisted the current inheritance tax system requires inheritors to pay taxes before they realize financial benefits and ¡°in many cases, company owners have to dispose of their shares or real estate simply to pay the taxes¡±.

Special prosecutors indicted Samsung Group chairman Lee Kun-hee for tax evasion and breach of trust as they wrapped up 3 months of inquiry into corruption allegations against the nation's top business group. However, Lee was cleared of charges of bribery and illegal lobbying due to lack of evidence. 9 other executives were also charged with collaborating. The prosecutors did not detain them in consideration of "an adverse impact on the economy."
The investigation kicked off on Jan 10 following a series of allegations raised by the group's former chief attorney Kim Yong-chul late last year. Kim claimed that the group created massive slush funds to routinely bribe government officials, prosecutors, lawmakers and the press. He also alleged that the group headquarters and subsidiaries systematically collaborated to transfer management control to the chairman's only son, Lee Jae-yong.
The investigative team discovered that chairman Lee held a 16% stake in Samsung Life Insurance under the names of 12 former and incumbent group executives, and Lee owned KW4.5 tril ($4.5 bil) in a total of 1,199 accounts registered with 486 other executives' names, managed by the group's Strategic Planning Office. The investigators also charged that the group evaded taxes, worth KW112.8 mil, due on KW564.3 bil capital gains from transactions of securities at affiliates, including SEC.
Former Samsung attorney Kim Yong-chul and civic groups lambasted the outcome of the special investigation, berating the inquiry team for what they claim, "the slap on the wrist." Kim also claimed that the chairman's wife and other relatives used slush funds to purchase around 30 expensive paintings. The independent counsel said that she used the chairman's money amounting to KW25 bil, registered under borrowed names, not slush funds to buy 2 paintings, not 30. The civic groups vowed to take all possible actions in protest against the independent counsel's conclusion.

Samsung Group chairman Lee Kun-hee, 66 years old, announced that he would step down as head of the conglomerate following a probe that led to his indictment for tax evasion and breach of trust, saying "I will assume all legal and moral responsibility.¡± Samsung is to dismantle the Strategic Planning Office, the center of the alleged misdeeds at Samsung, holding a firm grip on its nearly 60 affiliates. Lee Jae-yong, son of Lee Kun-hee, will also quit his post as the chief customer officer at SEC, but he will be working at overseas offices. The group's No 2 and No 3 men after chairman Lee, vice chairman Lee Hak-soo and president Kim In-joo will also resign. Lee Soo-bin, chairman of Samsung Life Insurance, will now represent the group, which will be run by a council of CEOs. Chairman Lee's wife, Hong Ra-hee, will resign as head of the Samsung Museum of Art, Leeum. Chairman Lee's money kept in accounts opened under the names of Samsung executives and employees will be used "for the public." Samsung would consider setting up a holding company as a long-term agenda and would untangle the complex web of circulatory shareholding among subsidiaries, which has allowed the Lee family to control the group with minimal shares. The reform measures will be implemented before July 1.
The sweeping reform plans were viewed more drastic and bold than people had expected. The Federation of Korean Industries stated "We cannot but express shock," and "a painful decision made to honor the public sentiment." However, some critics said that the measures fall short of addressing the core issue at the conglomerate, because Lee family will still be able to keep control over the group. They would have little difficulty in handing over control of the group to the son.
Founded 70 years ago by Lee Byung-chull, the late father of Lee Kun-hee, Samsung has grown into the country's largest conglomerate with interests in dozens of businesses including electronics, shipbuilding and construction. Lee Kun-hee inherited the group in 1987. The group now accounts for nearly 20% of Korea's exports and one sixth of its GDP.

Samsung Electronics Co (SEC) posted its biggest profit gain in more than 2 years, shining in shadow of prolonged probe, as display and handset earnings countered a decline in chip prices. First-quarter net income rose 37% to KW2.19 tril ($2.2 bil), from KW1.6 tril a year earlier. Revenue rose 19% to KW17.11 tril.
SEC keeps a leadership in the Mobile DRAM field, with a 46% share of the market, followed by Elpida Memory of Japan at 34.9%. Hynix Semiconductor, and Qimonda of Germany came in third and fourth with market shares of 6.7% and 4.4%, respectively. The global market for Mobile DRAM products was estimated to be slightly over $2 bil in 2007. While prices of the benchmark DRAM chips have remained at record low levels this year after slumping 85% in 2007, the prices of Mobile DRAM remained high, at about 6-7 times that of standard DRAM chips.
The Instinct, SEC's new touch-screen handset, SPH-M100, appears to be off to a good start. Its has won the "Best in Show" award at the CTIA Wireless 2008, the largest telecom trade fair in Las Vegas in USA. The Instinct is a 3.1-inch touch-screen phone which allows the one to customize the homescreen with the favorite applications.
5 current and former executives of SEC could earn over KW210 bil in potential gains from stock options. They were granted options to purchase a total of 740,000 shares in SEC as part of their annual compensation packages. The options, issued separately in March 2000 and March 2001, entitled them to buy shares at the price of KW272,700 per share and KW197,100 per share. About 65% of the options are yet to be exercised. With prevailing price at KW680,000, the potential gains amount to KW214.9 bil.

The KOEXIM Bank will finance 3 mil euros ($468 mil) for Hyundai Motor's plant construction in the Czech Republic, amid the subprime mortgage woes. HMC is investing a total of $1.1 bil euros to build the facility in Ostrava with the annual production of 300,000 units for the European market. With the completion of the Czech plant in March 2009, HMC will be able to make 6 mil cars a year. Ex-Im Bank expected that Hyundai's Czech plant will spur the overseas expansion of small- and medium-sized enterprises.
HMC has finished developing a new partial hybrid electric bus and will begin testing full hybrid buses during the second half of this year. 2 new bus models, fitted with a mild hybrid system, will be provided to to test the vehicles under normal road conditions. This is the first time the technology has been used in a commercial vehicle.
Beijing Hyundai Motor opened its second plant in Beijing. With the completion of the new plant, HMC now has an annual production capacity of 600,000 units in China. The new plant is China's first plant in which all of the welding processes are carried out by a fully automated system.

POSCO aims to become one the world's top 3 steelmakers by 2018. The company was founded on April 1, 1968 with assets of KW1.6 bil ($1.62 mil) and has grown by about 10% annually over the past 40 years to be currently ranked as the world's fourth largest steelmaker, with assets of KW30.5 tril. POSCO plans to raise its annual output to over 50 mil tons and increase sales to KW100 tril ($101 bil) by 2018.
The company's 2007 sales and production were recorded at KW22.2 tril and 31.1 mil tons, respectively. Its local facilities' output will be raised to 40 mil tons while its overseas operations to push up production to over 10 mil tons on an annual basis.
POSCO E&C has signed 2 deals worth a combined $1.3 bil to build 2 plants in Chile. The deals, signed with AES Corp on behalf of BHP Billiton, call for POSCO to build a $870 mil coal plant in Antofagasta in the north and $440 mil plant in the western coast city of Ventanas. POSCO will invest $200 mil in a group to buy a 13% stake in Kalahari manganese mine in South Africa. POSCO will secure at least 130,000 metric tons of the metal a year from 2010. The mine is estimated to have reserves of 20 mil tons of manganese.

Korean builder¡¯s overseas orders grew more than 50% in the first quarter of this year thanks to increased demand from the Middle East and Asian markets. Local builders gained overseas orders amounting to $14.03 bil, up 53% on year.
Hyundai E&C has won more than 40% of the annual goal so far this year, expecting foreign orders to hit a record high this year. The builder targets a combined foreign order of $4.7 bil in 2008, 16.7% higher on year. It had won a total of $1.95 bil from abroad so far. Hyundai E&C won the order from the port authority of Srilanka to extend the capacity of the harbor for $377 mil. It will be completed in 48 months.
Doosan Heavy received an order from Singapore¡¯s PSA Corp to supply 79 units of 40 tons rubber tyred gantry crane for second stage terminal of Pasir Panjang, worth $120 mil, to deliver at end of 2009.

Hynix Semiconductor has signed a deal with US chip maker Grandis Inc to cooperate in developing next-generation random access memory chips. The 2 companies will work together on spin-transfer torque random access memory chips, STT-RAMs, at a lower cost and less power, ultimately combining the merits of DRAM and NAND flash memory chips. Hynix expects STT-RAM to be widely used by 2012.
Hynix Semiconductor has developed a new memory chip that can be activated at a lower voltage and boasts the world¡¯s fastest data transfer capability. The 1-gigabit LPDDR2 chip is the latest memory product for PDPs, cell phones and other mobile devices.
The EU scrapped the 32.9% duty on DRAM chips made by Hynix, intensifying import competition for Germany's Infineon Technologies AG amid a market slump, allowing Hynix to sell DRAM chips in Europe with reduced costs.

Korea Electricity Power Corp has signed a $150 mil preliminary deal to build 3 coal export facilities in Kalimantan Island, Indonesia.
KEPCO signed a MOU with Dominica¡¯s largest electric power company Haina to build and operate a 240-megawatt thermal power plant, which costs ariund $500 mil. KEPCO inked a joint development agreement with Nepal Electricity Authority to build a hydroelectric power plant with a capacity of 42 megawatts at $80 mil.

KT&G Corp, the world's fifth-largest tobacco company, finished the construction of a $50 mil cigarette manufacturing plant in Turkey, aiming to expand its global foothold. KT&G aims to make 4 bil pieces annually by 2012 at its first overseas factory.
Rotem, an affiliate of HMC, has won a $170 mil contract to supply passenger trains to the city of Boston. The contract with the Massachusetts Bay Transportation Authority calls for Rotem to deliver 75 rail cars by 2012. The company is building a plant with an annual capacity of 200 rail cars to widen its market share in USA.

MONETORY AND ECONOMIC INDICES

Korea Composite Stock Price Index surged from 1702 at the beginning to 1825 at the end of the month. The continuous rallies in Dow Jones and foreign investors¡¯ concentrated puchase of blue chips in Korean bourse were attributed to the surge.
The exchange rate of KWon against USDollar has been weakened. It started the month at 984, strengthened to 975 due to weaker USD, recovered 1000 by verbal intervention of authorities and ended the month at 1003. The greenback has strengthened around 7% versus KWon this year alone, while other major currencies such as the euro and the yen have fast gained value. The government has been buying dollars to support the weak KWon in recent months.
The Bank of Korea left its key interest rate unchanged at 5% for the eighth consecutive month, as it is torn between inflation control and economic growth, hinting at a rate cut in future. The US Federal Reserve cut its key interest rate to 2%. The interest rate gap between the Fed and the BOK has widened to 3%. The yield on 3 years corporate bond has been stable in the range of 6.05-5.82% through April.
As of the end of April, the nation's foreign reserves decreased by $3.76 mil to $260.5 bil from March.

Consumer prices jumped 4.1% in April on year due to skyrocketing fuel costs. Producer prices rose to 8% on year at the fastest pace in more than 9 years in March on soaring oil and raw material costs.

SHIPBUILDING AND SHIPPING

POSCO raised the prices of shipbuilding steel plates by KW120,000 ($123) per ton to KW785,000 per ton, absorbing the impact of rising iron ore and coal prices. Iron ore prices have been pushed up 65% and coal prices by more than 200%. Korean yards expressed relief, as POSCO¡¯s new prices for hot-rolled products are still $50-220 cheaper than imported products and other domestic supply.
Employees at Korea's top 3 shipbuilding companies earn an annual salary of almost KW70 mil, up by an average of 20% on year. The average annual salary for HHI workers was KW66.62 mil up of 14.2%, SHI KW65.3 mil increased 18.3%, and DSME at KW66.1 mil up 20.4% on year. The salary is linked with the age. The average age of production workers approaches to 50, creating adverse effect in the management, with the labor cost hike, increasing casualties, and tougher barrier for entrance of young workers etc.
KOEXIM Bank decided to support local yards to export container vessels with $512 mil financing, which includes 4 x 13,300 teu with DSME and 3 x 8500 teu ships with SHI, to be built for CMA-CGM.
Newly emerging small Korean yards are facing the deterioration of profitability, as the price of Chinese steel plate became double to the POSCO products. Big yards secured the sufficient plates from POSCO in advance, but small yards have to be supplied in ¡°hand to mouth¡± from other sources, who call the prices as high as $1,220 per ton. Even with that price, the plates are not available in the market. About 20 new yards have opened during last 2-3 years, increasing the demand of plates to 11.19 mil tons, while local supply is limited to 6.5 mil tons. .
A record-breaking new building orders in Feb has helped HHI to dominate the world shipbuilding market, holding a 10.88% share of orders, SHI with a 6.29%, followed by DSME, HMD and STX in top 5, ahead of Imabari with a 2.29%, Dalian 2.27%. Japan¡¯s Universal holds eighth position with a 1.89%, Sungdong and MHI complete the top 10. HHI bagged nearly $6 bil in orders during Feb to shatter the monthly record previously held by DSME worth $3 bil in July last year.

HHI has received the orders of 12 ships worth $1.5 bil for new yard in Kunsan, even before it broke the ground. The ships, including 2 x VLCCs for Kore Line and 10 x capsize bulkers, are to be delivered in 2010. The yard set the target to secure the order for 28 ships in 2008. HHI secured orders from Delta Tankers for 3 x 318K VLCC at record $156 mil, and Hyundai Samho from Sovcomflot for 2+2 x 114K tankers. HHI jumped to 400th among the Forbe¡¯s world 2000 greatest enterprises, from 422 last year. HHI has developed an industrial robot for the transportation of LCD panels and will supply the 100 units of robots to LG Display Co, being  deployed at the 8th-generation production line in Paju to start operation in the first half of 2009. HHI has been producing industrial robots since 1984, holding a 40% share of the market in the Korean automobile industry and a 7% share of the global market.

SHI received an order from a European customer for 1 x 170K cbm LNG producer FPSO, Euronav + JM Maritime 3 x 159K suezmaxes double-hull tankers, Dryships 2 x advanced ultra deepwater drillship, Stena AB 4th x 97K GT drillship, and reportedly with Cardiff Marine for 2 x 115K tanker.

DSME won a $566 mil order from American owner to build a drill ship.
DSME signed an agreement with the government of Oman to develop tourism in Duqm City, into a tourist and business area. The value of the project is estimated $20 bil. DSME in 2006 signed an agreement to build and operate a ship-repair yard in Oman, which will be the biggest in the Middle East.
DSME is attracting an increasing number of contenders to acquire the yard. KDB and Korea Asset Management Corp bailed out DSME after Daewoo Group went bankrupt in 1999, and DSME graduated from its work-out debt program in Aug 2001. They plan to sell their 50.4% stake in the yard by Aug. The market capitalization of the majority stake currently stands at over KW4.0 tril ($4.0 bil), but the takeover price may be much higher, as the yard¡¯s strong performance and healthy financial status attracted many conglomerates. POSCO, Doosan Group, GS Group, Hanwha Group, the state pension fund, Dongkook Steel Mill, Doosan Group and major shipbuilders are said to be interested in the acquisition. POSCO expects synergy effect for both companies as POSCO could secure a stable outlet for its product while Daewoo could secure a stable supply. Hanwha Group, engaged in the chemical, energy, machinery, brokerage and insurance sectors, has entered the race. Daewoo workers voted to go strike against en bloc sale of DSME. They requested their own option bidding for 19% stake in DSME held by KAMCO. The time of strike will depend on the progress.

STX China received order from Albros Shipping of Istanbul for 2+1 x 58K bulkers. STX got the order from its sister STX PO for 2 x VLCC, Naftomar 1 x 9.5 LPG carrier and Korean 1 x VLCC.
Hanjin at Subic Bay got Emarat Maritime of Dubai for 3 x 180K bulkers. Daesun won the orders with European for 5 x 34K bulker and Korean 4 x 34K bulker. SungDong got from Cido Shipping for 6 x 75K capsize bulker.
SPP bagged substial orders, including from IRISL for 8+2 x 35K handysizes bulker, DD Shipping 5 x 35K bulker, Benelux 1 x 50K pc and Polyar 3 x 52K pc.
C& HI received orders from Shandong Fareast Marine Group for 1+2 x 180K bulker. C& Heavy Ind held first keel laying ceremony, marking full swing in its shipbuilding activities. Its first ship will be delivered by the end of this year to its Greek owner.

Hanjin Shipping decided to merge its subsidiary Keoyang Shipping. It called board meeting on May 29 to confirm it. Keoyang has taken the long term cargoes, such as iron ore and coal, from POSCO and KEPCO.
STX Pan Ocean set up a subsidiary named STX PO LNG Pte Ltd in Singapore, taking care of group¡¯s for LNG operation and LNG ship financing.
Korea Line Corporation, a major freight carrier, achieved the best per-worker profitability among all the listed firms on local stock markets. Each of 328 employees represent KW1 bil in profit. Its performance is about 10 times higher than the average of KW190 mil for the top 100 companies.
Joong Ang Shipping has been reported to order 1 x 180K caper at DSME for delivery 1Q/2011 at $98m and 2 ships at Daehan Shipbuilding for 2010 delivery.

My book titled ¡°LET THERE BE A SHIPYARD –Memories of a shipbroker¡± will be published by Witherby-Seamenship and presented in Korean Reception on June 5 at Astir Hotel during Posidonia. Please visit the Reception as well as the booth of Witherby-Seamenship in the exhibition.

Best regards,

Sung Hyuk Hwang.