S. Korea

[rffrydr]

That other thing about SK:

Economist Oct. 6


IT IS a place of mythical beauty—its peaks and pine forests the stuff of songs and scroll paintings—but Mount Kumgang, just on the northern side of the divided Korean peninsula, has become a symbol of all that is troubled about South Korea's policy towards its bad neighbour. Since 1998 the South has run a tourist resort at Mount Kumgang, which 1.4m South Koreans have visited. For Roh Moo-hyun, South Korea's president, this (along with a miserable light-industrial park at Kaesong) was proof that his strategy of engaging with North Korea, known as the “sunshine policy”, was bearing fruit. But since North Korea exploded a nuclear device on October 9th, if not before, the fruit has been foul.

The point of engaging North Korea was to coax Kim Jong Il and his regime to behave better. Engagement was supposed to bring economic benefits to the benighted North; a modicum of mutual trust was meant to lessen its threat. These assumptions were badly upset in July, when Mr Kim conducted missile tests; his nuclear test has blown them away. Mr Roh's administration, which has another year to run, is discredited, its popularity rating in the teens. This week both the defence minister and the minister for unification offered to resign.


Quite right too, say Mr Roh's opponents. In particular, the nuclear tests have stirred anger at the money given over several years to a foul regime: public and private money, above the table and under it. More thoughtful critics say the sunshine policy was originally a sensible one, meant to transform the North with a view to reunification. But engagement, particularly under Mr Roh, became an end in itself. Thereby, it can be argued, the policy changed the South more than the North.

How much money it has cost the South may never be known. At the government's urging, Hyundai, a family-held conglomerate, sent some $500m discreetly to Mr Kim to secure a historic summit in 2000 between the Dear Leader and the architect of the sunshine policy, the then president, Kim Dae-jung (no relation). The opposition Grand National Party (GNP) claims that, officially, some $1.2 billion of government cash has gone to North Korea since 1998 (not counting lashings of humanitarian aid, now temporarily suspended). The government disputes that figure but, amazingly, no full audit trail exists.

Among other things, the South Korean government has subsidised visits to Mount Kumgang. These subsidies, it promises, will now stop, but a big chunk of the revenues from the resort—the 40,000 visitors in a usual month pay up to $500 each—will continue to go straight into the regime's pocket. In all, Hyundai, which built the resort and runs it, has sent $850m in royalties to Mr Kim and his cronies.

America's secretary of state, Condoleezza Rice, and its envoy for North Korea, Christopher Hill, who visited South Korea last week, are critical of the Mount Kumgang resort, which they believe generates cash for weapons of mass destruction. In addition, in talks this week over a proposed free-trade agreement between South Korea and the United States, American negotiators made it plain that imports from North Korea through the Kaesong zone could play no part in such a deal—thereby undermining the zone's rationale. The GNP has criticised both projects.

Yet Mr Roh and the ruling Uri party continue to defend them. They are, after all, the only fruits of engagement. During Ms Rice's visit, Ban Ki-moon, South Korea's foreign minister, who will soon become secretary-general of the United Nations, emphasised the “positive aspects” of the industrial park, as well as the “symbolic” importance of Kumgang in reconciling the two Koreas. The Uri party's chairman, Kim Geun-tae, goes further, claiming the Kumgang tours are needed more than ever.

Though Mr Roh's government has given its approval to stiff American-led sanctions against North Korea, which were passed by the UN Security Council on October 14th, it in fact shows little appetite for confrontation. That is partly because many South Koreans share a blind faith in the ultimate benign nature of the North's brutal regime—about which they are remarkably ill-informed. On October 25th North Korea said the South's participation in the sanctions would be a “declaration of confrontation” for which it would pay “a high price”.

Most Southerners think the North's crude nuclear capability does not represent a big new threat to them. North Korean artillery, after all, has long been positioned within range of Seoul's northern suburbs. Meanwhile, South Korea's predominant political consensus, says Andrei Lankov of Kookmin University in Seoul, is to seek gradual change north of the border in ways that might eventually narrow the vast income gap between the two sides. Tightening the screws too far risks goading Mr Kim to strike back. A collapse of the regime, followed by reunification, would impose unbearable costs on the South. Even the opposition GNP, says Park Jin, a member of the party, believes in maintaining dialogue with the North, while adding some pressure.

It is a path that is likely to lead South Korea increasingly into conflict with America, which wants stiffer confrontation with the North. In annual bilateral defence talks last week in Washington, DC, America's secretary of defence, Donald Rumsfeld, pressed South Korea to join the American-led Proliferation Security Initiative, which is designed to interdict ships carrying material for weapons of mass destruction. The South Korean government is vacillating, fearing that this would rile the North and so increase the nuclear threat.

[HenryTo]

Link to the IMF paper on South Korea:

http://www.imf.org/external/pubs/ft/scr/2006/cr06381.pdf

[rffrydr]

An 800lb Gorilla lives next door. Hint of things to come:

Cheap Chinese Steel Floods Korea
Imports Soar by 46%; Exports Down by 14%; Trade Imbalance Deepens


By Park Hyong-ki
Staff Reporter




POSCO and other Korean steel makers are being put in the lurch by the massive inflow of low-priced Chinese steel.
Since 2004, China has been increasing the number of steel shipments it sends to Korea, overshadowing Korean steel exports to the neighboring country.

In the first 10 months of this year, China exported some 8.4 million metric tons of steel to Korea, up about 46 percent from the same period a year ago.

Korea, over the same period, only sent about 3.4 million tons of steel to China, down 14.4 percent, according to the Korea Iron and Steel Association (KOSA).

The number of steel shipments Korea sent to China from 2003 to 2004 far exceeded China¡¯s shipments to Korea.

However, since China re-capitalized and restructured its steel industry to meet the rising demand globally, it has become the biggest steel producer and supplier.

Many of the local industries, such as shipbuilding and construction, prefer cheap Chinese products.

Industry sources say the price of Chinese steel has remained relatively consistent, while that of Korean steel has been fluctuating month-on-month to counter Chinese imports.

Chinese steel is generally 15 percent to 20 percent cheaper than Korean steel.

Even with the nation¡¯s customs measure that requires foreign steel exporters to report their volumes and prices 30 days before the product enters Korea, Korean steel firms have trouble assessing incoming Chinese steel.

``The system is only aimed at monitoring the trade flow,¡¯¡¯ said a KOSA spokeswoman. ``Also, since the steel trade between the two sides is carried out tax-free, more and more Chinese steel is expected to make inroads into the country.¡¯¡¯

Although Korean steel is more value added than Chinese steel, China is becoming more capable of producing steel that is similar to Korean and Japanese products.

Incoming Chinese H-beams for construction and steel plates for ships are fast becoming high-quality standards, approved by local industries.

Experts say that since Korea is sandwiched between high-end Japanese and low-end Chinese products, one possible solution for the nation¡¯s steel manufacturers is to greatly enhance their services and relations with their customers to maintain an edge.

By the year¡¯s end, Chinese steel imports are expected to hit about 10 million tons, KOSA said
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

South Korea's central bank pauses for the sixth month on slower growth in consumer prices and a somewhat weak GDP growth of 4%:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a65KjflcR.7U&refer=home

Note that a significant chunk of the carry trade occured in South Korea - where Koreans were able to borrow in Yen to finance their mortgages, etc.

[rffrydr]

That's a tantalizing idea of yours, Master H., the Yen bloated Korean econonmy upchucking its excess back to where it came. There have been some hints of this backhanded economy driven yen turn with Kiwi and Aussie. And then some different kind of shoves from Turkey, Thailand and Brazil.

Do you think there is enough yen in there to pull it off?
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Mr. rffrydr,

Difficult to say. Lehman estimates that the Yen carry trade is now the biggest since 1998. Folks readjusted their short Yen position last week and earlier this week but by the end of this week, everyone is short again, especially against the Euro.

No one is positioned for a stronger Yen right now and it looks like one doesn't need a lot of prodding to touch off a short-covering rally in the Yen.

In other news, the South Korea central bank is also considering diversifying away from the US dollar - meaning that a significant chunk of it could go into the Yen since a significant amount of their foreign trade is done with the Japanese:

http://www.chron.com/disp/story.mpl/ap/fn/4536143.html

Although I expect any upcoming moves to be very well-communicated, since I don't think they'd want to shoot themselves in the foot, so to speak.

Have a good weekend.

Henry

[rffrydr]

...Or, speaking of Korea, N. Korean Disarmament
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Posco excells at stainless. Chinese still lacking (nickel).

Buffet, sly devil:

http://www.fool.com/investing/dividends-income/2007/04/12/posco-strong-as-steel.aspx
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bank of Korea continues to warn that the Won is too high vs. the dollar and the Yen. They also took deliberate action to surpress the rise in the Won last week - by buying dollars and selling the Won to the tune of US$500 million to US$1 billion.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a23n6LtkbwaQ&refer=home

Other important developments:

[rffrydr]

Kia Motors has cancelled plans to issue $500M in bonds, the 8th company to abandon borrowing as investors cut demand for riskier assets.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bank of Korea hikes by 25 basis points:

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=arYZQoF6HTjc

[HenryTo]

Bank of Korea implements a surprise hike of 25 bps to 5.00%:

http://online.wsj.com/article/SB118663443258392832.html

[rffrydr]

Proving there's more ways to skin a cat when it comes to credit crunches:

http://ftalphaville.ft.com/blog/2007/12/18/9715/bond-instability-points-to-koreas-own-credit-squeeze/

[rffrydr]

Most headlines reporting "record levels"--yet these are levels of exports LESS than expected and are slowing:

http://www.guardian.co.uk/feedarticle?id=7191122



Maybe this won't happen?

The Korea Teachers Pension Fund Plans to buy 500B won of overseas stock this year.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

The "canary" of world growth downgraded by subsidiary (wouldn't trust it otherwise) Moody's:

http://www.kois.go.kr/News/News/NewsView.asp?serial_no=20080422017
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Today is the Tomorrow you worried about Yesterday!