Kaesong Industrial Complex (KIC)

Contributor: Aziz Maamoody Yücel, David Moon, Un-Sun Yoon

FB 09 Faculty of Linguistics, Cultures, and Arts

Course: North and South Korean EconomyProfessor: Prof. Seiwan Kim

June 17, 2013

1. Introduction2. Founding3. Production4. Transport5. Administration6. KIC during the crisis7. Criticism8. Future Prospects

Structure

Introduction

• Establishment was decided in May 2003

• Construction started in June 2003

• Hyundai Asan prepared the “Master plan” concept

• Pilot phase: 2004 with 15 companies

• Park opened in Dec. 2004, but isn’t still finished yet: plans haven’t been completely fulfilled

Founding

Founding

• Establishment was decided in May 2003

• Construction started in June 2003

• Hyundai Asan prepared the “Master plan” concept

• Pilot phase: 2004 with 15 companies

• Park opened in Dec. 2014, but isn’t still finished yet: plans haven’t been completely fulfilled

Founding

Purposes:• Cooperation• Stability in the region• Further projects• Option for NK to reform

& liberalize its economy

• Business advantages

Founding: Reasons

Produced Goods and Profits

Export Destinations of KIC Products

SK small and medium sized companies:

• cheap and flexible Human Resources

• gov't backed political insurance• gov't support through providing

infrastructure• gov't support through providing

loans with below-market interest rates

Who really profits from the KIC?

KIC

South Korea

North Korea

Hyundai Asan

Improvements in:international competitive advantagepolitical leverage on NKpolitical and regional stability

influx of foreign currency (USD)fighting unemploymentpossibility to gain technological know-how

made a 50-year lease on the entire KIC Area all companies have to pay Hyundai Asan for use

Who really profits from the KIC?

rail:• KIC is served by Korean

State Railway Pyongbu Line from Panmun Stn.

• KORAIL has access via Gyeongui Line

• Agreement to re-establish freight services was made in 2007

• Closest SK Station is Dorasan Station which has also road access

Transport

Road:

• limited access available for workers from the South via South Korea National Route 1 to DMZ and then into Kaesong via Asian Highway 1

Transport

Air:

• closest NK airport is Sohung South Airport• however no South-bound flights• closest SK airports are

Gimpo Intl' Airport Incheon Intl' Airport

(both: road access to KIC)

Transport

Transport

Administrative Committee:

• has been established in October 2004 • is responsible for the administration of the

companies and production in KIC• has got also the function of the South

Korean consulate in KIC

Administration

• in 2007 the South Korean gov‘t gave financial support to the companies for electricity and other basic facilities in KIC

• in June 2007 a transmission tower has been built, which supplies 100.000KW per unit for free from SK

• in September 2007 and until April 2008 basic facilities like water supply and waste treatment has been provided

Electricity and other Basic Facilities

other Facilities:• there are various

stores for every demand

• SK-Won are not accepted: only US-Dollars

• only for SK worker

Electricity and other Basic Facilities

Sinking of the SK destroyer Cheonan in March 2010:

• since May 23 SK government stopped the aid, trade and bilateral cooperation, with the exception of KIC

• NK government closed the Administrative Committee

Shelling of Yeonpyeong-Island in Nov 23, 2010:

• entry into KIC has been stopped, only entry into SK was allowed

many companies in KIC lost sale contracts or had to take back the products

KIC during the crisis

April 3 entry into KIC has been stopped, only

entry into SK was allowedApril 8

the NK government withdraw the NK workers from KIC

April 25every SK workers came back to SK

May 4 the KIC has been officially closed

since June 8 the NK and SK government negotiate

about KIC

Crisis in 2013

• the average wage of a NK worker: $ 110-160 (1/5 of the SK minimum wage)

• the wages don’t go to the workers directly, the NK government receives the money

• after discounting of the social contribution cost and the exaggerated exchange rate of the US-Dollar,

there is not enough money left for the workers• besides the workers don’t get money,

instead they get a kind of coupon

Criticism

• We think: Park won’t be definitively closed KIC survived from a closure (New SK gov’t; NK nuclear test; Inter-Korean tensions 2010)

• Both countries are seeking profits & advantages NK needs the money SK has already invested enormously; insurance payments could accrue • SK has further plans (expand KIC, train

connection to China)

Future Prospects

Companies at the pilot phase

by Hyundai Asan

Internet sources:• http://www.businessinsider.com/what-isthe-

kaesong-industrial-complex-2013-4• http://online.wsj.com/article/

SB10001424127887323646604578399693853456424.html

Article:• ‘The Kaesong North-South Korean Industrial’ Complex by the Congressional Research Service

Where we got our sources..

Internet sources:• http://www.hdasan.com/english/kaesong/

intro_k01.jsp• http://www.spiegel.de/wirtschaft/soziales/

industriezone-kaesong-nordkorea-beendet-den-wandel-durch-handel-a-892342.html

• http://ko.wikipedia.org/wiki/개성공업지구Books:

A history of Korea: From Antiquity to the Present by Michael J. Seth

Where we got our sources..