[Special feature] South Korean businesses frozen out of operation in North Korea

Posted on : 2012-05-19 11:09 KST Modified on : 2012-05-19 11:09 KST
“The government is choking off what South Korean businesses spent twenty years cultivating, and China’s making off with everything for a song.”

By Jeong Eun-joo, Hankyoreh 21 reporter
On Oct. 30, 2008, a ceremony was held marking the completion of construction for Pyongyang Hemp Textiles’ factory. Two hundred fifty people had taken a chartered flight in from Seoul to celebrate the event, which had been ten years in the making. The textile company was the first inter-Korean joint company in North Korea, formed through investment by South Korea’s Andong Hemp Textiles and the Saebyol General Company, a firm affiliated with North Korea’s National Economic Cooperation Federation.
It was built on a 47,000 square meter plot of land for the production of fabrics with North Korean hemp, along with ordinary cottons such as socks and underwear. Unlike the isolated isolated Kaesong Industrial Complex, the plant was built in the heart of Pyongyang. With some 350 North Korean vocational college graduates selected as workers, it was expected to have a significant ripple effect on North Korean society.
“North Korea doesn‘t like to use the word, but it really was the beginning of ‘openness’,” said Andong Hemp Textiles president Kim Jung-tae, 69, who went down in history as the first South Korean businessman in Pyongyang.
Kim smoked incessantly during the meeting May 17 at an office in Jamsil, Seoul. After the Lee Myung-bak administration declared a halt to trade with North Korea on May 24, 2010, in response to the sinking of the Cheonan warship, he had to put his South Korean factory and home up for sale. His credit rating plummeted, leaving him unable to use a single credit card.
The same Kim had once been racking up sales of six billion won (about US$5.1 billion) a year weaving silk, cotton, and hemp over the course of a 40-year career. In 1999, he was awarded the industry’s highest honor, the Korean Textile Award, for receiving ISO9001 certification with a hemp fabric technology patent.
For the past year and a half, Kim has visited the hospital three times a week with intestinal problems. He also ruined his shoulder napping on the couch in his living room after having trouble sleeping. When his company shut its doors in April, he will lose everything he invested.
The National Assembly Committee of Foreign Affairs and Trade’s panel to investigate the damages suffered by companies taking part in inter-Korean economic cooperation conducted a three-month study beginning this past January. Around 497 of the 1,107 businesses could not be contacted because they had temporarily or permanently shut down. In an analysis of the economic impact on North and South Korean businesses from the chilling of inter-Korean relations since 2008, Hyundai Research Institute senior research fellow Hong Sun-jik found US$4.59 billion (approximately five trillion won) in direct losses to South Korean companies alone. Most of this, US$2.3 billion, was suffered in the Kaesong complex. Next in line were inter-Korean trade (US$1.47 billion) and the Mt. Kumkang tourism venture (US$753.5 million).
The losses were more than five times the estimated US$883 million (approximately one trillion won) in losses by North Korea. The Lee administration’s suspension of economic cooperation was intended to pressure the North, but South Korean companies were the biggest losers.
Kim, a native of Andong, South Gyeongsang, traces his connection to North Korea back to the summer of 1997. A US Franciscan priest contacted him after he had saved up a substantial sum from his textile businesses. The priest showed him grim pictures of North Korea from a US newspaper and asked him if he was willing to help.
“We help poor African and South American children,” he said. “But North Koreans are our blood.” Everyone has the right to be happy and live like a human being, the devoutly Catholic Kim thought to himself. Was it a crime for them to have been born in North Korea? He joined a missionary relief organization formed by US priests and members of the brotherhood and began providing assistance in noodle manufacturing equipment and wheat to North Korea.
In August 1998, Kim accompanied US priests on a visit to Yueqing, an area in the city of Tumen near China’s border with North Korea, to get a closer look at the North Korean situation. Most of the town’s residents were Korean-Chinese, so North Korea defectors were a frequent presence.
Child beggars  
Kim met a North Korean boy there, one of the so-called “kkotjebi,” or child beggars, who had lost both his parents. He was the size of a third or fourth grader, but he said he was 17 years old. His parents had given their last meal to his grandfather and grandmother and gone off in search of food. When twenty days passed and they had not returned, the boy went to look for them and found their bodies at the morgue. Now, he had put his parents and their death from starvation behind him and was just crossing the Tumen River after hearing rumors that he could find something to eat.
Andong Hemp Textile bought land in Yueqing to grow hemp. It also ran a textile factory in the city of Taian, in China’s Shandong Province. Kim began helping out young North Korean boys. Giving them money wasn’t the answer; they were addicted to alcohol and cigarettes and would steal when they ran out of money. He couldn’t take them to the South, so he decided to send them North to where his grandfather and grandmother lived. He would give them a thousand dollars to buy a handcart and coal that would allow them to do business, and they would swallow the plastic-wrapped money. This was to prevent the older North Koreans from taking it from them along the way. One boy in particular who followed Kim said on his trip back, “I’d like to make some money and do good things like you, but if I go back to my home country I can’t learn any skills because there are no factories.”
Hearing this, Kim came up with his “last venture.” At the time, there were more than 20,000 South Korean businesses operating in China. He took his patented techniques and opened up a factory there, but within just a few years Chinese employees were adopting the techniques and opening up their own factories. North Korea has more fertile soil than China, so hemp grows better there. Kim also hit on the idea that North Korea would need a textile industry, the foundation for all other industries, if it was going to prosper like South Korea or China. He anticipated that producing even US$300 million in textile goods would be enough to keep more North Koreans from starving to death. He made up his mind to undertake his last venture in the North.
After first developing a technique that would allow him to double-crop soybeans and hemp in grain-short North Korea, he turned his focus on gaining entry to the country with the help of Korean-Chinese businesspeople and ethnic Koreans in Japan.
For three years, he sent project plans to the Workers’ Party of North Korea and the North Korean military and state security department without receiving any response. Finally in December 2002, the Saebyol General Company proposed working together. He headed straight to North Korea for a visit, where he was told that he would have to pay before they would sit down for negotiations. Kim held out in the hopes of teaching a lesson in manners.
The North Koreans came calling again, this time with a proposal to set up a toll-processing factory. Originally, Kim had wanted a jointly operated factory, so this wasn’t entirely to his liking, but he renovated a conventional factory in Pyongyang’s Nakrang zone into a textile plant. He then distributed hemp seeds to farms in Pyongyang and the provinces of Hwanghae, Pyongan, and Chagang for a pilot cultivation effort. The resulting hemp was used to make thread and fabric. Having seen the possibilities, North Korea reached an agreement with Kim in Nov. 2003 to set up an inter-Korean joint company in central Pyongyang. The arrangement was for the North to build the factory on the lot and supply the employees, while the South would fill it with top-of-the-line equipment and share its technology. All of this happened within five years of Kim meeting the North Korean boy.
Weak infrastructure, strong workers   
North Korea’s industrial infrastructure was severely lacking, so everything needed to be adjusted. To address insecure voltage issues, a direct cable hookup was set up for the seven to eight kilometer distance from the power plant to the factory, and new, state-of-the-art equipment was added to provide a consistent cycle of electricity. North Korea’s textile plants were operating with the 1970s-era technology, making any division of labor impossible. 16 factories were built, covering every area from yarn to dyeing and processing. High-tech equipment that was sensitive to shock, including computerized looms, was transported over land through the Demilitarized Zone.
South Korean technicians went to live in Pyongyang as the factories began their test run. North Korea’s potential swiftly became apparent. Workers there took one year to learn techniques it had taken Chinese workers eight years to master. But the average monthly wages were less than US$100, far less than what the Chinese workers earned. After pay was scaled into three levels based on workers’ skills, a number of North Korean workers began working overtime to earn more.
“They were good with their hands and diligent, just the kind of intelligence you expect from Koreans,” Kim recalled. He was positive that the combination of outstanding materials in North Korean hemp and an inexpensive workforce was going to generate great synergy.
In 2008, ten years after his fateful meeting with the young boy, the completion ceremony was held for the Pyongyang factory of Kim’s dreams. The excitement was short-lived: the South Korean technicians were unable to go to Pyongyang after the government blocked their passage, citing the deteriorating state of inter-Korean relations.
And without the ability to buy the necessary raw materials, normal operations were out of the question, leaving the venture on the brink of collapse. It was after Kim’s wife emptied out her hard-earned nest egg that the Lee government declared an end to nearly all exchange with North Korea on May 24 2010. All the old goals-3,300 workers, US$60-100 million in annual sales---receded into the distance.
Kim didn’t abandon hope, though. Inter-Korean economic cooperation had been going on for over two decades since the Roh Tae-woo administration had made its July 7 declaration for the “pride of the people, unification, and prosperity” in 1988. It had survived a number of political and military crises, including the Yeonpyeong Island shelling, the Gangreung submarine infiltration incident, nuclear tests and long-range missile launches. And hadn’t President Lee Myung-bak emphasized his administration’s pragmatism?
Today, two years after the May 24 measures, Kim laments, “The government is choking off what South Korean businesses spent twenty years cultivating, and China’s making off with everything for a song.”
Further into China’s embrace   
North Korea’s economic dependence on China is growing. Trade between the two countries more than tripled in seven years, from US$1.03 billion in 2003 to US$3.46 billion in 2010. And while inter-Korean trade fell by 11% between 2010 and 2011, from US$1.9 billion to US$1.7 billion, North Korea-China trade almost doubled to an estimated US$6 billion in 2011. The disparity between inter-Korean trade and North Korean-Chinese trade, once nearly equal after galloping strides in inter-Korean relations were made after the first inter-Korean summit in 2000, has been widening at a fierce clip since the Lee administration took office.
Kim’s worry now is whether he will even be able to start running the Pyongyang Hemp Textile factories again if inter-Korean economic cooperation is permitted. Long dormant, the machinery is now rusty, and Kim’s reputation as a business partner is in tatters. Now without a home and living in a monthly rental arrangement, he may not even be able to raise the necessary funds.
He did hear word, however, that around 350 of the workers hired by Pyongyang Hemp Textile are looking after the factory. Forty trucks were purchased to lay the groundwork for a distribution venture, and the workers are reportedly living off them now.
“I was talking to farmers while visiting a hemp farm near Pyongyang, and one of them told me, ‘South Korea has much better fertilizer than China,’” Kim recalled.
“I got worried that he might be punished for praising the South, but the North Korean official next to him said, ’South Korea‘s rice is a lot tastier, too.’ That’s how much twenty years of inter-Korean economic cooperation has changed North Korea.”
Still clinging tightly to his “final venture,” the businessman raised the cigarette to his lips again.
Please direct questions or comments to [english@hani.co.kr]

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