The Korean Peninsula is in a flurry.
In just six months, South Korean President Moon Jae-in and North Korean leader Kim Jong-un have met three times; a joint economic zone is set to be revitalised; and Panmunjom – the armistice village where Korean forces have stood face to face for half a century – has been completely disarmed.
Posters of Moon and Kim embracing now cover buildings in Seoul. The relationship between the warring states is moving faster than many anticipated and business leaders – including Australians – are looking for a way in.
South Korean President Moon Jae-in, right, and North Korean leader Kim Jong-un at the Inter-Korean summit in Panmunjom in April.Credit:Yonhap News Agency
“This time last year it was a very different mood,” says Christopher Raciti, the Australian Chamber of Commerce chair and ANZ bank’s CEO in South Korea.
“There were still missiles firing over Japan. It’s much more positive now.”
Former deputy prime minister Mark Vaile, who chairs the Australia-Korea Business Council, says the outlook of industry changed after the US-North Korean Singapore summit.
“The whole geopolitical issue moved,” he says. “If reunification is possible, what are the opportunities in greater economic development in North Korea?”
Australia’s ambassador James Choi says North-South tensions have set the pace and the security environment on the peninsula.
“But I think businesses understand the future opportunities and they're pursuing those commercial opportunities,” he says.
Discussions between Australian operatives and South Korean giant POSCO – one of the world’s largest steelmakers and a consumer of millions of tonnes of Australian iron ore and coal each year – have begun, says Vaile.
“Initially it's just going to be the fundamental structuring of the economy,” he says.
“Many Australian companies are talking to their existing partners here in Korea about what opportunities might exist, but it's still a big if.”
Former deputy prime minister Mark Vaile.Credit:Eryk Bagshaw
The “big if” is denuclearisation. Talks between North Korean no. 2 Kim Yong-chol and US Secretary of State Mike Pompeo were due to canvass further steps to denuclearisation this week, despite ongoing sanctions, but were delayed following the US midterm elections.
The sanctions effectively prohibit foreign trade with North Korea as long as it maintains any part of its nuclear program. The regime has a history of egregious human rights violations and hostile military acts that have kept the Kim dynasty in power since an armistice was signed between the communist North and capitalist South in 1953.
Australian companies have been burned for having their products made in North Korea before.
Surfwear giant Rip Curl was accused of having millions of dollars of clothes made in slave-like conditions in Pyongyang in 2016. In March, a UN panel reportedly investigated Sydney company Brigt Australia over a $770,000 coal shipment from North Korea to Vietnam. Both denied they were aware of sanctions being breached.
ANZ’s Raciti says the government must take the lead and ethical dilemmas still loom large, but if North Korea was welcomed back into the global community, “I think we should all try and support that because you know that's the best way to start creating some good”.
“Clearly if you've got a new market it's 30 million people there and there is anecdotally [a] significant resource base, the opportunity is potentially there.”
Michael Chang, a Seoul-based senior foreign attorney at law firm Shin & Kim, says now is the time for the Australian business community to work out how to form itself into corporate groups.
“The Japanese and the Koreans are very good at doing ‘Team Korea’ or ‘Team Japan’,” he says.
“What it would be worth doing – like we could have done for Afghanistan or Iraq – is picking an area and getting ready for it.
“It might be good if [construction, IT and export credit agencies] join forces and just do hospitals for example, build and operate them as a package.”
Despite the optimism in public polls – 80 per cent of South Koreans approve of the peace process – the contrast between the two Koreas could not be more stark.
A steel cross rises above the border fence at the Demilitarised Zone seperating North and South Korea.Credit:Eryk Bagshaw
Just 50 kilometres from Seoul, barbed wire and sentries guard the highway. A city that needs up to 20 nuclear power plants to drive insatiable demand for electricity borders a country where they have cut down most of their trees to keep themselves warm in winter.
Six decades of watching their own rise has led Moon’s south to t
he belief that it can rescue the North, just as it rescued itself after the Korean War.
Then one of the world’s poorest countries, South Korea had to rely on Bangladesh for aid. It is now a technological powerhouse, on the cusp of breaking into the top 10 economies.
A worker poses at the South Korean POSCO factory in Gwangyang, South Korea.Credit:Eryk Bagshaw
A 1970s-era sign in the control room of a POSCO blast furnace in Gwangyang, producing steel for up to 16,000 cars 24 hours a day on the southern tip of the peninsula, gives an indication of the country’s economic determination.
“If POSCO fails, the country fails, you should drown yourself if that happens,” it says.
The great South Korean "chaebols" – conglomerates such as Posco, LG, Samsung and Hyundai – all have specialised North Korean units, according to North Korean defector Seong Ha-joo.
He consults with companies including Shinsegae, a department store giant, which is exploring future opportunities in the North, where average annual wages are thought to be between $US1000 and $US2000 ($1380 and $2770) a year.
North Korean defector Seong Ha-joo in central Seoul.Credit:Eryk Bagshaw
Getting accurate information on what is happening north of the demilitarised zone is notoriously difficult, making investment decisions fraught.
Residents' daily conversations are censored, says Seong. When someone asks how tall a famous statue of North Korea's founder Kim Il-sung is, the correct answer is “as tall as his passion for North Koreans”.
Seong was on track to become a top official when he defected in 2004, leaving his studies at the government training ground at Kim Il-sung University and – after two attempts – escaping through China.
He was forced to eat raw chillis and potatoes to survive and says famine remains, but evidence of the marketisation from his network of sources in Pyongyang is creeping through.
“I would say their level of market penetration is about where China was in 1988,” he says. “This trend towards market economy cannot be reversed.”
James Choi, Australia’s ambassador to South Korea.Credit:Eryk Bagshaw
In the North, private companies of up to 10 people are approved by government departments or the military, Seong says. In exchange for setting up a gasoline service, for example, a company pays up to 30 per cent of its revenue in bribes to the military unit or state agency in charge.
Many of the big state-owned factories have collapsed under sanctions. That has left the economy dependent on hundreds of small-scale private enterprises that operate under the approval of each department, making their bureaucrats rich and widening the wealth gap between Pyongyang and rural areas.
Seong says China, which shares a border with the North, is in the best position to take advantage if a market does open up. “Chinese businessmen are familiar with this kind of culture,” he says.
Natural resources are the obvious target.
South Korea has almost none, says the deputy director of green energy at the Seoul Metropolitan government, Jae-woong Kim, leaving it heavily dependent on coal and uranium, much of it from Australia, despite a growing renewables push.
In contrast, the North has an abundance – up to $US6 trillion worth of iron ore and coal according to analysts – but it has been unable to mine it effectively because of its meagre infrastructure and effective outlawing of private mining. That restriction is likely to fade in future, potentially making it attractive to Australian-Korean joint ventures.
However Professor Robert E. Kelly, a world-renowned Korea expert at Pusan University, says anyone looking to rush into the North should be cautious.
He is sceptical about Seoul’s rush of optimism and scathing of US President Donald Trump’s meeting with Kim in Singapore, which contained a lot of rhetoric but few steps towards verifiable denuclearisation.
Jae-woong Kim, deputy director of green energy at the Seoul metropolitan government.Credit:Eryk Bagshaw
“On its face it's going way too fast. Almost everybody I know in the analyst community is saying 'what's going on'? One day it's road and rail links, the next day banks, the next day the IMF and I mean oh my God,” he says.
“We shouldn't be doing the symbolic stuff where the North Koreans get to pretend that they're a normal state by shaking hands and hugging Donald Trump, because that’s making it look like a real country when in fact it's an Orwellian gangster fiefdom.”
The pace is being driven by two macropolitical factors, says Kelly: A belief the peace process must be completed by Trump or a Republican because it is less likely to be overturned by Democrats; and South Korea’s strict single five-year presidential terms, which have Moon’s liberal administration fearful of a conservative government winding back any progress towards peace should they win office.
Kelly cites the experience of Egyptian multinational Orascom, which earned hundreds of millions of dollars in North Korea through mobile phones and was then prevented from repatriating its profits by the regime.
South Korean President Moon Jae-in is restricted to a single five-year term.Credit:AP
“Whenever I speak to business groups I'm always like North Korea's the darkest of dark market. Don't go in there until somebody else goes, gets burned first and loses all their money,” he says.
“I would say let the South Koreans and Chinese go in first because the South Koreans have a lot more political cover if things go wrong.”
The regime is unlikely to tolerate sustained foreign direct investment, he says, because that would mean foreign operators running around in North Korea.
“So if Nike invest, people that work for Nike want to drive cars and not feel like it's gonna get stolen because nobody's ever seen a Honda Civic before.”
More troubling for Kelly is his belief that reunification will actually just result in “a thin covering federation on the top”.
“They would do humanitarian stuff like marching together under the Olympic flag and then that becomes an umbilical cord in which basically South Korea personally subsidises North Korea,” he says. “In my opinion that's what the North Koreans want the most.”
He is confident that some progress will be made, eventually, but North Korea must detail the number and locations of its nuclear warheads or the symbolic sideshow will be for nothing.
“Let's just go more slowly, when it's gone nobody will miss it,” he says. “Does anybody miss East Germany? No, it's just in the rear-view mirror.”
Eryk Bagshaw travelled to South Korea as a recipient of the Walkley Foundation’s Australia-Korea Journalism exchange scholarship.
Source: Read Full Article