South Korean businesses at the joint-Korean Kaesong Industrial Complex are nervous after North Korea announced it will dispose of South Korean-owned properties in the scenic Mt. Kumgang resort.
So far there are no signs that North Korea is about to make things more difficult for companies at the industrial park, but any disruption in production could make it harder for the firms to repay their government loans.
For the time being, strained inter-Korean relations have even led to a boom for businesses there, because the North Korean regime has been relatively accommodating as its other sources of hard currency dried up.
According to the Unification Ministry, 123 firms were operating in the industrial park as of July, with combined production output amounting to US$34.87 million in May, up 25 percent from $27.79 million year-on-year.
The total volume of inter-Korean trade through the industrial park reached $825.88 million in the first half of this year, up 19.5 percent from last year and a whopping 135.8 percent from 2009.
South Korean staff dwindled from 1,461 in 2008, when inter-Korean trade was at its height, to 801 in May this year, but the number of North Korean workers rose from 36,650 to 47,172. And some 3,700 more North Korean workers were hired even since May last year when the South banned new investments there after the North sank the Navy corvette Cheonon in March.
At the moment, the regime is unlikely to shut down the industrial park, since nearly 50,000 North Koreans are working there. But experts stress that the government should take the seizure of the properties in the resort as a warning and be prepared for anything that the regime could do.
"There's nothing we can be sure of in inter-Korean relations," said Dong Yong-seung, a researcher at the Samsung Economic Research Institute. "Risk factors always exist because the government launched the Kaesong project without providing any safety net to protect its people and properties, as in the case of the Mt. Kumgang tour project."
South Korean investments in the industrial park amount to W920 billion (US$1=W1,079) -- W540 billion invested by the 123 firms, and W380 billion from the government and public corporations to lay the infrastructure, including electricity and communications facilities, and landscaping.
If the regime shuts down the industrial park, the South would suffer double the losses it incurred from the regime's seizure of the properties in Mt. Kumgang, which are worth W484.1 billion.