Kaesong Industrial Complex - US-Korea Institute at SAIS

SAIS U.S.-Korea Yearbook 2009Fellow at the Korea Development Institute, argues in his paper “Inter-KoreaEconomic Cooperation at Crossroads” that “while Pyongyang is still concernedabout regime stability, it has made serious efforts to ensure commercial viabilityfor companies in Kaesong.” In a speech to the Workers Party, Kim Jong-ilemphasized that material gains befit the current times and that party membersshould be competent to produce real results. This change in the attitude towardsthe free market is parallel to the recent uproar against the currency revaluation inthe DPRK. Many experts attribute this phenomenon to the increased awarenessof the North Koreans’ concept of money. Even the military is known to havebeen behind the KIC’s establishment, as Kaesong is extremely close to the DMZand Pyongyang. Now that the military bought into the idea of the KIC, too muchis at stake and it would cost extreme amounts for the Kim regime to close thecomplex and restore the military system in the region.Another vested interest for the DPRK is knowledge transfer. Through the KIC,the North has a perfect opportunity to learn the infrastructure of capitalist marketsystems from the thirteenth-largest economy in the world. Kim Jong-il has beenpersistently trying to develop North Korea’s economy through constitutionalchange, modeling of SEZs after the Chinese, and actually launching SEZs andother economic development projects. Despite his efforts, progress has beenlimited, if not unsuccessful. South Korea is relaying their free market expertise,such as accounting, business management, supply chain management, andmore, to their North Korean employees. Many infrastructures have been builtthat increase the level of commitment to the complex. Factories were built withenergy flowing from South to the North provided by Korea Electric PowerCorporation. Korea Land Corporation, which acts as a developer along withHyundai Asan, built a beautiful park and street inside the complex. Increasingnumbers of North Koreans are involved in the KIC operations through theKaesong Industrial District Management Committee (KIDMC). Ninety-fourNorth Koreans are employed at KIDMC, which provides administrative servicesfor companies located in the complex.The Inter-Korean Economic CooperationOffice runs the direct marketing and investment of the KIC, through which theDPRK has been rather cooperative in providing information requested by theROK companies. Woori Bank opened as the first branch office in Kaesong.Korea Telecom launched the first direct telecommunication between Seoul andthe complex. Cheongbong Bridge was completed in 2005 for the commute fromKaesong City to the complex. The number of commuter buses and bicyclesincreased with the construction of paved bicycle-only roads. A water system andother facilities, such as convenience stores, hospital, restaurants, and recreationalinfrastructures, were developed in the KIC. In October 2009, the first daycare194