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North Korea Gets Boost as Workers Flood Into Gaeseong: Economy

Photographer: Chung Sung-Jun/Getty Images

South Korean owners and workers wait to access the Gaeseong joint industrial complex in North Korea, at the customs, immigration and quarantine office in Paju, South Korea on Sept. 16, 2013. Close

South Korean owners and workers wait to access the Gaeseong joint industrial complex in... Read More

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Photographer: Chung Sung-Jun/Getty Images

South Korean owners and workers wait to access the Gaeseong joint industrial complex in North Korea, at the customs, immigration and quarantine office in Paju, South Korea on Sept. 16, 2013.

North and South Korea reopened their jointly run industrial complex today, reviving a lone symbol of economic cooperation five months after it was shuttered amid the North’s threats of preemptive nuclear attack.

Thousands of North Korean workers were returning to the Gaeseong zone, located north of the border. From the South, more than 500 trucks, vans and cars formed a bottleneck at a checkpoint at the heavily armed border, carrying supplies and company executives to the site to restart factories. More than 120 companies operate at Gaeseong, including watchmaker Romanson Co. (026040), and Shinwon Corp. (009270), an apparel maker.

“My heart’s in a flutter now that Gaeseong is restarting,” Lee Mun Yong, who works for South Korean cellular phone parts maker Jaeyoung Solutec (049630) Co. Ltd., said near the checkpoint. “North Korean workers are looking both relieved to have their jobs back and determined to work harder. The past five months has been a time of crisis for them.”

North Korea pulled its 53,000 workers out of Gaeseong in April, capping months of tensions after it conducted a third nuclear test in February and threatened preemptive attacks when the United Nations stepped up sanctions and the U.S. and South Korea held annual military drills. Gaeseong has provided Kim Jong Un’s regime with much-needed hard currency and been a source of cheap labor for South Korean companies.

“It would not have been easy for North Korea to give up Gaeseong because it’s a valuable source of hard currency,” Choi Chang Ryul, a professor of liberal arts at Yong In University near Seoul and a political commentator, said by phone.

Seeking Dollars

At the border today, a line of people formed at a currency exchange booth run by Woori Bank, changing South Korean won for U.S. dollars, the only currency that can be used at Gaeseong. Other South Korean workers shook hands and laughed as they chatted in groups inside the transit office.

“I’m glad I’m finally returning after so many twists and turns,” said Shin Han Yong, president of Shinhan Trading, which produces fishing nets at Gaeseong. “We didn’t get to fish at all this spring and summer, so to speak. But I held on to the hope that Gaeseong would open again.”

South Korea’s Kospi index of stocks rose 0.6 percent as of 11:50 a.m. local time.

Gross domestic product in North Korea increased 1.3 percent in 2012 after a 0.8 percent rise in 2011, according to calculations released by South Korea’s central bank in July. The North’s economy has contracted in four of the last seven years, the Bank of Korea data show.

Lagging South

North Korea’s per capita income was about 1.37 million won ($1,270) last year, or one-nineteenth of South Korea’s, according to the BOK estimates. Foreign trade, excluding commerce with the South, rose 7.1 percent to $6.8 billion, with exports increasing 3.3 percent to $2.9 billion and imports rising 10.2 percent to $3.9 billion, the BOK said.

The agreement to reopen Gaeseong paved the way for a separate accord to revive reunions of families separated by the Korean War. The next round will be held at a mountain resort in North Korea between Sept. 25-30. South Korean tours to the Mount Geumgang resort on the eastern coast were another symbol of detente before being halted in 2008 when a North Korean guard shot and killed a South Korean visitor.

Relations between the Koreas have improved in recent weeks, even as international concerns mount that the North may have reactivated its 5-megawatt nuclear reactor capable of producing one bomb’s worth of plutonium every year.

Nuclear Reactor

The U.S.-Korea Institute at Johns Hopkins University’s School of Advanced International Studies said Sept. 12 that satellite imagery taken Aug. 31 shows white steam rising from a facility powered by the reactor at Yongbyon, north of Pyongyang.

That reactor was mothballed under a 2007 agreement involving the two Koreas, the U.S., China, Japan and Russia. North Korea officially quit the six-party talks, which aimed to offer it aid in return for giving up its nuclear ambitions, in 2009 before conducting its second nuclear test.

In early August, the Washington-based Institute for Science and International Security said the North had doubled the size of its uranium-enrichment facility at Yongbyon. Both plutonium and uranium can be sources of fuel for nuclear bombs.

Elsewhere in Asia today, China’s central bank set the yuan’s reference rate at 6.1554 per dollar, the highest level since a peg to the greenback ended in 2005. Governor Zhou Xiaochuan said that the nation’s main economic indicators are within in a “reasonable range,” in a Qiushi magazine article posted on the People’s Bank of China website.

Summers’ Exit

Across Asia, analysts and officials were assessing implications for the region from Lawrence Summers withdrawing from the race to be the next chairman of the U.S. Federal Reserve.

Summers was perceived as being less in favor of quantitative easing than Janet Yellen, another candidate to replace Ben S. Bernanke when his term ends in January, Mitul Kotecha, the global head of currency strategy in Hong Kong at Credit Agricole SA (ACA), wrote in a research note.

Inflation data are due today in India and the euro region. In the U.S., industrial production grew 0.4 percent in August from the previous month after stalling in July, according to the median forecast in a Bloomberg survey ahead of Fed data today.

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net; Paul Panckhurst at ppanckhurst@bloomberg.net

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