A Peace That's All Dividend

At a Seoul subway station on Aug. 24, 200 Chinese-Koreans who hawk herbal medicines there happily watched TV coverage of the signing of formal relations between South Korea and China in Beijing. The event was the Far Eastern equivalent of the opening of the Berlin Wall: It signaled the end of the cold war in Asia. President Roh Tae Woo's government expects that a friendly China will withhold military support from North Korea, leaving its hardline Communist regime little alternative but to improve ties with the South.

For Seoul's big industrial conglomerates, or chaebol, the ties with China offer a chance for new and profitable business. The chaebol expect to tap into China's huge and expanding economy, with its growing demand for products from machinery to consumer electronics. Faced with rising labor costs and slow growth at home, they also want to use China as a source of new export strength. While Taiwanese and Hong Kong companies are strong in southern China, the Koreans plan to establish similar manufacturing beachheads in coastal provinces and cities such as Tianjin, east of Beijing.

TAXIS AND VCRS. Altogether, about 1,000 investment projects in China involving Korea's top companies are currently planned, says Chang Sukhwan, director general of trade in Seoul's Ministry of Trade & Industry. Kia Motors Corp. plans to assemble passenger cars in Jilin province for use as taxis, and Samsung Electronics Co. intends to build a $54 million VCR plant in Tianjin. Other leading companies have plans to make everything from stuffed toys to chemicals. And South Korea has mid-level technology that China needs in basic industries such as steel, machinery, and petrochemicals.

The prospective deals go beyond factories. Korea Land Development Corp., a government agency, has an agreement with Tianjin to create an industrial zone for Korean investments. And a Korean consortium is planning an agribusiness development in the Yangtze River basin.

To date, Korean investments in China total $257 million, mostly in smaller, light-industrial ventures. "We've been tempted to make large investments in China, but the lack of diplomatic relations discouraged us," says an executive at Daewoo Corp.

CHEAP LABOR. The investment rush should also boost trade between the two countries. China is already Seoul's No. 3 trading partner, after the U.S. and Japan. Trade is expected to reach $8 billion this year, up from $5.8 billion in 1991, with a surge to $20 billion by 1995.

Beyond that, Korean companies hope to strengthen their sagging global competitiveness by tapping into China's vast pool of cheap labor, with pay scales as low as one-fifth of Korea's. In the past four years, the doubling of Korean wages has made South Korean products, such as footwear and low-end apparel, uncompetitive in the U.S. market.

Now, companies such as Daewoo and Samsung are hoping that they, like their competitors in Taiwan and Hong Kong, will be able to use Chinese plants to compete in the U.S. "There is a huge demand for monochrome computer screens and black-and-white cathode ray tubes," says Kim Jae-Kyung, Daewoo's general manager for regional business development, "but high costs do not allow us to make them in Korea." Daewoo plans to set up a plant in China with an annual capacity of 900,000 computer screens to supply Chinese and Korean demand and to export to other countries. What such ventures signify, now that the cold war has ended, is the forging of a potent new Korean-Chinese link in East Asia's thriving business network.

      Company               Project
      DAEWOO               Auto parts manufacturing
      HYUNDAI              Light truck production
      KIA MOTOR            Auto assembly
      LAND DEVELOPMENT     Industrial park
      SAMSUNG ELECTRONICS  VCR manufacturing
      DATA: BW
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