Korean business owners poised as historic North-South Korea summit nears

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Every once in a while, underwear maker Lee Joungduk drives over to a South Korean mountain lookout to gaze out on North Korea. Sometimes, he gets emotional as he takes in the small outpost where he once operated a factory filled with hundreds of North Korean workers making garments.

Today, it’s a ghost town, with trade between the two countries severed by government actions to punish Pyongyang for its aggressive nuclear— and missile-testing programs.

“There used to be trucks going back and forth, people moving in and out. Now, it’s just silent,” Mr. Lee says. “Of course I cry. It’s sad that I lost my business.“

But as the leaders of the two Koreas prepare for their first-ever summit to be held on Southern soil Friday, Mr. Lee, who describes himself as a “South Korean man crazy about bras and panties,” can’t contain a grin. He is convinced that rapprochement will resuscitate economic links between the two countries and allow for the restart of the Kaesong Industrial Complex, the North Korean special economic zone that had allowed investors like him to profit from cheaper Northern labour – and, as market forces rise in the North, perhaps even allow for a more lucrative trade.

In fact, he is certain enough that on Monday he and other factory owners will gather to formalize a petition to the South Korean government, asking permission to return to Kaesong in May. They want to “gauge the condition of our factories and our equipment,” Mr. Lee says. “I want to know what I have to do to prepare to reopen.”

Mr. Lee is not alone in his ebullience. In the lead-up to the summit this week, investors have bid up share prices of companies with a history of operations in Kaesong. Scholars are describing a shifting economic posture in North Korea that could open the country to a new era of foreign investment.

And a swarm of real estate buyers has descended on the fringes of the demilitarized zone in anticipation of an economic opening that could remake the South Korean border region into a zone for new trade. Land prices have risen to levels not seen since the early 2000s, when the Kaesong complex was being built.

“That area has really heated up,” said Yun Eun Suk, a real estate agent in Paju, near the demilitarized zone. “As relations between North and South improve, a lot of people have high expectations that a lot of activity will happen in this area.”

Those expectations are, for the moment, grounded largely in hope. The sanctions regime against North Korea has grown severe enough that virtually any resumption of cross-border business ties would constitute a breach of both international law and the trust of the United States, South Korea’s key ally.

Economic opening is unlikely to come without change elsewhere first. “It requires North Korea to make progress on denuclearization, and have positive, productive talks with the United States, such that the United States is willing to either promote the genuine, legal removal of sanctions or at least adjust the implementation so that South Korea can do what it wants to do,” said Christopher Green, an expert on North Korea with Brussels-based International Crisis Group.

The need to wait on outside factors, he added, ”is going to chafe in South Korea, which sees its role partly as changing North Korea’s behaviour through economic incentives and economic engagement.”

Indeed, observers are skeptical that North Korea’s Kim Jong-un will be willing to give up the nuclear arsenal he has amassed.

South Korean leaders, however, have raised expectations, saying that President Moon Jae-in hopes to reach an agreement with Mr. Kim on denuclearization. That, in turn, has fed optimism that North Korea is preparing to make sufficient nuclear concessions to set in motion a broader opening to the world.

South Korean scholars say the North is changing in ways that stand to fundamentally alter inter-Korean trade and investment, if business dollars are once again allowed to cross the military demarcation line.

In the past two decades, North Korea’s occasional opening to Southern businesses has come only in tightly circumscribed areas, such as tourism or a special economic zone like Kaesong.

But “the situation in North Korea has changed considerably in the last few years,” said Lim Kang-taeg, a scholar of the country’s economy and reform at the Korea Institute for National Unification in Seoul. “North Korean systems have changed, and the mindset of North Korean experts on economic policy has also changed.

“And that’s because the North is making use of market principles to gain economic strength and create economic benefits.”

Under Mr. Kim, North Korea’s grey economy – technically illegal, but flourishing in plain sight – has led to a proliferation of markets, such as for-profit manufacturing, trade in real estate and private construction. Take housing, where government officials seeking to build 10 new units might enlist a better-capitalized private developer to build 30 units. Twenty of those units would then go to the developer to sell.

“So the construction and sale of residential housing is becoming privatized. And in reality, they’re recognizing private ownership,” Mr. Lim said.

In addition, Mr. Kim has given new latitude to companies to produce, set prices and even export goods. ”What this means is that in the future, when economic co-operation with the South expands, it won’t be on a country-to-country basis. It will be company to company,” he added. And “then it will be possible to do business in many more different areas.”

That prospect is a welcome one for Mr. Lee, who says sales at his company, Young Inner Foam Co. Ltd., fell in half after Seoul suddenly shut down Kaesong in 2016 in retaliation over Pyongyang’s rocket tests. At the time, Mr. Lee employed 350 North Korean workers, paying them $280 to $310 a month, in addition to fees for the provision of goods such as soap and shoes.

Those costs are higher than his worker expenses in Cambodia, where he also has a factory. But in Kaesong, the shared language meant he could easily communicate with workers, and the proximity meant goods moved quickly. His long tenure there – he made his first investment in 2007 – also meant he had a roster of trained workers, while the cachet of North Korean-made products allowed him to build his own undergarment brand that sold at stores in South Korea.

He liked the Northern workers, too. More than two years after the factory closed, his business card retains Kaesong contact details. “Kaesong means everything to me. It is one of my children. It’s not something I can forget,” he said.

Now, he feels so close to having it back that he is harbouring hopes not just of making clothing in North Korea, but one day selling it there, too.

“It’s like we have escaped a long, dark tunnel,” he said.

- With reporting by Cynthia Yoo