The Greater Tumen Initiative Investment Guide 2009

CHINA

DPRK

MONGOLIA

ROK

RUSSIA

ASIA BRIEFING

The Greater Tumen Initiative Investment Guide 2009 CONTENTS

1. Introduction to the GTI Programme ...... 5

2. North-East Asian Economic Overview ...... 7

3. Country Focus ...... 9

CHINA ...... 9 REPUBLIC OF KOREA ...... 31 i. Economic Overview xxii. Economic Overview ii. Mineral Resources xxiii. Mineral Resource iii. Infrastructure xxiv. Infrastructure iv. Industries and Agriculture xxv. Industries and Agriculture v. Trade Partners xxvi. Trade Partners vi. Foreign Direct Investment xxvii. Foreign Direct Investment vii. Looking Forward xxviii. Looking Forward viii. Region Focus on Heilongjiang, xxix. Region Focus on Sokcho, Jilin, Liaoning Provinces and Inner Busan and Ulsan Mongolia Autonomous Region

DEMOCRATIC PEOPLE’S REPUBLIC RUSSIAN FEDERATION ...... 40 OF KOREA ...... 19 xxx. Overview ix. Economic Overview xxxi. Mineral Resources x. Mineral Resources xxxii. Infrastructure xi. Infrastructure xxxiii. Industries and Agriculture xii. Industries and Agriculture xxxiv. Trade Partners xiii. Trade Partners xxxv. Foreign Direct Investment xiv. Foreign Direct Investment xxxvi. Looking Forward xxxvii. Region Focus on Primorsky Krai

MONGOLIA ...... 24 xv. Economic Overview xvi. Mining and Mineral Resources xvii. Infrastructure xviii. Industries and Agriculture xix. Trade Partners xx. Foreign Direct Investment xxi. Looking Forward

Annex 1: Trade Development of North-East Asian Countries ...... 51

4 | Greater Tumen Area Investment Guide 1. Introduction to the Greater Tumen Initiative (GTI)

he Greater Tumen Initiative (GTI) People’s of Korea; the Eastern Provinces of (originally known as the Tumen River Mongolia; the Eastern port cities of Republic of Area Development Programme - Korea and the Primosky Territory in the Russian TTRADP), is an intergovernmental cooperation Federation. mechanism in North-East Asia, supported by This region possesses enormous potential for the United Nations Development Programme investment and job opportunities with its skilled, (UNDP), with a membership of five countries: educated and low-cost labor pool. The Tumen People’s Republic of China, Democratic People’s River ties this region together at the crossroads of Republic of Korea, Republic of Korea, Mongolia vital trade, transport and energy routes. Rich in and Russian Federation. gas, oil and minerals, the Greater Tumen Region Since its creation, GTI has remained a unique has easy access to affluent markets in the GTI intergovernmental platform for economic five member countries and Japan, representing cooperation, fostering peace, stability and over 500 million consumers. The huge economic sustainable development in North-East Asia. potential of the Tumen River region can only be Moreover, it is playing a significant role in fully harnessed through dynamic cooperation expanding policy dialogues and strengthening among its neighbours and sharing of resources. business-friendly environments in the region The core decision-making institution of GTI and contributing therefore to the raising of living is the Consultative Commission composed of standards through development of interregional government representatives from all five GTI infrastructure and the promotion of trade and member countries. The role of the Consultative investments. Commission is to foster support for the development of North-East Asia and the Tumen RUSSIAN FEDERATION River Economic Development Area in particular. Moreover, it promotes mutual understanding as well as economic, environmental and technical cooperation among the peoples and countries of

RUSSIAN the Greater Tumen Region. FEDERATION MONGOLIA At the 8th Meeting of the GTI’ Consultative P.R.CHINA Commission held in Changchun, China, in DPRK September 2005, Governments agreed to extend

ROK the 1995 agreements for a period of 10 years and adopted the Changchun Agreements in Map of Greater Tumen Region which member countries committed to take North-East Asia is the vast geographic ensemble full ownership of the Greater Tumen Initiative that stretches from Mongolia in the West to the through increased contribution of financial and Pacific coasts of Russia and the Korean Peninsula human resources, with the continuous support of in the East and encompasses North-East China. UNDP. The meeting also agreed on a Strategic The geographical coverage of the Greater Tumen Action Plan 2006 – 2015, focusing GTI activities Initiative itself involves the three North-East on four priority sectors: transport, energy, tourism provinces (Jilin, Heilongjiang, & Liaoning) and and investment with environment as a cross- Inner Mongolia of China; the Rajin-Sonbong cutting theme. Economic and Trade Zone of the Democratic The 9th meeting of the GTI Consultative

Greater Tumen Area Investment Guide | 5 Commission, the North-East Asia Partnership the BAC held its second meeting in Shanghai, Forum and an Investment Forum were successfully China on 24th March 2008 and concluded with held in November 2007 in Vladivostok, Russia. a strategy for scaling up activities and increased These meetings have laid solid foundation for partnerships in order to further promote accelerated cooperation between the 5 GTI the potential of the region to the business member states in the region and concluded community. with a reaffirmed commitment on the part The 10th meeting of the Consultative of governments and business representatives Commission is planned to take place in Ulan to expand regional cooperation for economic Bator, Mongolia on 24-25 March 2009 together growth and sustainable development in North- with an Investment Forum and 3rd BAC East Asia. meeting. The intergovernmental meeting proved to be a turning-point in the intergovernmental For more information, visit the GTI website cooperation in North-East Asia marked by a shift at www.tumenprogramme.org or contact the away from institutional and research activities to a Tumen Secretariat and its Director Dr. Nataliya new and more pragmatic approach of cooperation Yacheistova at [email protected] or focusing on development. During a special session by phone at +86 10 6532 6871. of the 9th CC meeting which was devoted to joint GTI projects, a number of concrete projects were earmarked by the member countries as “GTI projects”. The implementation of these projects will support economic development of the region in different sectors of the economy including improving transport infrastructure, addressing environmental challenges and ensure capacity building in the member countries. Another key outcome of this meeting is the creation of the Business Advisory Council (BAC), with the strong support of the UN Office for Partnerships. This institution serves as a concrete private-public partnership mechanism to promote economic cooperation and attract investment in the region and consists of senior business leaders and eminent persons from the participating countries as well as foreign investors. Other institutional structures that will strengthen regional cooperation in the priority sectors of GTI were agreed on: the Energy Board, a Tourism Council and a Cooperation framework mechanism on environment. The North-East Asia Partnership Forum and Investment Forum held back-to-back with the 9th CC meeting brought together more than 150 high-level representatives form GTI member states and other countries, confirming the high interest in North-East Asia and confidence in its potential for new investment opportunities. Following the decision taken in Vladivostok,

6 | Greater Tumen Area Investment Guide 2. North-East Asian Economic Overview

aving taken a number of successful to be hardest hit. strides forward to benefit from world Over all long term prospects in Asia’s emerging trade, North-East Asian countries economies remain good thanks to the structural inevitablyH will feel similar shocks as those felt by reform that has been evident in the last decade the developed world due to the current financial as well as better macro-economic policies. Real crisis. South Korean exports fell by 17 percent GDP growth in 2009 is expected to slow to 6.7 in 2008 in the wake of the global financial crisis percent in 2009 from 8.5 percent in 2008 and and even China’s have shrunk. Growth prospects 10.5 percent in 2007. have declined in line with global contractions The extent of the contraction in developed and although they appear bleak when relating to markets, it appears now, could last longer than recent highs they are healthy in comparison to previously expected. This could have ripple effect scenarios faced in the developed world. and postpone the recovery of Asian markets. Access to cheap capital and high international However, the ability Asian countries have to consumer demand have been the key drivers shift external to domestic demand, maintain behind investment in North-East Asian economies macroeconomic stability and shift exports to other in recent years. These two pillars no longer stand faster growing parts of the world will indeed be and as such a certain amount of short term pain a determinant of how well they emerge from the is commonly agreed. On a positive note, though, downturn. Countries that entered into the crisis many of these economies have high savings and in better macroeconomic positions will be able to moderate debt which will give them far more use this advantage to manage the situation and flexibility when it comes to stimulus packages be better placed to seize future opportunities and and policies. continue along a path of rapid growth. From 2000 to 2008 emerging Asia’s debt as a percentage of GDP has dropped from 28 percent to 17 percent. Asia also has the advantage in that it is a net importer of raw materials. China is crucial and its growth is expected to be in the vicinity of 7 or 8 percent after a high of almost 12 percent in 2007. A large number of forced factory closures triggered a big fiscal stimulus and with a debt to GDP ratio of only 18 percent there is more room to manoeuvre. Virtually every East Asian country has eased monetary policy and injected substantial amounts into the banking system. China’s fiscal expansion plans stand out notably in anticipation of the slowdown. Authorities have announced a $586 billion stimulus package. The plan will emphasize investment in infrastructure. To ensure economies achieve their goals of stimulating demand and jobs in the domestic economy, packages will need to be directed at programs and investments that employ the most, alleviate supply shortages and concentrate on areas likely

Greater Tumen Area Investment Guide | 7 Table 1 Key Economy Indicators of North-East Asian Countries in 2007 China ROK Russia Mongolia DPRK GTI countries Japan NE Asia GDP (US$ in billions) 3249,0 981,9 1286,0 3,9 N/A 5520,8 5103,0 10623,8 GDP real growth rate (%) 11,4 4,9 8,1 9,9 N/A - 1,9 - Trade (US$ in billions) 2138,4 728,3 625,4 4,0 N/A 3496,1 1236,8 4732,9 Export (US$ in billions) 1221,0 371,5 365,0 1,9 N/A 1959,4 665,7 2625,1 Import (US$ in billions) 917,4 356,8 260,4 2,1 N/A 1536,7 571,1 2107,8 FDI (US$ in billions) 82,7 1,6 N/A 0,5 N/A 84,8 N/A 84,8 Inflation rate (%) 4,7 2,5 11,9 15,1 N/A - 0,0 - Population (million persons) 1330,0 49,2 140,7 3,0 N/A 1522,9 127,3 1650,2 Unemployment rate (%) 4,0 3,2 5,9 3,0 N/A - 4,0 - Notes: 1. Figures of GDP are in official exchange rate. 2. Export figures of all countries except Russia are adjusted to an f.o.b. basis. Import figures of China, ROK and Japan are adjusted to an f.o.b. basis, and import figures of Mongolia and DPRK are adjusted to a c.i.f. basis. 3. Figures of trade are calculated by Tumen Secretariat, by adding figures of export and import. 4. Figures of GTI countries are calculated by Tumen Secretariat, by adding figures of China, ROK, Russia, Mongolia and DPRK accordingly. 5. Figures of NE Asia are calculated by Tumen Secretariat, by adding figures of China, ROK, Russia, Mongolia, DPRK and Japan accordingly. 6. Figures of FDI: ADB's Asian Development Outlook 2008. 7. Figure on Mongolia's GDP real growth rate: IMF Data Mapper. 8. Other figures: World Factbook 2007 of CIA. Sources: Central Intelligence Agency; Asian Development Bank; International Monetary Fund

8 | Greater Tumen Area Investment Guide 3. Country Focus

CHINA China now attaches greater importance to equipment manufacturing. It still relies heavily of imported equipment in spite of the fact that it is a giant in world manufacturing.

RUSSIA Lake Baikal Formal name: People’s Republic of China KAZAKHSTAN Lake Baikhash Capital: Beijing Harbin MONGOLIA Land Area: 9.6 million sq km KYRGYSTAN Urumqi G Shenyang reat Wall N.KOREA all Population: TAJIKISTAN t W Qinhuangdao 1.33 billion G rea

K BEIJING Dalian

A CHINA R KUN LUN MT Tianjin

A NS S.KOREA K O Qingdao YELLOW R Lanzhou A Zhengzhou M SEA

H Xi’an Nanjing I M A TIBET Shanghai L PAKISTAN A Chengdu Wuhan Y Shigatse A Yangize Ningbo EAST NEPAL S Lhasa Mt Everest Chongqing CHINA SEA

BHUTAN INDIA Taibei BANGLADESH Guangzhou TAIWAN BURMA INDIA Macau VIETNAM Hong Kong (MYANMAR) PACIFIC OCEAN BAY OF LAOS BENGAL THAILAND Hainan Dao

Economic Overview GDP (PPP US$) per capita, 1980-2007 6,000 China East Asia and Pacif ic In the past half decade, China has attached 4,000 greater importance to domestic equipment 2,000 manufacturing. It sill relies heavily on imported 0 equipment in spite of the fact that it is a giant in 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 world manufacturing. According to the Ministry of Science and Technology, two-thirds of China’s Source: World Bank fixed investment in equipment is imported. High-end equipment used in integrated circuits, Mineral Resources petrochemicals, automobiles and textiles are China is fortunate to be rich in mineral resources. still dominated by foreign companies. As the Almost all the world’s known minerals can be country develops further a natural progression is found there and to date geologists have confirmed to expand its equipment manufacturing base at reserves of 153 different minerals and places china home. It makes sense that the North-East should third in the world in terms total reserves. Major resume this role with resources becoming tighter. mineral resources include coal, iron, copper, In addition to being China’s major energy and aluminium, stibium, molybdenum, manganese, raw materials supplier the North-East is also an tin, lead, zinc and mercury. China's coal reserves important agricultural support. total 1,007.1 billion tonnes, and are mainly Generally speaking, China has offered a distributed in the North of China, with Shanxi favourable climate for a diverse range of investors Province and Inner Mongolia Autonomous from all over the world to invest, manufacture Region holding the most. The 46.35 billion and manage in. tonnes of iron ore in China are mainly found in the North-East, North and Southwest of

Greater Tumen Area Investment Guide | 9 CHINA

China. The country also abounds in petroleum, labour mostly. There has been emphasis placed natural gas, oil shale, phosphorus and sulphur. on developing light industry and decentralizing Petroleum reserves are mainly found in the agriculture. In line with this impetus roads have northwest, North-East and north China, as well been built in large, medium-sized, and small as in the continental shelves of east China. The towns and to rail road connections thus making national reserves of rare earth metals far exceed the it possible to shift products between cities and combined total for the rest of the world. across provincial boundaries. China’s maritime shipping, civil aviation and Infrastructure ports have had to develop in parallel to the burgeoning economy. The central government China continues to improve its infrastructure has funded substantial investment in airport of road and highways, rail, inland waterways, construction and some local administrations maritime shipping, civil aviation and the like. have also granted special funds for such projects. With this development China brings much China Airlines and China Southern Airlines opportunity for investment and lays a platform are two examples of airlines which offer both from which to continue its drive as one of the convenient domestic and international travel most rapidly growing nations. routes. Hundreds of routes link China to The national rail system is modernizing and international cities like Tokyo, New York, expanding rapidly. It is one of the chief forms London, Paris, Moscow and Singapore to name of transportation and critical to the building of a few. Domestic air routes are also plentiful and the economy. link most major cities as well as a number of China completed a new section of the Qinghai- smaller ones. Tibet Railway track in October 2005. This 1,142 kilometre long portion of rail between Golmud and Lhasa completes a line that links the rest of Industries and Agriculture China to Tibet via a hub at Xining in Qinghai China’s industries and agriculture are maintaining Province. Another large scale rail project is steady growth these years. Since 1949 when the the New Silk Road or Eurasian Continental People's Republic of China was established, and Bridge project that was launched in 1992. For especially since 1978, China's transformation china this means mostly modernization and from a traditional agricultural society to a modern infrastructure development of a 4,131-kilometer- industrial society has been greatly accelerated by a long railroad route. The New Silk Road line starts rapid industrial restructuring. China's industrial in Lianyungang, Jiangsu Province, and travels structure developed according to the objective of through central and north-western China to industrialization, which meant the the proportion Urumqi, Xinjiang Uygur Autonomous Region of agriculture declined while the industrial and and continues to the Alataw Pass into Kazakhstan. services sectors increased rapidly. The industrial From here the route is able to link with some goods produced in China currently range from 6800 km of rail that eventually leads as far as capital goods to consumption goods. Rotterdam. China also has established rail links Amidst the global crisis, Beijing has taken between seaports and interior export-processing many measures aimed at boosting consumer zones. spending and stimulating the economy and is Provincial or local governments have been confident it can maintain a growth rate of 8 responsible for their own transportation and percent. The central government announced road construction. Many have involved foreign a massive RMB4 trillion (US$586 billion) expertise and financing to speed up the process. stimulus package in November 2008, allocating Most financing and maintenance funds come RMB100 billion (about US$14.6 billion) in the from the provincial level though and, in the fourth quarter of 2008 and a futher RMB130 case of rural roads, are supplemented by local billion for the first quarter of 2009. The Chinese

10 | Greater Tumen Area Investment Guide CHINA government faces several economic development international agricultural markets, both as an challenges. Not only does it need to continue exporter and as an importer. adequate job growth for new entrants into the A successful agricultural sector is critical to job market, migrants and also a large number of China's development. First, it must feed more workers laid off by state-owned enterprises but than 1.3 billion people, about 21 percent of it also needs to maintain control and manage the world's population, using only 7 percent market infrastructures as the economy grows. In of the world's arable land. Second, it must addition, China has to contain environmental provide raw materials for the industrial sector. damage and the various social issues related to a Third, agricultural exports must earn the foreign rapid transformation. As mentioned, economic exchange needed to purchase key industrial and development has progressed further in coastal technological items from other countries. provinces than in the interior. 200 million rural Great advances have been made as a result of the labourers are estimated to have relocated to urban tremendous efforts to develop the rural economy, areas in search of work. and to improve people's lives. Two decades of China is the largest producer of inexpensive reform and opening up, in particular, have helped cotton textiles in the world and exports large to turn a new page in China's rural development quantities of textiles and garments. Food processing by establishing fundamental economic systems is very important, and many agricultural goods are with public ownership as the mainstay with the exported. China is one of the leaders of cement coexistence of diversified ownership. The rural production in the world. The pillar industries, operating system is based upon family contracts such as the auto industry and the housing and combines central planning with autonomy. industry, in the interim of industrialization Agricultural products are sold based on market have developed by leaps and bounds. Iron and economy mechanisms. steel manufacturing are also major industries in China. The most important export products are Trade Partners machinery and electric equipment; while the most important import products are raw materials. Trade between China and Russia has also In recent years, China's industry has competed contributed to the development of the North- internationally, and as a result, the country's East in recent years. Trade was expected to have industrial development is increasingly influenced surpassed US$40 billion in 2007, after it reached by international economic environments. On a record high of US33.4billion in 2006. The one hand, exporting becomes more difficult and two-way trade has continued to increase since export prices keep declining; on the other hand, 1999, with an average annual growth of 28.6 market share of foreign products and foreign- percent. Meanwhile, the border trade has become invested enterprises' products keeps growing. an important part of the bilateral trade reaching The above two factors increase the difficulties US$7 billion in 2006 and US4.6billion during for the country's domestic industry in terms of the first seven months of 2007. Currently, China producing and selling; the state-owned enterprises is Russia’s third largest trading partner, while are impacted particularly. In fact, textile and other Russia is China’s eighth largest trading partner. light industries have slowed their growth. ROK has become China's sixth largest trade China has the world's largest agricultural partner after the European Union, the United economy and one of the most varied. The nation States, Japan, ASEAN (Association of Southeast stands first among all others in the production Asian Nations), and the Hong Kong region. of rice, cotton, tobacco, and hogs and is a major China is ROK's No.1 trade partner and export producer of wheat, corn, millet, tea, jute, and market. ROK and China had hoped bilateral hemp. This wide range of crops is possible because trade volume would reach US$200 billion dollars of the country's varied climate and agricultural by 2012. zones. China participates on a large scale in The bilateral trade and economic cooperation

Greater Tumen Area Investment Guide | 11 CHINA between China and Mongolia has grown steadily for 70 percent of the total industrial assets in the over the past dozen years or so. The establishment North-East, which is more than anywhere else of the good-neighbourly partnership of mutual in the country. A large number are now facing trust between the two countries in 2003 has given problems associated with aging technologies, a strong impetus to the development of bilateral facilities and management. trade and economic cooperation, the scope of The government has been speeding up the which has been further expanded. China has restructuring of SOE’s since 2003 and attracting been Mongolia's number one trading partner for investment from foreign countries in an aim to nine consecutive years. Chinese rice, vegetables revitalize North-East China. China has hopes for and garments account for about 90 percent of the North-East to once again become a regional Mongolia's total import of the same items. China powerhouse along with the Pearl and Yangtze has also been Mongolia's biggest investor country River Deltas. The official policy of objectives for eight years in a row. Currently over 700 are to update heavy industries, raise agricultural Chinese enterprises are operating in Mongolia, production and processing, improve environment their combined investment accounting for about of mining areas, to develop service industries and half of the total investment by foreign-owned social welfare, to enhance investments, to improve firms in the country. In the past few years, some basic infrastructure and to transform Dalian into big Chinese state-owned companies have begun an international harbour for North-East Asia. to invest in Mongolia's oil and mining industries. Key to the realization of these ambitions will Closer economic ties serve the interests of both be the extent to which foreign investment can China and the DPRK, the two countries are be assisted in finding its way into projects and ready to make further efforts to push bilateral public enterprise. cooperation to a higher level. In April 2004, four major cities in the region, Harbin, Changchun, Shenyang and Dalian, held Foreign Direct Investment their first meeting to initiate cooperation to create a corridor of modern and crucial equipment In most recent years capital investments have been industries such as automobiles, ships, aero predominantly in road construction, high-tech engines, robots and electric generators. business and infrastructure expansion projects Premier Wen Jiabao touched on elements of in rural areas as well as Olympic projects. The this policy at the March 2005 National People’s RMB140 billion invested in the games are said Congress, saying,” we will accelerate the work of to have boosted the GDP growth by 2.1 percent adjusting and upgrading the industrial structure in the lead up to the event. and reorganizing and upgrading key enterprises", North-East China, which consists of and "we will establish a mechanism for aiding Heilongjiang, Liaoning and Jilin, is the country’s declining industries in cities with resource-based old industrial base. 150 key national heavy economies in order to promote a shift away from industry projects were launched after the founding dependence on resources." of the Chinese government. The contribution of Given the percentage of SOE’s in the North- these provinces to the country's total industrial East, success in revitalizing the region will depend output has steadily declined though. Liaoning largely on the extent to which reforms are effective. Province was ranked as one of the highest but in According to the State-Owned Assets Supervision 2003 was only the 19th biggest contributor. and Administration Commission, a more market State-owned enterprise transformation has oriented approach needs to be adopted in tandem taken place more slowly in the North-East. This with restructuring work. Government has indeed is due to the fact that the region has had a bigger gone some way to encourage foreign investment concentration of large and heavy industries that and modernizing internal management structures were kept under state management while smaller to improve compatibility with modern business ones were allowed to privatize. SOEs account operations.

12 | Greater Tumen Area Investment Guide CHINA

Except for some industries deemed to be with Russia. Gradually setting up social security important to national security, most state-owned schemes that fit new local conditions will also be and monopolized sectors have been opened up to of paramount importance. privatization. Privatization has taken place at both Minimizing the gap between more developed a domestic and international level. As China has coastal regions and those further inland is social opened up to international investors and capital objective that will run parallel to increasing flows, technology transfers and Best Practice industrial capacity. There is high pressure for the management knowledge has also flowed into the Chinese government to continue its high level country. Foreign investors are able to purchase of growth in order to cater for the employment shares owned by the state or shares of companies seekers such as new entrants, laid of workers and directly owned by the state. For most industries migrants. Developing inland is where government there is no restriction preventing acquisition will find the opportunity to settle all these above a certain amount. objectives simultaneously. Certain incentives have also been put in place to further attract foreign capital such as VAT Regional Focus exemptions on equipment in certain heavy (North-East China) industries. Different preferential policies of are also offered in certain instances depending on The phrase North-East China has traditionally local authorities. Substantial investments have been used to refer to China’s Heilongjiang, been made in the North-East over the past few Liaoning and Jilin provinces. In this regional years and a number of multinationals have also focus we use it to describe these regions as well strengthened their presence in the region. Most as include Inner Mongolia which is also part of of this investment has been in the tourism, retail the Greater Tumen Region. With about a fifth and manufacturing sectors. of China’s population, the North-East generates about a third of the country’s GDP and a fifth of its foreign trade, and absorbs some 30-40 Looking Forward percent of FDI. As mentioned above the Chinese government The North-East Rejuvenation Plan was has taken large strides forward in deregulating approved by the state council in 2007. This plan the economy and encouraging market-oriented incorporates the provinces of Liaoning, Jilin, growth for its ever modernizing business and Heilongjiang as well as a portion of Inner environment. More progressions in the reform Mongolia and endorses the development of the and development will present a number of North-East into an international production and challenges for authorities to manage and better trading centre as well as a supply base of energy, facilitate the various transitions from an economic raw material and agricultural products. The State point of view but also a social and environmental Council has also instructed relevant departments stand point. to ensure correct supervision and support in The North-East has some way to go to catch moving forward. up to more liberalized regions. If the North-East The North-East region of China has maintained is to become the industrial base that it used to economic growth rates higher than the national be then continued effort will need to be made average in recent years and is poised to continue to encourage foreign entities further to not only this explosive growth through the integration invest but also assist in knowledge transfer and of value-added manufacturing, high technology management restructure. Potential to reach production, and intraregional shipping. Dalian, these objectives is there. Heilongjiang Province in the Liaoning Province, is positioned as the for example is rich in coal and could develop export base for the region and as such it has been electricity transmission to eastern and southern a key support in the development of the inland regions, as well as intensify electricity trade manufacturing and surrounding economy. The

Greater Tumen Area Investment Guide | 13 CHINA

Dalian Commodity Exchange (DCE) is one base covering the cities of Harbin, Daqing, of three commodity markets authorized by the Qiqihar and Mudanjiang is underway. Daqing central government and last year was the ninth oilfield annually produces over 24 million tonnes largest exchange in the world. The exchange trades of oil and contributes more than one-third of corn, soy, soy meal, and soy oil. China’s total oil output. The province also has The many inefficient SOE’s that have deteriorated the largest percentage of forest cover in the region since the 1980’s are now being rejuvenated as a in addition to having the highest timber reserves matter of priority within the government. Many in China. projects have been implemented to revitalize Heilongjiang has a total farmland area of 9.6 the north-eastern industries, including tax million hectares. It also has 7.5million hectares breaks, tax reductions and channelling foreign of grassland, making it an important area for capital into the region. The North-East is animal husbandry. Mayor consumer markets envisioned to become four bases for international are located in Harbin and Qiqihar. In addition, equipment manufacturing, national energy and Heilongjiang also acts as a gateway for consumer raw materials, national agriculture products, and products to enter Russia and the Inner Mongolia national research and development but much Autonomous Region. needs to be done to achieve this. Heilingjiang will continue to encourage foreign and private enterprises to invest in the province Heilongjiang Province and the government is optimistic about teh province's continued progress. The Harbin- Heilongjiang is situated in China’s North-East Daqing-Qiaihar Industrial Corridor is expected corner and touches with Russia’s far eastern region to develop into a key economic zone for the along its north eastern border of over 3,000 province. A total of 377 projects are active in the kilometres. It also borders Inner Mongolia to the area amounting to total investment of RMB 22.4 west and Jilin to the south. Its total area is 450,000 billion. The area boasts advanced human resources square kilometres with a total population of just and transportation facilities. above 38.24 million. Heilongjiang's road network amounts to Private enterprise has experienced the fastest roughly 2.3 million kilometres. A proposal to development in recent years and has been the contruct an additional 38,000 kilometres of roads source of economic growth in the province. and highwayswas was accepted by the provincial Over 200 private enterprises have emerged and government in 2006. report a combined income of over RMB100 There are 60 rail lines making up 5,300 million. Many private investors are currently kilometres of track including a portion of the involved in large construction projects. As a Asia-Europe Continental Bridge. Construction direct result of government’s policies to revitalize of a RMB92.3 billion passenger-only railway line the region the six pillar industries of equipment running from Harbin to Dalian began in August manufacturing, petrochemicals, food processing, 2007. The new line is projected to transport 37 energy, pharmaceuticals, and forest and timber million passengers per year by 2020 and will processing are steadily restructured. stretch from Harbin, Heilongjiang’s capital, to Heilongjiang has traditionally focused on Dalian in Liaoning province via Changchun coal, petroleum, lumber, machinery and food. and Shenyang. It currently holds the largest deposit of coal in Mayor airports include Harbin International North-East China as well as the Daqing oilfield Airport, Qiqihar Airport, Mudanjiang Airport, which is the largest in China. The Province has Jiamusi Airport and Heihe airport. Harbin an abundant supply of metals and minerals. Its International Airport connects to over 40 deposits of gold and graphite are among the domestic and international cities. largest in China. There are many development zones in The construction of a petrochemical production Heilongjiang. The major zones include Heihe

14 | Greater Tumen Area Investment Guide CHINA

Border Area Economic Cooperation Zone, Suifenhe Border Area Economic Cooperation Zone, Daqing Hi-tech Industry Development Zone etc.

Jilin Province Jilin comprises of a total area of 190,000 square kilometres and has a population of 27.3 million. The province lies in the central part of North- Eastern China, bordering Russia and the Deomcratic People's Republic of Korea in the east and southeast respectively. The capital, Changchun, lies 113 kilometres west of Jilin city. Jilin province is rich in natural resources and mineral deposits. 70 different types of minerals have been extracted to date. There are also large reserves of oil, gas, coal, iron mine, nickel, molybdenum, talc, graphite, gypsum, cement rock, gold and silver. Jilin’s reserves of oil shale Jilin, recently voiced his confidence that Jiliin are the largest in the country. would continue to realize double digit growth of The Songhua River crosses the well watered and 12 percent this year. This is on the back of a highly fertile plains of Jilin, which yield great agricultural successful 2008 in which the province saw an benefits for the region. The mountainous south- increase of 16 percent in the GDP. Total fixed asset western areas of the province are also an important investment is set to grow by 28 percent and more source of timber. than 700 million Yuan has been earmarked for Along with prominent North-Eastern industrial and agricultural projects. The ambitious neighbours, this region continues to make economic stimulus program will see the launch progress. The province’s traditional industries of more than 1500 projects, each with a budget have been in machinery, petrochemicals, in excess of 30 million Yuan. pharmaceuticals, foods, and metallurgy and Major exports from the region include corn, forest industries. At present, automobiles and garments, poultry, furniture, vehicles, medicines petrochemicals are its pillar industries. It is one and are mainly to the two Koreas, Japan and of the largest car manufacturers in the country at the USA as well as Hong Kong. Major imports present and is also an important petrochemical included auto parts, fertilizers, chrome ores production base. It produces a wide variety of and machinery and chief import partners were chemicals for use in foodstuffs, medicines, textiles Germany, Japan, the USA, Italy and the Republic and other light industries. of Korea. There are more than 8000 investment Since the central government’s drive to revitalize enterprises in the main investment cities of the traditional industrial bases in North-East Changchun, Jilin city and Sipping and these China speedy development has taken place. There have also understandably become the primary has been substantial investment in fixed assets and consumer centres. foreign investors have been seen to be entering There are 35,216 kilometres of highways within mainly the manufacturing, agricultural products, the province. The province also has an excellent optical and electronics, infrastructure and public rail network with Changchun as its central hub. utilities industries. Han Changfu, Governor of Currently there are four major new railway

Greater Tumen Area Investment Guide | 15 CHINA projects underway which started construction a coal-mining centre in Fushun, and a world-class in 2007. One project being the middle section a harbour at Dalian. north-south line to connect Harbin and Dalian. Among the five provinces of North-East China, Another being a 96.5 kilometres inter-city line Liaoning is third largest in terms of GDP. Leading running from the capital city to Jilin city that is industries include petrochemicals, metallurgy, expected to cut travel time between the two cities electronics telecommunications, and machinery. by two thirds. This is expected to being operations The region is a major producer of pig iron, steel in 2010. The total cost of these projects is an and metal-cutting machine tools. Production in estimated RMB 13 billion. these industries all rank among the highest in In 2008, China, Russia, ROK and Japan jointly the nation. Liaoning is regarded as one of the opened a sea to land transport channel. This 800 most important raw material production bases in sea-mile channel starts in Hunchun, China and China. Mining, quarrying, smelting and pressing end at Niigata, Japan. Although the route was of ferrous metals, petroleum and natural gas opened it has yet to begin operating. When in extraction industries are all of great importance operation the route will cut shipping time from within the area. five or six days to around one and a half days. Liaoning plays an important role as a production Container transport capacity will increase, with a base of equipment and machinery manufacturing. minimum of 12,000 vessels per year. Each of the Shenyang and Dalian are considered the industrial four parities has their own responsibility: China centres. The province’s light industry mainly and Japan are responsible for supplying goods; focuses on textiles and clothing industries which ROK is responsible for the coordination and include cotton and wool spinning, chemical management of all ships and carriers. fibre production, knitting, silk production, Jilin prides itself on its academic infrastructure. and the manufacturing of garments and textile There are 45 universities and colleges of machinery. various specialties in the province, and a high Liaoning will continue its efforts to restructure concentration of scientists, engineers and tertiary large and medium-sized state enterprises students within the broader community. specifically within the four pillar industries of There are many development zones in Jilin. The petrochemicals, metallurgy, machinery and major zones are as follows: Jilin New and Hi-tech electronics. Encouragement of foreign investment Industry Development Zone, Jilin Economic and will no doubt extend to sectors such as textiles, Technological Development Zone. light industry, agriculture and infrastructure facilities, as well as tertiary industries. Liaoning Province The provincial government is developing an economic belt along its coastal areas including Liaoning lies south of Jilin Province and also share Changxing Island, the coastal areas of Yingkou boders with Inner Mongolia to the north-west city, Jinzhou Bay, Dandong city and Huayuankou. and Hebei to the south-west. To the east is the The province will continuously upgrade the Democratic People’s Republic of Korea as well as overall service function of its economic belt coastline of 2,178 kilometres. The province covers with the Dalian North-East Asian International a total area of 150,000 square kilometres and Shipping Center as the core. contains a population exceeding 42.9 million. Major expressways run from Beijing and from Liaoning has many mineral resources with large Dalian, through Shenyang, as well as north to deposits of coal and iron ore. The Liaohe oil field Changchun and Harbin and further on to the is one of the largest in China and the provinces Russian border. reserves of boron, magnetite, diamonds and jade The total length of operational railway lines are also abundant. Currently Liaoning is the is 3,758 kilometres long and a solid network is eighth ranked province in China in terms of GDP. in place to connect all parts of the region. As It has a steel-making industrial centre in Anshan, discussed earlier the construction of RMB92.3

16 | Greater Tumen Area Investment Guide CHINA billion passenger only railway line running forms Harbin-Dalian began in August 2007. The new rail line will cut through major industrial areas and support the development of two major harbours in the region, Dalian and Yingkou, with the aim of taking the pressure off of the existing Harbin-Dalian railway line. There are international airports at Shenyang and Dalian, which connect over 140 countries and regions and over 100 major cities. The major airports include Shenyang Taoxian International Airport, Dalian Zhoushuizi International Airport, and infrastructure facilities. The region is an Anshan Airport, Dandong Airport and Jinzhou important production base for dairy and textile Airport. industries. The region’s light industry mainly Major seaports are located in Dalian, Huludao, focuses on textiles such as cashmere and wool Dandong, Yingkou and Jinzhou. In total there are spinning. 142 productive berths and 46 deep-water berths Inner Mongolia Autonomous Region has of over 10,000 tonnes along Liaoning’s 2,178 huge development potential and commercial kilometre-long coastal line. opportunity. It enjoys not only China’s preferential There are many development zones in policies for western development but also benefits Liaoning and a major port in Dalian. These from the policies supporting ethnical minorities. include: Yingkou Port, Yingkou Economic and It also has a close cooperation with large domestic Technological Development Zone, Ansban companies as well as overseas companies from National High and New Technology Industry Russia and Mongolia to develop its natural Development Zone etc. resources. Road and highway construction achieved Inner Mongolia Autonomous Region remarkable results during recent years and the The Inner Mongolia Autonomous Region autonomous region has plans to invest RMB is the widest and third largest province in 26 billion during 2009. There are also many China but relatively under populated when rail projects underway to increase the province’s compared to other provinces. It has a total area already strong logistical network. Investment of 1,183,000 square kilometres and roughly of RMB170 billion for railway construction is 24 million inhabitants. To the north it borders planned for the period from 2009-2013. with the Republic of Mongolia and Russia. The Mayor airports include Hohhot Baita Airport, Heilongjiang, Jilin, Liaonin provinces make up Baotou Airport, Chifeng Airport, HailaerAirport, the eastern border and Hebei, Shanxi, Ningxia, Xilinhaote Airport, Ulanhaote Airport and Gansu the southern one. Many ethnic groups are Tongliao Airport. living in this area including Mongolian, Daur, There are many development zones in Inner Oroqen, Ewenki, Hui, Han, Korean and Manchu. Mongolia Autonomous Region. The major Hohhot is the capital of Inner Mongolia and dates zones include Baotou National Rare-earth Hi- back to the Ming Dynasty some 400 years ago. Tech Industrial Development Zoner, Zhungeer In addition to its large grassland areas Economic Development Zone, Alashan Economic and plentiful water supply, Inner Mongolia Development Zone etc. Autonomous Region is also blessed with an abundance of minerals. As with other north eastern provinces, investors are being encouraged to invest in key sectors such as mining, agriculture and animal husbandry, textiles, light industry

Greater Tumen Area Investment Guide | 17 CHINA

Resources

Heilongjiang Government Jilin Investment Promotion www.hlj.gov.cn www.jilininvest.gov.cn

Heilongjiang Department of Commerce Liaoning Government site www.hl-doftec.gov.cn www.ln.gov.cn

Heilongjiang Foreign Investment Liaoning Foreign Trade and Economy www.invest-dpc.hl.cn Cooperation Department www.china-liaoning.org Jilin Government site www.jl.gov.cn Liaoning Economic Information www.ln.cei.gov.cn Jilin Investment www.jilininvest.com Business Guide to Beijing and North-East Jilin Small and Medium-sized Enterprises China www.smejl.gov.cn Published by Asia Briefing Ltd.

18 | Greater Tumen Area Investment Guide DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA The DPRK’s gross domestic product reached an estimated US$25.96 billion in 2007 while the per capita income was an estimated US$1,700.

Full Name: Democratic People’s Republic of Korea Capital: Pyongyang Land Area: 120,540 sq km Population: 23.5 million

Economic Overview government terminated most international aid – the country has received foreign developmental The Democratic People's Republic of Korea's assistance mostly in the form of grants and long- gross domestic product reached an estimated term loans. These have been used to feed the US$25.96 billion in 2007 while the per capita population as severe flooding and draughts as well income was an estimated US$1,700. It is as systematic problems such as deficient arable estimated that the economy shrank by 1.1 land, poor farming practices and lack of fuel have percent in 2007 and industrial output and power led to food shortages over the past decade. production continued to decline in parallel from To help develop its economy, the DPRK issued their highs in the 1990s. However, because of the extensive laws and regulations designed to foster DPRK’s strategic location in East Asia, where it foreign investment. A few examples of there is surrounded by four major economies, and a were the Foreign Investment Law, the Foreign young, cheap, skilled workforce, the economy has Enterprises Law, and the Foreign Economic and the potential to grow at 6 percent to 7 percent Trade Zone Law. The Foreign Investment Law annually. provided preferential treatment for investment Currently, heavy and light Industry dominates in "sectors that require high and modern the DPRK economy, contributing about 43.1 technology, sectors that produce internationally percent to the national economy. The service competitive goods, the sectors of natural resource sector and agriculture follow at 33.6 percent development and infrastructure construction, and and 23.6 percent respectively. Major industries the sectors of scientific research and technology include: machine building, electric power, development." chemicals; mining (coal, iron ore, limestone, The Foreign Enterprise Law provided the basic magnesite, graphite, copper, zinc, lead, and framework for the creation of wholly foreign- precious metals), metallurgy; textiles, food owned entities that are permitted only in free processing; and tourism. economic and trade zones. These zones, similar International trade is currently highly restricted to those in China, allow foreign enterprises in the DPRK and since 2005 – when the involved in the high-tech manufacture of

Greater Tumen Area Investment Guide | 19 DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA

internationally competitive goods in electronics, all official relations between the two countries has automation, machine tool and power industries; cast some doubt over future prospects. food processing, garment and everyday consumer The mining sector accounted for about 8.7 goods; building materials, pharmaceuticals percent of the DPRK's GDP in 2004. The and chemicals; construction, transportation country’s identified important mineral resources and service sectors; and other sectors deemed are coal, copper, fluorspar, gold, graphite, iron necessary. ore, lead, limestone, magnesite, silver, tungsten, The Foreign Economic and Trade Zone Law and zinc. Reserves of coal, iron ore, limestone, was the DPRK’s initial step to creating market- and magnesite are large by world standards. The oriented development zones to attract foreign country, however, has few reserves of natural gas investment. So far, it has mostly been companies and crude petroleum. from neighbouring countries that have invested in these zones. The Republic of Korea joined the Infrastructure DPRK to initiate the Kaesong Industrial Complex The DPRK has extensive rail and road networks, and China is very interested in a project near the however most are deteriorating and in need of Korean city of Sinuiju. Early this year though, modernization. The country’s road system is South Korean personnel were removed from mostly unpaved, its ports in need of upgrading to the from the Kaesong industrial complex by the handle large cargo vessels. The telecommunications DPRK. It had been a symbol of North-South system is also very underdeveloped. cooperation but this along with the conclusion of The DPRK’s road network remains relatively underdeveloped – in 2006, less than 10 percent of the DPRK’s 25,554 kilometres of road were paved. Most are constructed of crushed stone, gravel or dirt. The major paved roads include a 200-kilometre expressway connecting the capital Pyongyang and Wonsan on the east coast; a 43-kilometre expressway connecting Pyongyang and the port of Nampho; and a four-lane 100- kilometre motorway linking Pyongyang and Kaesong. Sunan International Airport – 24 kilometres

20 | Greater Tumen Area Investment Guide DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA

Industries and Agriculture Although DPRK's population is predominantly urbanised, agriculture still accounts for around one-quarter of economic activity. Dominance of heavy industry, including steel, cement and machinery, and mining has declined since the 1990s with light industries, especially textiles, growing. Development of the IT sector has enjoyed high-level backing. North Korean industry is operating at only a small fraction north of Pyongyang – is the DPRK’s only of its potential due to lack of various inputs. international airport. It has regularly scheduled The infrastructure is generally in need of flights to Moscow, Khabarovsk, Beijing, Macau, refurbishment. Vladivostok, Bangkok, Shenyang, Shenzhen and charter flights to Tokyo as well as to Eastern Trade Partners European countries, the Middle East, and Africa. The DPRK’s two largest trading partners in Until this past March, flights in and out of the recent years have been the Republic of Korea and DPRK were exclusively handled by the country’s China followed by Thailand, Japan and Russia. flag carrier, Air Koryo, Air China now also flies a Trade between the DPRK and China amounted route from Beijing to Pyongyang. to US$1.97 billion in 2007 and trade continues Water transport on the major rivers and along to grow. In the first 10 months of 2008, the the coasts plays a growing role in freight and total value of trade between the two nations passenger traffic. Except for the Yalu and Taedong reached US$2.12 billion, a 31.7 percent increase rivers, most of the DPRK’s 2,250 kilometres of from a year earlier. Two-way trade between the waterways are navigable only by small craft. The North and South, legalized in 1988, hit almost major ports are Nampho on the west coast and $1.8 billion in 2007, much of it related to out- Rajin, Chongjin, Wonsan, and Hamhung on the processing or assembly work undertaken by firms east coast – coastal traffic is heaviest on the eastern in the Kaesong Industrial Complex. seaboard where the draft is deeper. In July 2002, DPRK announced partial marketisation measures, allowing state-set prices for selected commodities to adjust near their market levels, while wages in priority sectors were boosted. In spring 2003 the authorities relaxed restrictions on farmers' markets, giving ordinary citizens limited freedom to buy and sell a range of food and manufactured goods. The establishment of the Kaesong Industrial Zone, just north of the DMZ and only 50 The DPRK has a rail network of 5,235 kilometres from Seoul was seemingly a sign of kilometre standard gauge (a small narrow gauge improving relations between the DPRK and railway operates on the Haeju peninsula). The ROK. The zone, run by the Hyundai Asan railway fleet consists of a mix of electric and Corporation is a production and re-export steam locomotives. Coach carriages are mostly platform for South Korean small and medium made domestically using Soviet designs, though enterprises, employing several thousand North Chinese-made variants are also present. Koreans. A rail link connecting Seoul to the zone started to operate in December 2007. The

Greater Tumen Area Investment Guide | 21 DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA zone is a source of hard currency for the DPRK on China’s model of SEZs that Deng Xiaoping but whether further expansion will take place launched in Shenzhen in 1979. As Jo-chung remains to be seen. Uuigyo, or the China-North Korea Friendship The DPRK still has supply-demand imbalances Bridge that connects China's Dandong and that have not substantially been altered as of yet by Sinuiju, has deteriorated, China plans to build these progressive but experimental measures. a new bridge. Wi Hwa Island is located inside a special economic zone that the DPRK launched Foreign Direct Investment in 2002 to open itself up to the rest of the world. But the zone ultimately flopped. The latest free Kaesong Industrial Complex trade zone plan can be seen an extension of the The DPRK started experimenting with market previous one. system in 2002 with the opening of the According to Chinese statistics, the total value Kaesong Industrial Complex. Located near the of trade between China and North Korea from Demilitarized Zone, Kaesong allowed joint January to October last year was US$2.12 billion, ventures between both Koreas and helped boost up 31.7 percent from a year earlier. Late last year, trade between the two sides over US$1 billion for the DPRK consulate general in Shenyang opened the first time in 2005. As of September 2008, 79 a branch office in Dandong to stimulate border firms from the South were manufacturing goods trade with China. in the KIC, employing more than 33,000 DPRK workers. Most of the goods produced are sold in Khasan-Rajin Railway Project the South; a small quantity is being exported to foreign markets. The DPRK recently expelled Republic of Korea personnel from Kaesong, which had become a symbol of North-South cooperation, throwing the future of the zone into doubt.

Wi Hwa Island Free Trade Zone

The DPRK plans to develop Wi Hwa Island in the Yalu River, which separates the country and China, into a free trade zone for which Chinese will not need visas, the Yomiuri Shimbun recently reported sources following China-DPRK relations as saying. Part of the DPRK city of Sinuiju, Wi Hwa Island is approximately 15.5 square kilometres in size. The Yomiuri Shimbum reported that Pyongyang plans to set up trade exhibition facilities on the island and allow Chinese to visit the island without visas. On the island, Chinese will be able to freely buy and sell daily necessities, food and other goods. The island sits near the Chinese city of Dandong in Liaoning Province. Wi Hwa Island is part of the North Korean city of Sinuiju and is part of the Photos: Yury Maltsev Special Economic Zone that the DPRK launched in 2002 as a means for the country to slowly open After several years of talks and various obstacles to up to the outside world. It was based in part negotiate around progression of the Khasan-Rajin

22 | Greater Tumen Area Investment Guide DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA

(Russia-DPRK) Railway project is underway. remaining 30 percent. A planned total of 10 Success would ultimately mean greater trade stations, two tunnels, and over 40 bridges were volumes, quicker and cheaper trade between the expected to start transporting containers to Rajin Koreas and Europe as well as socio-economic Port by the end of 2009. Whether or not this upliftment for the North-East Asian area. target is met remains to be seen. The second part Successive negotiations eventually lead to the of the project involves construction of container official launch of project on the 4th of October terminal at Rajin Port – to be built on 20 hectares 2008 by Vladimir Yakunin, CEO of the Russian of port territory owned by the joint venture Railways and the DPRK Minister of Railways DPRK authorities signed an agreement to Jon Kil-su. Some 50 kilometres north-east of the open Rajin Port to foreign trade. The project will Rajin port, Russia has started reparations on the enhance Russia’s import and export capability in track to link this Special Economic Zone to its the Sea of Japan where ROK and Japanese goods town of Khasan. China takes similarly speedy enter Russia’s Far East. Russia’s rail will need to be steps to develop an automotive highway to Rajin renovated though if it is to realize the full potential in the hopes of diverting some of the growing in a transcontinental link to Europe. trade to its own borders. The project also includes For the DPRK, the rail link will provide raw modernization of the Rajin port itself. materials, food stuffs and manufactured goods For the implementation of the project, the to undersupplied industries and impoverished joint venture “RasonConTrans” was set up in population thus providing long-term stability. 2008 for a term of 49 years, with the Russian It will provide the opportunity to develop the Railways Trading House holding 70 percent of strategically located port for world trade and to the registered capital and the port of Rajin the refurbish its dilapidated rail system..

Resources

Democratic People’s Republic of Korea DPRK Studies www.korea-dpr.com www.dprkstudies.org

U.S.G.S. Mineral Resources Program U.S. Department of State www.minerals.usgs.gov www.state.gov

Foreign and Commonwealth Office CIA World Factbook www.fco.gov.uk www.cia.gov/library/publications/the-world- factbook Ministry of Foreign Affairs of Denmark www.um.dk

Greater Tumen Area Investment Guide | 23 MONGOLIA Once a Soviet state, Mongolia shifted to a market-based economy and democracy in 1990.

Full Name: Mongolia Capital: Ulaanbaatar Land Area: 1.567 million sq km Population: 3 million

Economic Overview increase of 10 percent. In 2006 exports increased by 43.5 percent and Once a Soviet state, Mongolia shifted to a imports by 25.7 percent year on year and trade market-based economy and democracy in turnover increased to 3.01 billion USD which 1990. The Mongolian economy is considered equates to a 34.2 percent increase. The foreign an open economy with free government- trade balance showed a surplus of 39.6 billion administered prices, exchange rates, and interest compared to the deficit 3 times that size in 2005. rates, in addition to a two-tier banking system The exchange rate, which operates as a floating and opportunities for private initiatives. exchange, has been stable since 2000. The Tugrik Mongolia’s main economic partners are Russia (MNT) currently stands at around the 1400 and China. Mongolia exports 70 percent of MNT to the Dollar mark (4th Feb rate). its goods to China and imports heavily from Wholesale and retail trade has come to China and Russia. A striking 80 percent of contribute the most to GDP followed by Mongolia's food supplies are imported from agriculture and then mining and manufacture. the two countries. Mongolia also relies on aid The 2006 per capita GDP figure was USD$ from international organizations. Despite a high 1051 and was US$1,290 in 2007. Of Mongolia’s literacy rate in the population at more than 90 30,817 active businesses registered in 2006, 97.5 percent, more than a quarter of Mongolians live percent of them were classified as small entities below the poverty line. and make up 60 percent of Mongolia’s GDP. The Since its transition to an open market economy majority of these businesses are also in the capital Mongolia has maintained and open policy and of Ulaanbaatar. The informal sector provides a ensured steps have been taken to encourage large source of employment, especially in the and support foreign investment and trade. The capital city. The unemployment rate in 2006 was economy experienced a 22 percent drop in GDP shown at 3.3 percent but that figure was almost between 1990 and 1992 during the initiation of double the national average for people under 25 its transition but has been growing consistently years of age. well since. During the time of transition between 1994 and 1999 Mongolia experienced a mean GDP (PPP US$) per capita, 1980-2007 growth rate of 3.5 percent and this climbed 5,000 Mongolia East Asia and Pacif ic thereafter to 10.7 percent, 6.2 percent, 8.4 4,000 3,000 percent and 9.9 percent respectively in 2004, 2,000 2005, 2006 and 2007. The country’s most recent 1,000 0 2008 growth figures are expected to show an 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: World Bank 24 | Greater Tumen Area Investment Guide MONGOLIA Mining and Mineral Resources transportation. All international transport is done by rail but for domestic transit a combination As of 2006 this important sector in Mongolia’s of rail and road would obviously be used. The economy contributed to some 30 percent of the north-south rail line which travels through GDP. In the same year it reached 73.9 percent of Ulaanbaatar and links Sukhbaatar to Zamyn- industrial output and minerals accounted for 71.8 Uud is the principal line within the rail system. percent of total export revenues. A government It has capacity to transport four million tonnes resolution to assure development within the sector of goods annually. There is another prominent was undertaken in May 2002. This was aimed at line in the east region which is not linked to the bolstering the sustainability of the sector through north-south rail system, but is used to bring in encouraging export-oriented industries. Currently imports and exports from Soloveovsk (Russia) via there are a number of exploratory projects on the the border post at Ereentsav and continuing to go to assess potential mineral deposits. Foreign Choybalsan. Planned rail extensions to increase investment in a wide range of mineral related the north-south capacity also exist but are not industries is actively encouraged particularly in officially underway. the area of exploration, extraction and processing In terms of road density Mongolia is relatively of resources. The national mining policy of under developed. It has an indicator that is 1/6th Mongolia on this sector is under constant watch of the PRC. The country presently has some to ensure that Mongolia remains advantageous 49,000 kms of road of which only 8 percent are for FDI. Mongolia produced 15 percent of high quality paved roads. These are found mainly the world’s fluorite in 2006. It is also a major parallel to the north-south railway. Among other exporter of copper and molybdenum and gold projects the planned millennium road network mining is now also a significant mineral yield. will run vertically and horizontally across the There are other mineral reserves that exist of country aiming to link the underdeveloped iron, phosphates tin, nickel zinc, tin, tungsten westerns region to the east. Transportation is and fluorspar. problematic and becomes a harder during winter season when snowstorms can occur. Infrastructure The largest airport serving international flights is Infrastructure was developed in the country only the Chinggis Khan International Airport located in the last 40 years due to the Mongolians’ distinct 25 kilometres south-west of Ulaanbaatar. The nomadic nature. Most of the population lived airport has one cargo hangar. Airlines flying out of as herders and moved their gers or tents often the airport are: MIAT Mongolian Airlines, Eznis depending on the landscape. The Mongolian Airways, Air China, Aeroflot, Japan Airlines, landscape coupled with a harsh climate makes Korean Airlines, Aero Mongolia and Ural Airlines. some areas in the country inaccessible and The country’s official MIAT Mongolian Airlines transportation and delivery services inefficient. is currently the only Mongolian carrier allowed The Trans-Mongolian railway line follows the to fly international routes. Out of Mongolia’s 44 same route as the Trans-Siberian between Moscow airports, only 13 have paved runways. and Ulan Ude, followed by a route to Mongolia Due to the country’s geography and climate, and China. It starts from the Russian border town the only major waterway in operation is Lake of Naushki along the Russian-Mongolian border Hovsgol. Most lakes and rivers are frozen solid then to Sükhbaatar, the capital Ulaanbaatar, during winters. The Selenge and Orhon Rivers Zamyn-üüd, Erenhot, Datong, and finally ends in are in use from May to September but even then Beijing. Travel from Beijing to Ulaanbaatar takes they are not used heavily. 24 hours. The technology used for the trains is Mongolia’s electricity needs are serviced almost already antiquated and there are plans to upgrade exclusively by 5 coal-fired power plants. Some it in the future. smaller remote towns and provinces are connected Rail is the backbone of Mongolia’s long distance to Siberia’s grid and one third of Mongolia’s

Greater Tumen Area Investment Guide | 25 MONGOLIA population receives no electricity and must rely on renewable energy equipment. While wind and solar power are used only on a small scale at the moment the potential for development in this area is substantial also.

Industries and Agriculture The geology and mining industry has become one of the leading sectors of Mongolian development. The sector has played arguably the most important role in economic development. In addition to bringing in a third of the GDP it amounts to 71.8 percent of export revenues and its surrounding industries attracts just lower than 50 percent of total foreign investment. The number of extractive mining products has been increasing year by year with iron ore, zinc concentrate and moulding copper added to the list of exported products in 2005. The favourable legal environment governing the geology and were produced. Between 1992 and 2006, gold mining industry has been an attraction to extraction has increased from 0.78 tonnes to domestic and foreign investors and a cause for 22.5 tonnes. the intensifying new industries. Copper concentrate was the largest export Mineral extraction and processing of final commodity in 2006 with a total of 599,300 products to export are considered somewhat tonnes accounting for 41.5 percent of exports. stagnant. For example, mines and deposits of Other minerals less prominent in the Mongolian copper, coal, pewter, poly metal, phosphorus mining industry include fluorspar, molybdenum and uranium discovered through state-funded and tungsten and oil extraction also plays a exploration are still not in industrial use at this minor role. time. Lack of infrastructure nearby deposit sights Agriculture and livestock production brings such as water supply, heat and electricity as well in more than a third of the country’s GDP and as road and rail networks are the main obstacles is what sustains 50 percent of the population. preventing industry from taking off. It is a major source of the country’s economic Mongolia has substantial reserves of coal – an development. Agricultural land is made up mainly average 5 million metric tonnes per annum are of pastures for livestock but there is also a large produced. Virtually all coal production is used for output of wheat, oats, barley and vegetables. steam and electricity generation. In addition to After a near collapse of the sector in the 1990s supplying coal-fired power stations for electricity government took immediate action to ensure some is also exported to Russia for supplementary its continued growth. Livestock and croplands electricity. Coal reserves are vast and estimated were put up for sale in an attempt to privatize the at over 100 bln tonnes but the majority of these sector and various programmes were implemented reserves have not been developed due to lack of to address and improve on issues concerning infrastructure. technologies, pests and disease, employment and Since the launch of the government’s gold poverty within the sector, withstanding natural programme a total of 86.4 tonnes of gold were disasters. Agricultural production is currently extracted in the 12 years leading up to 2007 comprised of 30 percent meat products and and 619.8 billion MNT in gold products casings, 27 percent dairy products, 2 percent

26 | Greater Tumen Area Investment Guide MONGOLIA skin and hides, 1 percent animal and plant oils, forested mountains, steppe and Gobi desert areas 31 percent flour and flour products, 2 percent remain for the most part unpopulated. fruit and vegetables and 2 percent livestock feed Since 2003 the Ministry of Roads, Transportation and starches. and Tourism began efforts to better conditions for There has been a positive increase in the travel and tourism and to improve the quality of manufacturing industry since 2002 and it was services to both foreign and domestic investors reported as having contributed 7.3 percent to in this sector. Advertising campaigns abroad the GDP in 2006. Mongolia produces around have also contributed to the success of the 3000 tonnes of cashmere a year which makes it industry in recent years. Today tourism brings the second biggest producer of cashmere in the in approximately 1.1 percent of total foreign world after China. Cashmere products make investment and 10 percent of the country’s GDP. up 3.1 percent of Mongolia’s GDP. 70 percent Opportunities in tourism more specifically can of cashmere is produced locally. The Wool be categorized into the areas of rural and eco- processing industry processes more than 20,000 tourism, adventure and sports tourism, fishing tonnes of wool every year. This figure constitutes and hunting and historical tourism. woollen products predominantly from sheep but Mongolia transferred to a two-tear banking also camel, yak, goat, horse and cow hair. system in 1991. 17 commercial banks are in At present there are approximately 100 textile operation and the top 5 are all privately owned. businesses of which 38.3 percent are fully foreign Mongolia has a stable financial environment and invested companies, 46.8 percent are joint aims to further strengthen it as well as develop ventures and the rest are domestic. Almost 20,000 intermediation, encourage the secondary bond employees find employment in this sector which market, issue government bonds onto the equates to 12 percent of the total industrial sector international market and improve the legal as well workforce. Given the abolition of textile quotas as the lending environment. The stock market by the WTO, Mongolia has approved the law is supported by the state and has never played exempting textile related goods from VAT and a meaningful role, nor has it provided a means customs duties. for raising capital and has operated at a loss for Food and beverages make up a 32.7 percent of many years. the manufacturing sector. The food processing industry comprised of meat processing, milk Trade Partners and dairy processing, flour and flour product manufacture, production of alcoholic beverages The industry surrounding the above mentioned and production of salt. Presently, there are over sectors also constitute a third of the country’s GDP. 1800 small and medium sized business entities Major exports are copper, gold, molybdenum engaged in the food industry. Together they concentrates, fluorspar, cashmere, wool, hides provide employment for up to 14 percent of and skins while imports predominantly consist total industrial workers. New technologies for the of petroleum products, industrial equipment production of beverages and soft drinks are being and consumer goods. Mongolia’s main trading introduced and the range and quality of these partners are China, Russia, South Korea, Japan, products are improving through competition. the US and the EU but it trades with over 109 Tourism within the country has flourished in countries in total. The country is a net exporter the last 15 years. The rich history and culture and of livestock and mineral products. Copper, Gold the nomadic lifestyle along with pristine tracts of and Cashmere represent the biggest portion of land, fresh unpolluted skies and water and also the exports however light industry such textile a diverse fauna and flora make it an attractive and garment production is steadily on the rise. tourist destination. Mongolia is heavily dependent on imports for With a population density of only 1.7 persons fuel, energy, and consumer goods and these per km means that many untouched areas of costs have been increasingly outweighing export

Greater Tumen Area Investment Guide | 27 MONGOLIA proceeds. Total external turnover amounted to of internationally competitive production. Most US$3.01 billion in 2006. active encouragement by the Government has been via tax incentives and legal guarantees Foreign Direct Investment regarding investment protection, investor rights, property ownership and also removal Between 1990 and 2006, Mongolia registered of unnecessary administrative barriers and 6165 foreign companies invested from over 93 procedures. companies equalling a total of 1.5 Billion USD. There are plans to build a total of 10 industrial China, Canada, the USA, South Korea, Japan, and technological parks beginning 2004 until the UK and the Russian federation ranked as 2012. The Industrial and Technological Parks the highest foreign investors in 2006. Total are slated attract investment in export-oriented FDI in 2006 reached 336 Bln USD from 1505 products and developing technologies with foreign companies. When dividing these figures high intellectual capacity. Businesses investing up into sectors, the mining industry brought in in these parks will be qualified for tax cuts and the largest share of 48.4 percent followed by the other incentives. trade and catering services with 17.7 percent, light industry 4.9 percent, banking services 4.9 percent, production of raw livestock material 3 Development zones percent and 3.2 percent in construction. There are plans to build a total of 10 industrial Foreign direct investment has continued to and technological parks beginning 2004 until focus on the mining industry with other funds 2012. The Industrial and Technological Parks going into banking and construction in 2007. are slated attract investment in export-oriented During the same period, close to 70 percent of products and developing technologies with total FDI came from China. It was also the same high intellectual capacity. Businesses investing time that Mongolia suffered from its highest in these parks will be qualified for tax cuts and inflation rate in more than a decade when other incentives. consumer prices spiked by 15 percent (In 2008, inflation decreased by 9 percent). Of the growing Darkhan Production and Technology Park geology, mining and petroleum industries about This park focuses on export production output in 47.4 percent of the total foreign investors are from addition to processing agricultural raw materials China, 12.2 percent is from Canada, Korea (7.3 for export. percent), Japan (5.0 percent), United States (3.6 percent) and other foreign investors. Bagakhangai Air Service International Park Mongolia’s stable political environment and Bagakhangai is used for export activities, open economic policy stand as large draw cards to international transit flights and food foreign investors. Mongolia also has access to the production. significant Russian and Chinese economies and is rich in reserves of raw materials and minerals. In Zuunmod Development Park addition to this, the favorable legal environment Zuunmod processes raw material of animal origin, and a pristine and vast natural environment make cosmetic technology, incubator biotechnology Mongolia a diverse investment place. and production of top leather and woollen Through active encouragement of FDI products. the Mongolian government aims to reach its three primary development objectives of Dornod Production and Technology Park accelerated sustainable growth, transfer and The park focuses on minerals processing, meat application of skills and technology and the processing, agricultural production output and development of an export-oriented and private export. sector driven economy with further expansion

28 | Greater Tumen Area Investment Guide MONGOLIA

Altan Gobi Development Park There are also plans to build another airport, the The development park specializes in deep mineral Odonchimed International Airport. processing, information technology and coal and chemical technology. Tsagaan Nuur Free Trade Zone The Tsagaan Nuur Free Trade Zone was built by Erdenet Production Technology Park and Khovd order of the Mongolian parliament and is located Production Park on the western border with Russia. Activities in The core industries in Erdenet and Khovd are this zone include trade and industry. agriculture processing and the export of meat and meat products. Looking Forward Nalaikh Business Incubator Park Along with the positives it remains important The Nalaikh BIP was set up to encourage SMEs to pay careful attention to managing the trade and other entrepreneurial initiatives. deficit, subsiding inflation and improving fiscal and monetary policies especially with regards to Zavkhan Production Technology Park expansionary spending. Zavkhan processes fertilizers, meats, and Given the growing contribution of the mining agricultural raw materials for export. sector to the economy and its export income, careful attention is also needed to maintaining Selenge Park a transparent mining system. Achieving these Selenge Park specializes in wood crafts exports, key objectives would mean Mongolia is able to fertilizers and assembly of heavy agricultural continue to push forward as they have been by machines. ensuring a growth rate at a stable pace. Mongolia compares well with other emerging Altanbulag Free Trade Zone economies and shows signs of a positive future. The Altanbulag FTZ is located in the country’s The overall macro performance is strong. Signs northern border with Russia. Facilities include: include growth of GDP by 9.9 percent in 2007; reprocessing of first stage processed and semi- a state budget surplus; increased international processed products and exporting of final reserves. The current account was positive for a products to foreign markets, storage of imported fourth consecutive year in 2007 and consumption and export-bound products, food processing, is also on the increase. The Mongolian economy textile manufacturing, mineral processing, remains intact amid the subprime crisis and there electronics assembly and packaging, casing and is no direct correlation between the economy and bottling. The zone is idea for those wanting to the global recession, although a global slowdown penetrate the Russia, Siberian and Far Eastern will affect it in the short run. Mongolia has made markets because of its convenient link to the good progress in strengthening the external sector Russia-Mongolia-China international railway. which is reflected by the declining foreign debt to GDP ratio. Zamiin-Uud Free Trade Zone In the last five years, Mongolia has experienced The Zamiin-Uud zone is found on the southern an average growth rate of 8.1 percent and GDP per border with China and consists of industrial, trade capita has more than doubled in this time as well. and tourism services. The zone is a partnership Signs of overheating are reflected by the inflation between the Mongolian government and statistics which have become a critical concern. American real estate developer, Winwheel Bullion. The price rise has been driven primarily by rapid The project’s Phase I is a development of 2,224 monetary expansion, social welfare spending, as acres that will include infrastructure for hotels, well as an increase in production prices and civil a convention centre, shopping complex, casino service wages. Mongolia’s move to raise its policy resorts, banks and other financial institutions. rate to 9.75 percent in tandem with government

Greater Tumen Area Investment Guide | 29 MONGOLIA measures aimed at stabilizing food and petroleum will play an assisting role in assisting to meet the prices are expected to calm inflation. The ongoing inflationary targets. correction of global commodity and energy prices

Resources

Mongolian National Chamber of Commerce The Official Government Organizations of and Industry, Mongolia Source: Business Guide for Investors and Traders www.pmis.gov.mn/indexeng.php

Mongolia Investors Forum 2006 Foreign Investment and Foreign Trade Agency www.investmongolia.com of Mongolia www.investmongolia.com World Bank - Mongolia Country Brief www.web.worldbank.org Altanbulag Free Trade Zone www.altanbulag.mn Foreign Investment and Foreign Trade Agency www.investmongolia.com Tsagaan Nuuur Free Trade Zone www.tsagaannuur.mn Frontier Securities www.frontier.mn Ministry of Nature, Environment and Tourism National Statistical Office of Mongolia www.mongoliatourism.gov.mn Monthly Bulletin of Statistics (December 2008)

30 | Greater Tumen Area Investment Guide REPUBLIC OF KOREA With a strong emphasis on exports and labour-intensive light industry, rapid debt-financed industrial expansion has allowed GDP to increase rapidly in ROK since the 1960s.

NORTH KOREA Full Name: Republic of Korea e arcafion Lin em D Capital: Seoul

SEOUL Land Area: 99,221 sq km Inch'õn Ullung-do Population: 48.46 million

Republic of Korea Uancout Yellow Rochs Pohang Sea Kunsan Sea Taegu of UIsan Japan Masan Chinhae Kwangju Mokp'o Pusan Yosu

ea Strait Kor

Cheju-do

Hana-san JAPAN

Economic Overview technology and raw materials and encouraged investment and saving more than consumption. With a strong emphasis on exports and labour- After the economic crisis, the Korean GDP intensive light industry, rapid debt-financed plunged by 6.9 percent in 1998 and recovered industrial expansion has allowed gross domestic by 9 percent in 1999-2000. Affected by the product to increase rapidly in the Republic of slowdown of the global economy, growth briefly Korea since the 1960s. During the past four fell back to 3.3 percent in 2001. However, led decades, ROK has achieved a remarkable record by encouraging exports and consumer spending, of growth and integration into the high-tech growth in 2002 reached 7 percent despite the modern world economy. For instance, when the dampening global economy. Between 2003 and Korean government initially began to focus on 2007, growth moderated to about 4 percent to 5 economic development in the 1960s, GDP per percent. In 2008 however, the value of the won capita was comparable with levels in the poorer fell and the economy also slowed in the second countries of Africa. Last year in 2008, the Korean half of the year.

GDP per capita was almost the same level as that GDP (PPP US$) per capita, 1980-2007 of New Zealand. This economic advancement of 40,000 Korea, Rep. OECD

ROK resulted from government’s pro-business 30,000 policies such as import restrictions, directed 20,000 credit, support of specific industries, and a strong 10,000 0 labour effort. 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Although this progress was stunted briefly Source: World Bank during the 1997 Asian Financial Crisis, the ROK rebounded quickly thereafter and continued Since the start of the global economic crisis integrating into the world economy. The in 2008, the Korean government has attempted government has promoted the import of to limit the turmoil through foreign exchange

Greater Tumen Area Investment Guide | 31 REPUBLIC OF KOREA market stabilisation, tax reduction and other The port of Busan is the world's fifth largest stimulus. container port, having handled a throughput of 12 million twenty foot Equivalent Units in 2006. Mineral Resources Located on the trunk sea routes to and from Europe, Asia and North America, this port has the The ROK imports most of its mineral and energy potential to grow into a major global centre for requirements. According to the Korea Resources logistics. Busan's new port and Gwangyang Bay Corporation, which is a state-owned company, are also slated for development into super-sized Korea has small reserves of antimony, copper, container ports equipped with state-of-the-art gold, iron ore, lead, molybdenum, silver, tin, automated systems. tungsten, and zinc. Korea’s reserves of coal and In 2006, Incheon International Airport served offshore natural gas are also small. 63 airlines and 28.2 million passengers travelling Regardless of this unproductive condition, to 142 cities in 43 countries. By handling 2.31 Korea produces certain amount of mineral million tonnes of international cargo, Incheon resources annually like coal, tungsten and International Airport became the world's second graphite. The coal resources of South Korea are largest airport in terms of cargo throughput just mainly distributed in coalfields which are located six years after its opening. New facilities and along the North-East and southwest line in the systems are continuously being established in Ok-cheon geosyncline belt. The mining sector the airport such as the recently developed road generally produces anthracite coal, however, the feeder service, an integrated air and maritime output of the mining sector accounted for only transportation system to handle freight from 0.27 percent of the country’s GDP in 2005. China. The airport aims to become the logistics Regarding oil and natural gas, the amount of hub in North-East Asia. Korea’s oil production was about 20,970 bbl per day in 2007, and natural gas production reached around 390 million cu/m in 2007. Industries and Agriculture As Asia's third-largest economy, the ROK has Infrastructure a comparative advantage in manufacturing In 2004, as the ROK's high-speed railway lines industries. In 2008, manufacturers generated linking Seoul and Busan, and Seoul and Gwangju US$179 billion worth of value-added goods, and were completed, the ROK became only the there are around 4.02 million people working fifth country in the world to equip itself with in the manufacturing industry. Key ROK a bullet train system. Upon the completion of manufacturing industries mainly include car the second phase construction project in 2017, manufacturing, semiconductor manufacturing, which will link the eastern and western axes of shipbuilding and electronics. Among these, the peninsula with high-speed lines, the entire auto and semiconductor manufacturing are country will be accessible within a few hours. In central to the prosperity of the ROK’s economy May 2007, a pilot trans-Korean rail operation and its status as a trading nation. In 2005, was conducted on the Gyeongui and Donghae the Korean automobile industry was the fifth lines. This Trans-Korean Railway is expected to largest in the world in terms of production provide linkage to the Trans-Siberian Railway, volume. The semiconductor manufacturing also Trans-China Railway, Trans-Mongolian Railway occupies significant part of Korean industry. and the Trans-Manchurian Railway, forming Semiconductor exports now reach US$40 billion a Trans-Asia Railway extending some 81,000 annually, and the market is now estimated to km. If this plan comes to fruition, the ROK's grow at 12 percent annually to US$7.0 billion current logistics network will be expanded to a by 2009. vast ground logistics network traversing Central Although agriculture has been a significant Asia and Europe. factor in the Korea’s economic development in

32 | Greater Tumen Area Investment Guide REPUBLIC OF KOREA the past, it now only constitutes approximately 4 up the “IT 839 Strategy” and promoted new IT percent of overall economic production. The main services to encourage investment in network crop is rice, followed by other cereals, such barley, infrastructure. The ICT industry is ready for the wheat, corn, soybeans and by other products such second wave of growth creating new businesses. as chilli peppers, sweet potatoes, Chinese cabbage, apples and pears. Trade Partners Service industry contributes most substantially Foreign trade accounted for 71.5 percent of to the Korean GDP (about 55 percent), mostly the national GDP in 2006, while revenue from includes insurance, restaurants, hotels, laundries, foreign invested companies took up almost 14 public bath houses, health-related services, and percent of total manufacturing sales. Among entertainment establishments. This year, in 2009, the trade partners, China is the ROK’s most the Korean government announced "Service significant trade partner, accounting for 22.1 PROGRESS III to create jobs and improve percent of its exports demand and 17.7 percent growth infrastructure" at the Crisis Management of its imports (in 2007). Japan and the USA also Council (chaired by the Minister of Strategy and have key trade relationships with the ROK. Finance). The government has unveiled measures The ROK has concluded free trade agreements to improve the overall competitiveness of the with the USA (not yet ratified), Chile, Singapore, service industry in Korea. As part of that effort, the European Free Trade Association (Iceland, the government announced steps to improve Norway, Liechtenstein and Switzerland), ASEAN its service account by investing in tourism and (excluding Thailand) and India. It is currently education as the first part of the policy package negotiating FTAs or similar agreements with in April 2008. In September 2008, the 2nd Japan, the EU, Canada, Mexico and Peru, and is part of the package was unveiled, emphasizing conducting studies with China, Russia and the deregulation of the industry and streamlining the Gulf Cooperation Council. The ROK is also regulatory system. Following that is the 3rd part active in the WTO, APEC and the OECD. of the plan in stimulating the service industry by promoting the human resources and R&D in the service industry. Foreign Direct Investment In 2007, on the occasion of the 10th anniversary Information and Communication Technology of the ROK’s pro-FDI policy, the government Industry initiated a new goal of increasing high value- added investment and established an action ICT industry is an important growth engine for plan to support the national effort to attract the Korean economy. Korea’s ICT industry foreign companies and expand FDI related can be divided into the ICT equipment, infrastructure. telecommunications services and software The specific government policies and incentives industries. In the future, the industry’s growth are as follows: Foreign companies engaged in will be driven by the introduction of IMT-2000 industry support services or sectors involving (International Mobile Telecommunication) high technology, or ones based in a foreign service, wireless Internet service, and expanded investment zone or free economic zone, currently digital broadcasting service. It will also benefit receive reduction on corporate, income, and from rising sales of software for wireless local tax. Potential investors can find out in communications, security, and web service advance whether their line of business is eligible solutions. Korea now has world-class ICT for the current tax relief program. Customs duty infrastructure well equipped with broadband reduction or exemption is also available on capital Internet and mobile communications. With a goods whose import declaration is completed goal to develop a new virtuous cycle, the Ministry within three years from the date of investment of Information and Communication (MIC) drew notification, as long as their intended use is

Greater Tumen Area Investment Guide | 33 REPUBLIC OF KOREA directly related to the principal business of the centre also provides financial assistance toward foreign investor. the cost of recruitment. Under the cash grant program aiming at attracting FDI with potentially high economic Looking Forward effects, eligible companies receive from the The ROK has been integrating itself into government a grant corresponding to 5 percent the world economy rapidly since the 1997 or more of their total investment in Korea. The economic crisis. The government has innovated exact amount of the cash grant is determined its business practices, promoting human resources through negotiations between the investor and and technology development and enhancing the government. To be eligible for cash grants, institutional efficiency. a foreign company must invest US$10 million Due to the economic crisis in 2008, world or more in a Korea-based firm engaged in an economic growth is forecast to be less than 1 industry support service or high-tech business, percent this year and the Korea’s ability to sustain or in a green-field investment project in parts a recovery in domestic economy will be challenged and materials manufacturing. The percentage to some extent. The International Monetary Fund of foreign equity, furthermore, must be no less expects Korean economy to begin recovering in than 30 percent. R&D labs and construction the latter part of the year but to show an overall or expansion projects for non-profit R&D contraction for 2009. As the shrinking domestic corporations are also eligible for the grant economy and the global economy crisis, FDI will program. also be tested this year. Nevertheless, with the The government makes industrial sites within seating of a new business-friendly administration specially-designated zones available to all foreign- notable FDI inflows are expected in the service invested firms meeting a certain minimum set of sector, focusing on financial services and logistic requirements. Land within these zones is provided industries. either free of charge or at low cost. Individual- The timing and strength of the economic type foreign investment zones, complex-type recovery will depend largely on the pace of foreign investment zones, free trade zones and free corporate sector restructuring, household economic zones make up the four main categories adjustment to reduced job security and investor of such zones. confidence in Korea. The Government remains Financial support refers to financial aid toward committed to reform and will continue to the cost of staff education and training, the cost implement financial and corporate restructuring of hiring staff, and projects to build infrastructure while pursuing flexible macroeconomic policies within a foreign investment zone or to enhance conducive to growth. Korea's long term-goal is to the living environment within it. Aid under this create economic structure in order to leap into the program is currently extended to companies international economy and meet the challenges in which the foreign equity stake is at least of the 21st century. 30 percent or in which a foreign company or individual investor is the largest shareholder. Region Focus To support R&D activities by foreign invested companies in Korea, the government The Republic of Korea’s eastern port cities are commissioned Invest KOREA to operate included in the GTI programme. Of the ports the R&D Human Resources Development of Busan, Ulsan and Sokcho, it is Sokcho, the Program. Through this program, the government smallest of the three, that is most focused on contributes toward the wages and compensation by the GTI. of R&D staff employed by eligible companies. Meanwhile, a special human resource support centre has been set up to help foreign-invested companies to meet their recruitment needs. The

34 | Greater Tumen Area Investment Guide REPUBLIC OF KOREA

of paddy fields total around 566ha, and rice Sokcho is the main crop cultivated in the area. In addition to this rice, potatoes, corn and beans are also cultivated in Sokcho. Nevertheless, the agricultural industry has seen a rapid decline similar to the mining industry. Fishing and the fishery industry plays a significant role in the local economy in Sokcho. Local products include wall-eyed pollack and cuttlefish. However, recently as the population engaged in fisheries has declined, the local government in Sokcho has encouraged the fishery industry through several different channels. For instance, the local government plans to construct a large fishery industrial complex by the end of 2009, which will develop the idustry as a local specialty in Sokcho. Due to the abundant natural resources and beautiful sceneries, tourism industry is also one Sokcho is a city located in Gangwon Province in of the main industries driving the local economy. the east port area of the Korean peninsula. It has The city attracts about 11.8 million visitors the infrastructure to support the development of annually to its various tourist attractions such the city. Until the opening of the international as Mt. Seorak, National Park and the coastal airport in Yangyang County, Sokcho had its own beaches alongside the East Sea. As the number airport, linking the city to Seoul. In addition, of domestic and foreign tourists have increased Sokcho is equipped with well paved road systems. continuously, the local government has also been Major roads in Sokcho have been extended from making attempts to develop the city as a tourism 3,962 kilometres in 1971 to 9,641 kilometres in hub for the East Asian region with the immediate 2007. Main ports, located along the coast of the goal of attracting 2 million tourists from overseas East Sea, link the city to other regions abroad. For by 2010. The specialized tourism resource sites instance, the port of Sokcho plays an important include eco-friendly lake culture sites in and role as a bridge to the North-East Asian region. around Chuncheon, marine tourism in the South Since a ferry route connecting Zarubino (Russia) coastal area, DMZ museum. and Sokcho opened in 2000, the port of Sokcho Given its commercial potential and geographical has functioned as a direct route linked to Russia. convenience, Sokcho has great potential for being A new triangle ferry route connecting Zarubino developed as a regional hub among the North- (Russia), Nigata (Japan), from Sokcho schedules East Asian countries. According to the local to have its initial shipping service on this coming government’s development policy, Sokcho tries to April/May in 2009. attract investors and allows them to be eligible for The mining industry has been declining since a variety of official supports and incentives such as the Korean government perceived it as a sunset tax reductions and exemptions buying of national industry in the late 1980s. Therefore, the number or public land, free infrastructure. With these of mining related company has been contracted concrete efforts for local development, Sokcho is by more than a half from 233 in 1988 to 112 in expected to grow as not only a fascinating tourism 2006 during the past two decades. site but also an attractive investment site. The total acreage under cultivation amounts to about 9.5 percent. Among them, the amount

Greater Tumen Area Investment Guide | 35 REPUBLIC OF KOREA

of the art port infrastructure. Especially, Ulsan Ulsan port plays a central role as a logistics hub for exporting and importing. It is a Korea's largest industrial port with the possession of 16 percent of the nation's export and import transactions, which account for 164 million tonnes of cargo every year. In addition, Ulsan’s new port is scheduled to be completed by 2020. This new port is expected to have a 28 berth capacity, handling an additional 28 million tonnes of cargo every year. Large scale industrial complexes gather in Ulsan. Two of the largest industrial complexes in Korea, Ulsan such as Ulsan-Mipo National Industrial Complex and Onsan National Industrial Complex, are located in the city. In addition, Ulsan is developing two regional industrial complexes in order to expand the opportunity for investment. For instance, the Ulsan New Industrial Complex, located just 14 kilometres away from Ulsan New Ulsan is a port city located in the south-eastern Port, is scheduled to be completed by 2011. part of the Korean peninsula. The total population Automobile manufacturing occupies significant is 1.1 million. The region has reputation as an part of Ulsan’s industries. The total amount of the industrial city in Korea. Around 12.6 percent of automobile production reached around US$25 Korea's total industrial output comes from Ulsan. billion in 2007, which accounted for about 25.7 In terms of export sales, it has posted more than percent of the national total. Hyundai Motor US$55 billion, which accounts for about 17 Company, which is the biggest automobile factory percent of the national total. In addition, Ulsan in the world, has a plant in Ulsan; moreover, 900 has higher per capital labour productivity than auto-parts manufacturers produce 1.6 million any other city in Korea. It totals US$35,000 on units of automobiles every year. annual basis, which is much higher than Seoul's Shipbuilding is an essential part of the US$18,000. As an industrial city, Ulsan is fully manufacturing industries in Ulsan. The total equipped with a well organized infrastructure. amount of the production reached around US$13 Ulsan has a convenient road and rail system billion in 2007, which accounted for about 39 connected to other metropolitan cities like Seoul percent of the national total. There are about and Busan. The Seoul-Busan Express highway and 30,306 employees engaged in the shipbuilding 5 national and local road routes facilitate logistics manufacturing in Ulsan. The number occupies and transportation. There is also a railway which 33.9 percent of the national total in the field links Ulsan's national industrial Complexes and of shipbuilding industry. As a representative ports to other cities in Korea. Recently, a KTX company, there is Hyundai Heavy Industries, the (Korea Trail Express) line linking Seoul and biggest shipbuilding company in the world, with Ulsan has been constructed, and it takes only an around 15 percent share of the market. Besides two hours to move between the two significant ship building other ship related companies are cities in Korea. concentrated in Ulsan as well. Ulsan has a domestic airport directly connected Ulsan owns about 30 percent of the Korea's to Seoul and Jeju Island and Gimhae International output in petrochemicals. The total amount of Airport. It is just an hour's drive away. the production was around US$51 billion in As a port city, Ulsan is fully equipped with state 2007, which accounted for 36.4 percent of the

36 | Greater Tumen Area Investment Guide REPUBLIC OF KOREA national total. With purpose of enhancing the competence of the chemical industry, the Ulsan fine Chemical Industry Center was established in 2007. The centre has mainly been contributing to promoting chemical technologies. Also, there are a number of global chemical companies including SK petrochemical, Samsung fine chemical, LG chemical and DuPont including around 170 other chemical companies as well. Ulsan plans to continue innovation within the main industries such as auto manufacturing, shipbuilding and chemical industries. Ulsan grow into the largest container handling port is also actively involved in the promotion of in Korea and the fifth largest in the world. In new industries like tourism, mechatronics and addition, with rising reputation of beautiful industry-supporting service business. Through scenery and natural resources, Busan is emerging this consistent innovation, the city hopes to as an international tourism city. emerge as an economic hub of North-East Asia. As the starting point for a New Silk Road across the Eurasian Continent, Busan has an excellent Busan infrastructure in transportation. Busan is well connected to other important NORTH KOREA cities like Seoul and Ulsan by rail. The two final e arcafion Lin em D sections of the Seoul-Busan High Speed Rail network are scheduled to be completed in 2010, SEOUL Ullung-do If the railway is constructed, travel time between Inch'õn Pukp’ yong- two cities will take only two hours. dong With a growing number of international flights,

Yellow Gimhae International Airport has been playing an Sea Pohang Kunsan important role in Busan. It handles around 241 Taegu international flights a week to and from 30 cities UIsan Masan Chinhae in 7 countries. To meet the increasing demand for Kwangju international services, Busan has plans to build Mokp'o Busan Yosu another airport. The Port of Busan is renowned as the third- Korea Strait largest container port in the world with a handling Cheju-do capacity of 13.26 million TEUs (2007). The port JAPAN was the first international port in Korea and is the fifth largest port in the world in terms of cargo tonnage. In addition, Busan New port is under Busan is a city located in the south-eastern tip construction and scheduled to be completed in of the Korean peninsula. It is the second largest 2015. The new port is expected to accommodate city in Korea with the size of around 765.10 30 berths with the container handling capacity of square kilometres, which equates to about 0.8 8.04 million TEUs. percent of the whole country. According to the In order to develop as a global city in North- census investigated in 2008, the number of local East Asia, Busan has been trying to reorganize its population reached approximately 3.7 million. industrial structure. For instance, Busan selected Busan is famous as a port city as well. The city ten strategic industries with great potential for is blessed with natural conditions such as a deep growth and for leading the economy of Busan. harbour and favourable tides; this has helped it There are two groups selected for intensive

Greater Tumen Area Investment Guide | 37 REPUBLIC OF KOREA investment. First, port logistics, equipment and spare parts, tourism and convention, multi-media and IT industries were selected as core strategic industries. Second, local strategic industries will also be intensified including the futures and financial industry, marine and bio sector, silver industry, footwear industry, fisheries and processing industry, textile and fashion industry. Port logistics naturally plays an important role in Busan. There are currently large projects underway within the industry Among them, the Busan New Port Logistics Complex is one of the examples that the authority has actively been implementing. Once the project is completed, it is expected that around 4,500 new jobs will be created with generating US$740 billion won in operational revenue and US$3.5 trillion won in extra revenue. Busan is going to keep enhancing its business environment under the Busan Vision 2020, which aims to position Busan as a logistics, industrial, and cultural hub of North-East Asia by 2020.

38 | Greater Tumen Area Investment Guide REPUBLIC OF KOREA

REPUBLIC OF KOREA Resources

Andrea Matles Savada and William Shaw, Korea Semiconductor Industry Association 1990, editors, South Korea: A Country www.ksia.or.kr Study. Washington: GPO for the Library of Congress. KOTRA www.countrystudies.us/south-korea www.english.kotra.or.kr

The Asian-Oceania Computing Industry Ministry of Culture, Sports and Tourism, Organization (ASOCIO) ROK www.asocio.org www.korea.net

The Bank of Korea Ministry of Knowledge Economy, ROK www.eng.bok.or.kr www.mke.go.kr

CIA Library Seoul Expert www.cia.gov www.seoulkoreaasia.com

Young-Jae Joen, 2009, Boosting FDI The website of Sokcho City Competitiveness during a Recession, Jan. 16, www.sokcho.gangwon.kr www.seriworld.org The World Bank web site KOREA Net www.web.worldbank.org www.korea.net

Ulsan Resources

Hyundai Heavy Industries Ulsan Metropolitan City Official Website www.english.hhi.co.kr www.english.ulsan.go.kr

Korea.net Ulsan Fine Chemical Industry Center www.korea.net www.english.ufic.or.kr

Busan Resources

Busan City Official Website Invest Busan www.english.busan.go.kr www.investkorea.org

Busan Chamber of Commerce and Industry Website www.epcci.or.kr

Greater Tumen Area Investment Guide | 39 RUSSIAN FEDERATION Russia is the largest country on earth and constitutes more than one-ninth of the world’s land area. It includes a collection of diverse territories at different stages of their development.

Full name: Russian Federation Capital: Moscow Land area: 17.075 million sq km Population: 142.5 million

Economic Overview fiscal policy. Although these developments are ongoing the achievements thus far have steadily Russia is the largest country on earth and raised investor confidence and Russia’s economic constitutes more than one-ninth of the world’s prospects. This was made evident in the period land area. It includes a collection of diverse between 2005 and 2007 when FDI figures rose territories at different stages of their development. from US$14.6 billion to US$30 billion. Russia’s economy is the tenth largest in the world This exemplary decade of growth was initially and is centred around its key natural resources, driven predominantly by a weakened rouble oil and gas, heavy industry and more recently a and high oil prices but since 2003 domestic growing commercial agricultural sector. Blessed demand and most recently investment have with 20 percent of the world's oil and gas. played increasingly significant roles. Building up Russia is a global energy leader and able to fuel to 2007 Russia used its stabilisation fund based any industrial economy. Other chief exports on oil taxes to repay significant debts. Oil export include wood, wood products, metals, chemicals, earnings also allowed Russia to build up foreign weapons and military equipment. reserves to US$470 billion at yearend 2007. The Russian economy underwent tremendous This meant Russia entered the financial crisis difficulties while converting to the free market in with strong macroeconomic fundamentals and the 1990s. These problems were to be exacerbated has been better placed to deal with it than many by lower international prices on Russia’s major other emerging markets. export earners and loss of investor confidence At the other end of the spectrum, such a high ensuing from the Asian Financial Crisis. dependence on one commodity has meant the Russia weathered the crisis well though and impact on Russia has been more pronounced. regained its confidence in the nine years leading As the recession has set in more deeply so to up to 2007. Between 1999 and 2007, it realized the precipitous drop in production has lead to an impressive 83 percent growth partly due substantially lower oil prices in line with demand. to the favourable commodity prices but also Russia’s stock market decline in November 08 can because of the important reforms that Russia be largely attributed to the lower oil price along was able to implement under Putin’s first term. with the decrease in investor sentiment. Prudent These economic reforms took place in the areas fiscal management and substantial financial of tax, banking labour and land codes, and tight reserves along with a swift and coordinated

40 | Greater Tumen Area Investment Guide RUSSIAN FEDERATION government policy response proved invaluable Russia is an attractive investment region with a and have helped limit the impact. large population that has an increasingly higher Household consumption and fixed capital purchasing power. A large consumer base with investments have both grown by about 10 percent a growing percentage of consumer disposable per year between 1999 and 2007 have replaced. income has been driving expansion in retail, Inflation and exchange rates have stabilized due healthcare, financial and medical segments. to a prudent fiscal policy. This has been extremely encouraging for an Manufacturing has been responsible for fuelling economy in need of sector diversification. Most the industrial growth in Russia. Most recent encouraging though is that markets are far from figures show that manufacturing grew at 8.2 saturated. We have also seen large and positive percent year on year in September 2008, which strides taken to continue reforms within the is a similar to previous years. These figures are country as well as the encouraging results of expected to show a slowdown in the last quarter prudent and effective fiscal policy. of 2008 and beginning of 2009 though. Russia Over the past eight years, Russia’s robust growth also needs to be aware that the manufacturing has reduced poverty. Real GDP per capita grew on base needs to be refurbished or modernized to average by about 7 percent a year between 2000 achieve broad based economic growth. and 2007. Meanwhile, the poverty headcount Russia faces challenges in 2009, like the rest rate declined from 29 percent in 2000 to 13.4 of the globe, in trying to deal with contractions percent in 2007. This implies that approximately born out of the financial crisis. Russia has had 30 million people appeared to have moved out of the benefit of a huge reserve to help stabilize the poverty between 2000 and 2007. situation. Production has indeed fallen for the first GDP (PPP US$) per capita, 1980-2007 time in a decade but authorities are in a strong 40,000 Russian Federation OECD position and have larger artillery of policy options 30,000 than many others. It has run a current account 20,000 surplus for many years, yet it has also been hit 10,000

0 by capital outflows of late and a credit freeze. In 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 addition, with the oil price having dropped to as low as US$35 a barrel in the first quarter of 2009 Source: World Bank and expected to remain low, we are likely to see a contraction of the Russian economy in 2009. Mineral Resources Manufacturing and in-turn aggregate demand should lose the momentum carried through as Russia contains great reserves of mineral resources. production based on past orders subsides and as It is especially rich in mineral fuels and is the economy tightens. Total investment-to-GDP estimated to hold as much as half of the world’s remains at about 22 percent. potential coal reserves and is also said to have A slowdown is not without a positive spin-off. more petroleum reserves than any other nation. A rise in inflation and a simultaneous decline The Ural Mountains are more than generously in employment as well as capital utilization and blessed with natural resources as are Siberia and real wages outpacing output growth have been the Russian Far East which hold vast deposits of warning signs of overheating. As the country oil, gas, coal and timber. Although minerals are is underdeveloped, once the economy has had abundant, many are in remote areas with extreme time to address the infrastructural constraints climate conditions, which make them difficult and cool off, so too could expectations of above to extract in addition to being far from Russian average future growth be expected. Indeed, some ports. In spite of this though, Russia is a leading of slowdown represents a welcome cooling off exporter of minerals, gold and all major fuels. that will help to reduce inflation from the current The economic zone along the 37,653 kilometre- high levels. long coastline (Arctic and Pacific Oceans, Baltic,

Greater Tumen Area Investment Guide | 41 RUSSIAN FEDERATION

Black and Caspian Seas) also holds significant two prominent tributaries from the main line reserves of oil and natural gas on the sea shelf. which feed down into China via Ulaanbaatar and Although energy fuels dominate Russian exports, Kharbin respectively. there is a much wider array of natural resources Total length of road network amounted to than simply the oil, gas and coal deposits that 933,000 kilometres of which 754,984 kilometres have traditionally driven the economy. Deposits is paved. include diamonds and a myriad of strategic St. Petersburg remains the main port of minerals. entry for a variety of consumer and industrial After energy fuel revenues the metallurgical products for European Russia (Russia west of and extraction industries contribute the most the Urals). Vladivostok is the main port of entry to the national economy. Together according for the Russian Far East. Other major ports in to the Russian Federal Statistical Institute terms of tonnage shipped through the facilities these industries attracted about 20 percent of on an annual basis include Azov, Kaliningrad, total investment into the economy in 2006. Nakhodka and Novorossiysk. Production in the mineral sector has been highly A 2007 figure showed a total of 601 airports concentrated. For more than 10 minerals, the with paved runways (concrete or asphalt surfaces. majority of production was conducted by one Only airports with usable runways are included company. As an example, Gazprom controlled in this listing. Not all of these airports though almost the entire production of natural gas have facilities for refuelling, maintenance, or air in Russia and Noril’sk Nickel Mining and traffic control. Metallurgical Company (MMC) produced more In addition to this Russia also has pipelines used than 90 percent of Russian nickel and platinum- for transporting products like natural gas, crude group metals. ALROSA Company Ltd. also oil, or petroleum products. In 2007 pipelines laid produced almost all the country’s diamonds. for gas, oil and refined products totaled 158,699, The Ministry of Natural Resources reported that 72,347 and 13,658 kilometres respectively. the copper and other mineral industries also are highly concentrated but circumstances are much Industries and Agriculture better for coal and alluvial gold. Russia is one of the most industrialised of the former Soviet republics. Many years of low Infrastructure investment have left much of the infrastructure in Major Western freight forwarders and express need of refurbishment. This will be an important couriers are active in Russia. In general, the focus if Russia is to remain competitive and stride transportation infrastructure in this vast country forward to achieve the broad growth that needs is still underdeveloped and in need of major to continue. upgrades. The majority of cargo moves by rail and Besides its resource-based industries, Russia the road but the network needs to be expanded. has developed large manufacturing capacities, Total route length of the railway network in notably in metals, food products, and transport 2006 equated to 87,157 kilometres of which equipment. Russia is now the world's third- broad gauge rail made up 86,200 kilometres and largest exporter of steel and primary aluminium. narrow gauge accounted for 957 kilometres. An Russia inherited most of the defence industrial additional 30,000 kilometeres of non-common base of the Soviet Union, so armaments remain carrier lines also serve industry. Well known is the an important export category for Russia. Efforts Trans Siberian Rail system whose chief line runs have been made with varying success over the past from Moscow to Vladivostok, it is an efficient few years to convert defence industries to civilian means of transporting goods between the Asian use, and the Russian government is engaged in an and European economies. The Trans Mongolian ongoing process to privatize many of the state- and Trans Manchurian Railways stand out as owned enterprises. Russia also has an abundance

42 | Greater Tumen Area Investment Guide RUSSIAN FEDERATION of forests and as a result has competitive timber Plots averaging one acre in size, urban and and timber processing industries. suburban gardens, and gardening cooperatives With a strong need to diversify the economy produce over half of Russia's food output. The and a notable strengthening of domestic demand practice of buying and reforming collective farms in recent years there will undoubtedly be has proved lucrative and will assist in aims at encouragement and opportunity for growth in becoming a leading grain trader. It is estimated a range of sectors. The telecommunications, that all main agricultural land will have been computer hardware and software, drugs and sold by the end 2009. Profitability is, however, pharmaceuticals, agricultural equipment, food still highly dependent on proximity to major and food processing and medical equipment urban markets and foreigners are not allowed markets are all examples of industries that have to own farmland, although long-term leases are show growth on the back of a strengthening permitted. economy that is driven largely by increasing consumer spending. Trade Partners Russia has relatively little area for agriculture, Russia is positioned to benefit easily from trade but given its massive expanses, the country still with both Europe and Asia. China was Russia’s accounts for about 9 percent of the world's arable fourth largest export partner in 2006 behind land. The story of the burgeoning agricultural the Netherlands, Italy and Germany. The sector has been a notable development in the Ukraine, Turkey, Belarus, Switzerland, Poland economy. Soaring global food prices spurred an and the United Kingdom were the next largest agricultural revolution in rural Russia. Grain contributors. Of the GTI member countries production for export is concentrated in the China and ROK were the second and sixth most south of European Russia, with additional grain important Russian import partners respectively for domestic consumption grown throughout (2006). Germany was Russia’s top import partner the rest of non-Arctic Russia west of the Urals with the Ukraine, Japan, and Belarus placing as well as western Siberia. Livestock production above the ROK in this measure as well. Sixty- was in decline from 1990 to 2006, when new three percent (2006) of the total value of Russian government support policies were instituted exports were gained from fuels and lubricants. The to stimulate cattle and hog raising. Poultry next largest contributor was manufacturing which production has rebounded and is rising at 17 brought in 14.5 percent of total value. Crude percent per year. materials (excluding fuel), Chemicals and related Although current average grain yields are products and machines and transport equipment a low 1.85 per hectare (compared to 6.36 in each totalled about 43 percent (2006) of total United States and 3.04 in Canada) Russia is the exports. Russia’s main imports were mainly of fifth largest exporter of cereals in the world and machines and transport equipment, which made produced 13 million metric tonnes of grain from up 43.5 percent of total imports. Chemicals and 2007-2008 and earned US$3.5 billion in revenue. related products, manufactured goods and food That figure is expected to rise in the 2008/09 and live animals all made up close to 12 percent season with projected harvests of 15 million of the total figure. metric tonnes and as much as 25 in the next 5 Russian has been working hard to build a years. If Russia could elevate itself to a position diversified presence in international trade over the global food supplier it could potentially alleviate last year. This has been done primarily through food prices and make significant contribution a purposeful effort to assist domestic business to reducing world hunger. Russia’s agency for in developing traditional and getting into new regulation of food prices will manage country’s markets, above all for science-intensive products 28 biggest grain elevators and is projected to and high technology goods. Russia's economy control 40 percent to 50 percent of cereal exports is set to become increasingly diversified. It has a by 2011.

Greater Tumen Area Investment Guide | 43 RUSSIAN FEDERATION highly educated workforce and is able to provide rouble positions held by foreign investors betting a market for a wide range of technologically on further rouble appreciation. sophisticated products. There are very few Extraction industries accounted for about half of countries able to offer such a broad a range of the FDI in 2007. The fall in 2008 was largely due partnership opportunities or capabilities for to decreased FDI in these particular industries. cooperation in scientific or technical spheres According to Rosstat, FDI flows in extraction Russia's overall trade surplus in 2007 was industries were only USD2.5 billion in the first US$132 billion. World prices continue to have half of 2008, down from US$13.9 billion for all a major effect on export performance, since 2007. The new law governing foreign investment commodities--particularly oil, natural gas, metals, in companies with strategic importance has also and timber--comprise most of Russian exports. caused a move away from extractive industries Russian GDP growth and the surplus/deficit in in addition to the dwindling investor sentiment. the Russian Federation state budget are closely There appears to be a clear shift towards the linked to world oil prices. recently more liberalized electricity sector. Discussions continue over Russia’s accession In 2005 the Russian government passed law to the WTO. Russia continues to maintain a on the special economic zones (SEZs). These number of barriers to with respect to imports and were to be in place for a period of 20 years negotiations surround the modification of these with the aim of encouraging hi-tech industrial measures in order for them to meet internationally production business or progressive R&D zones. accepted trade policies. In November 2005, a tender was announced and the establishment of six SEZs: in Zelenograd Foreign Direct Investment and Dubna in the Moscow region (focused and Policies on microelectronics and nuclear technology, Until recently, few of the profits from the fuel, respectively), St. Petersburg (information gas and mineral industries were not substantially technology), Tomsk (new materials), Lipetsk reinvested in Russia. Continuing political and (appliances and electronics), and Yelabuga (auto economic stability, however, has encouraged components and petrochemicals). Subsequent successful industrialists to seek investment tenders for additional economic zones have since opportunities in high-growth sectors within announced in addition to the above mentioned. Russia such as agribusiness, food processing, As a whole investment in Russia remains automotive, retail and telecommunication. substantial; Rosstat reports that as of October Significant levels of capital moved into Russia 1, 2008, the accumulated foreign investment in 2007. The capital account balance was reached US$251.3 billion. The size of investment US$84.3 billion, compared to US$6.1 billion abroad by Russia amounted at the same date in 2006. In addition to this net private capital amounted to US$91.3 billion and for the first flows also increased in 2007 to US$81.2 billion time in recent years outflows surpassed inflows. from US$40.9 billion in 2006. Foreign direct The Russian investment climate, despite the investment (FDI) flows continued to improve in deterioration world economic environment, 2007 to US$52.5 billion compared to US$32.4 remains generally favourable. Russia remained billion in 2006. the largest markets for investment for the After peaking in 2007 though a sudden reversal International Finance Corporation (IFC) and in of capital flows was witnessed. The surplus of the European Bank of Reconstruction and the capital account for the first three quarters Development (EBRD). Their investment, of 2008 was only US$500 million, compared predominantly in the private sector of the to US$59.3 billion in the same period in 2007. Russian economy, amounted to US$2.8 billion The two main factors behind this sudden change and US$10.5 billion respectively. Russia also top were firstly attributed to a change in investor among beneficiary countries of the Multilateral sentiment and second, a result of unwinding of Investment Guarantee Agency (MIGA).

44 | Greater Tumen Area Investment Guide RUSSIAN FEDERATION Looking Forward in education and health and also ensuring the The governing arrangements will be essential to availability of adequately priced housing is an prevent the current financial crisis from becoming essential prerequisite to ensuring economic an economic one. Short term macroeconomic growth. stability will no doubt be the immediate focus It is encouraging to see Russia’s progress when as policy makers grapple with new market comparing the recent crisis to that of 1998. conditions. 2009 may call for a well conditioned Russia’s policy has been shown to be more robust, and structured fiscal stimulus package if the transparent and as a result more effective. In slowdown is to continue. Given that the economy September of 2008 the country faced similar operates below its potential and reserves remain financial turmoil and circumstances as well as a strong, Russia could be a good candidate for such declining oil price. Russia in 2008 though had stimulus as inflation subsides. A transparent and the world’s third largest external reserves and was effective stimulus would hopefully facilitate a in a strong fiscal position. In 1998 government rapid recovery of FDI and private investment. reacted by devaluing the rouble and defaulting Middlle and longer term opportunities exist to on debt while in 2008 the government swiftly emerge from the downturn as a more competitive boosted liquidity and provided capital injections and economically diverse business place with a to the banking system and ensuring repayment of modernized financial sector. Productivity growth external obligations. The benefit of being cash rich has been high but productivity itself is still well allowed the reserve bank to alleviate confidence below the average level in the manufacturing concerns and resulting liquidity issues effectively sector in OECD countries. Further growth in and also to prevent panic selling amidst concerns the area is crucial to encouraging sustainable of large losses. economic growth and improving competitiveness Although the economy has begun to diversify, in the global market. If further reforms could be the government budget remains dependent on oil taken in the areas of financial intermediation, and gas revenues; consumption and investment infrastructure refurbishment, privatization of are, however, contributing to an increasing share agricultural business and continued dominance to GDP growth. While currently sheltered from of natural monopolies could position itself external price shocks, the government realizes the as much better able to take advantage of the need to intensify reforms that will promote new global integration possibilities they are in such investment in aging infrastructure and continued need of. productivity gains. The government believes it can To diversify through greater openness means to do this by creating state-sponsored investment create a more stable economy for investment to funds, special economic zones, and by exercising feed off; a place for technologies to grow and be control of strategic enterprises (a law defining brought in. The encouragement of diversification strategic sectors was passed by the Duma in March is linked closely with the challenge of integrating 2008). In 2005, the government announced further into the world economy. By encouraging reform programs in four priority areas (health, ease of business and stable environment in which education, housing, and agriculture), but further to foster business the country can pave the way to work is needed on them as well as in financial better harness the benefits of world trade. Greater regulation, civil service reform, and reform of diversification of the economy is also needed to government monopolies, such as railroads, gas, address poverty and inequality. Growth has been and electricity. steady but it has also been lopsided and poorer Russia entered with fiscal reserve cushions and regions and segments have fallen further behind. large resources and government was allowed a Encouraging small and medium enterprise is one lot more policy options and room to manoeuvre way of ensuring growth is more broad-based. to limit the crisis on the economy. World Bank Building the country's human capital by however predicts the economy will grow at 3 increasing the social spending and investing percent (compared to global projection of 0.93

Greater Tumen Area Investment Guide | 45 RUSSIAN FEDERATION percent) this year in light of the current global situation. Growth is expected to pick up to an average of 4.7 percent between the years 2010 and 2013. Unemployment may rise moderately also this year to 5.9 percent from 5.3 percent, which is a reflection of losses through labour intensive sectors like construction, trades and services. Investment risk predominantly stems from lack of diversity in the economy. The entire economy is to a large extent dependant on the oil and energy square area is forested. industries and in order to become a more varied In Primorsky Territory, there are 14 scientific- economy the construction, fast moving consumer research institutes with the Far Eastern Branch of goods (FMCG) and manufacturing need to the Russian Academy of Sciences, and 12 branch continue to gain importance and strengthen as scientific research institutes carry out activities they have done in recent years - There has been a in the Territory: TINRO-center, International lot of duplication between here and above section institute of conjuncture and prognostics, Far (challenges and opportunities). Eastern marine scientific research institute, Institute of medical climatology and recovery Region Focus treatment of Siberian Department of Russian Academy of Medical Science. There are 11 state higher education institutions (including Primorsky Krai Far Eastern State University, Far Eastern State

KHABAROVSKY Technical University, G. I. Nevelskoy Marine KRAI

The Japanese Sea State University), 47 institutions of secondary trade education, including 24 state independent, 7 private, and 15 in the structure of higher education institutions. Dalnerechensk Lesozav odsk Economy The Primorsky Territory is not only the largest Dalnegorsk economy in the Russian Far East and the

CHINA Tumen Region, but it is also the most balanced and diversified. The majority of the province’s PRIMORSKY KRAI output is generated in the southern part of the Vladivostok Primorsky territory near the Tumen river delta. Peter the The territorial centre is Vladivostok, making up Great Bay some 607,000 of Primorsky’s 2.005 million strong population. Primorsky Territory Primorsky Territory is located in the south-eastern Natural Resources part of the Russian Federation. It is bordered Primorsky Territory is rich in natural resources, by the East Sea/Sea of Japan, China, and the and relies heavily on their processing and trading Democratic People's Republic of Korea. Most of these resources. The territory is blessed with of Primorsky Territory is mountainous, with the deposits of bitumen, brown coal, fluorspar, 2,000 kilometre-long Sikhote-Alin Mountain tin, bromide, lead, tungsten, boron, wolfram, range occupying most of the eastern territory. germanium and germanium-bearing coals and Seventy-five percent of the 165,900 kilometre- zinc. The Primorsky Territory in fact has two-

46 | Greater Tumen Area Investment Guide RUSSIAN FEDERATION thirds of Russia’s total fluorspar reserves and up handle the majority of the freight concerning to 30 percent of the world’s. Raw materials for the Russian Far East. Of the ten major Russian non-ferrous metallurgy development include shipping companies five are based in the Far gold, copper, molybdenum. Coal mining provides East. The transport sector has grown in recent most of the region with is energy and employs years and is overwhelmingly export-oriented. over 28,000 people. The ports of Nakhodka and Vostochny each Agricultural resources are centred around Lake have handling capacity of 15 million tonnes per Khanka and southern Primorsky, the warmest year, compared to 3 million tonnes at Rajin port parts of the Territory. Most output is based on (DPRK) and about 1 million each at Zarubino grain, soyabean, potato and crops for animal and Posiet. Zarubino currently handles metals, fodder, but a sizeable portion of agricultural refrigerated cargo and timber. Posiet handles output is livestock-based (meat, milk, and deer bulk cargo (coal, tiber and metals) and some and mink farming). Primorsky is self-sufficient containers from Yanbian Prefecture in China. in vegetables, meat and dairy products and also Almost all types of transport; ships, rail, road has thriving medicinal plant, wild berry, apiary, and air are well developed. The ice-free Port medicinal mud and mineral water industries. of Vladivostok is situated on the north western The Primorsky’s coastline is rich in sea-life coast of Golden Horn Bay. It has developed cargo and enables the fishing industry to bring in a handling infrastructure which, together with its significant proportion of Russia’s total fish catch. advantageous location, determine its key role in Seafood exports from the Primorsky region rose Russian trade. The main industries of by 19 percent in 2008 when compared with the The Port of Vladivostok situated on the north prior year. Of these exports the dominant trading western coast of the ice-free Golden Horn Bay. partners were South Korea, China, Japan and Advantageous geographical position of the port Germany. that is located at the crossroads of International In addition to the above resource the region’s transport corridors, as well as developed cargo forests also support the lumber and building handling infrastructure predetermine its key materials industries as well as recreational tourism role as one of the most leading ports in Russian sector. This multi-sectoral economy also enjoys Far East. The commercial fishing industry is healthy farming, communications and services the most important and makes up a significant sectors. amount of the city’s output. In addition to this The Vladivstok Port handles vast amounts of Infrastructure imported and exported cargo, has an oil terminal The total operational length of rail lines in with a 25,500 ton capacity and the city’s naval Primorsky Territory is 2,061 kilometres while base is also situated here. the total length of roads is approximately 9,522 Banking infrastructure of Primorsky Territory is kilometres. There are 16 sea ports and port represented by nine regional credit organizations points are operating in the territory. Vladivostok (including two non-banking), 17 affiliates of the Airport (with international service area) ensures local banks and 25 affiliates of banks of other acceptance and dispatch of cargo and charter regions. In the Territory there are 59 insurance aircrafts. Specially noted is the Trans-Siberian companies, including 19 regional and 40 affiliates Railroad which is the shortest link North-East (representations) of the insurance companies Asia has to the European market. This line of other regions; seven leasing companies; five terminates in Nakhodka and Vostochny port non-government pension funds, two affiliates regions of the Primorsky Territory and is the of the branch non-government pension funds; quickest and most cost effective means connecting organizations providing consulting services in the North-East Asian to European Markets. the field of economics, audit and management. The transport industry in contributes greatly Primorye Chamber of Commerce and Industry to the Primorsky output. The ports there and Asia-Pacific inter-bank currency exchange

Greater Tumen Area Investment Guide | 47 RUSSIAN FEDERATION

(ATMVB) are operating in the territory. In 2007, the foreign trade turnover of Primorsky System of communications and connection is Territory totaled US$5.88 billion. Exports the most promising and dynamically developing accounted for US$1.604 billion (27 percent of infrastructure branch of Primorsky Territory, foreign trade turnover), while imports figured which has a potential for long-term economic US$4.278 billion (73 percent). The main foreign growth. All kinds of communication are actively trade partners of Primorsky Territory are the developing in the region. countries of the Asia-Pacific region: China (40 percent), Japan (31 percent), the Republic of Structure of the gross Korea (12 percent), and also the United States regional product (3 percent). In 2008 foreign, trade turnover of Transport and communications – 19.7 percent; Primorsky Territory totaled US$7.042 billion. trade, vehicle repair – 24.1 percent; processing Exports accounted for US$1.41 (20 percent of industry – 8.2 percent, fisheries and fish breeding foreign trade tirnover), while imports accounted – 5 percent; real estate operations, rent, et. – 8.2 for US$5.631 billion (80 percent). Main foreign percent; agriculture, hunting and forestry – 5.8 trade partners of Primorsky Territory are the percent; production and distribution of electric countries of the Asia-Pacific region: China (37 power and gas – 4.3 percent; construction – 4.2 percent of foreign trade turnover), Japan (33 percent; natural resources mining – 1.4 percent; percent), the Republic of Korea (12 percent) and other activities – 18.9 percent. the United States (4 percent). Coal and non-ferrous metals mining, ship repair, ship building and food processing are the Foreign investments largest industrial employers. Many former state In 2007, the foreign investments inflow to the owned enterprises from the Soviet era have been economy of Primorsky Territory totaled US$31.3 restructured or liquidated, and private sector million. In 2008, that investment grew 25.7 times firms now represent approximately 90 percent to reach US$799 million. The shares of direct of total enterprises. and portfolio investments are 16 percent and 10 226 companies and organizations are engaged percent respectively. in the extraction branch of industry, including 79 In 2007, 422 companies receiving foreign small business enterprises. In processing industries capital were operating in the territory. 4,899 enterprises are operating, including 1,759 The main spheres of activity where companies small businesses. with participation of foreign capital are operating Competitive is the product of timber and timber are transport and communications, agriculture processing industry, food industry (including and wood industry, processing industries, fish), non-ferrous metallurgy, chemical and wholesale and retail trade. Spheres of economy petrochemical industry. In agriculture, hunting attractive for investments include transportation, and forestry 2,964 enterprises are operating, communications, tourism, petrochemical and oil including 498 small businesses. In fish breeding processing, and timber and timber processing. and fisheries 578, including 269 small business enterprises are engaged. Primorsky Territory legislation

Gross regional product (billion Rubles) in the sphere of investments With a purpose of stimulating the investment 350 activity and attracting investments into the 300 314 250 261 region economy the Law of Primorsky Territory 200 226 No354-KZ of 10 May 2006. “On state support 192.6 150 152.3 of investment activity in Primorsky Territory” 100 124.9

50 is effective in the region. To form the favorable 0 investment climate there is a federal purpose 2003 2004 2005 2006 2007 2008 program. “Economic and social development

48 | Greater Tumen Area Investment Guide RUSSIAN FEDERATION of the Far East and Zabaikalye till 2013,” in in Primorsky Territory with the purpose of creating which is provided subprogram “Development the conditions for its favorable development are: of Vladivostok as the center of international granting tax benefits; issuing funded loans; cooperation of Pacific Rim” and also a “Strategy conclusion of concession agreements; assistance of social and economic development of Primorsky in including the socially important and most Territory for 2004-2010” is developed. efficient investment projects into the federal Realization of these programs ensures: purpose programs; organization of seminars, stimulating the inflow of internal and external conferences on the issues of conducting the investment resources into the Territory economy, investment activity, investment projects trade fairs; increase of investment attractiveness of the region, creation of information system for promoting development of priority economy branches. A the investment activity in Primorsky Territory. special attention is paid by the central government Reforms in other areas such as the banking sector to develop Primorsky because the APEC forum and growth of small medium enterprises will will be held on island “Russky” (near Vladivostok) lead to improvements in productivity and ensure in 2012. that Russia is able to emerge from the crisis in a State support of the investors, realizing the healthier and more dynamic economy. priority investment projects in Primorsky Territory, is provided in the following forms: state guarantees; granting budget loans; provision of budget resources for investment project financing; subsidizing a part of the interest rate on the gained bank loans. According to the estimates of the leading rating agency “Expert AA” on the results of 2007- 2008, Primorsky Territory takes 21st place for investment potential among 86 subjects of the Russian Federation, third among the regions of the Far Eastern Federal District (after Sakha Republic (Yakutia), Khabarovsk Territory). In 2007-2008, the value of investment risk reflecting the possibility of loss on investments was shown to have decreased in Primorsky. The territorial authorities in Primorsky are interested in stimulating the investment activity in the region and attracting investments into the territory's economy. The global crisis has thus far affected the forecasts for the Russian economy but the capable and comprehensive response dished out by the government has been able to limit its damage. The fact remains that Russia, especially Primorsky, not only has access to but indeed is part of the greatest growth story of our time. With the correct policies and further integration into world markets the Russian Federation can lay foundations that will ensure it takes full advantage of the opportunities on offer. Forms of the state support of investment activity

Greater Tumen Area Investment Guide | 49 RUSSIAN FEDERATION

RUSSIAN FEDERATION Resources

World Bank – Russian Federation CIA World Fact Book www.web.worldbank.org www.cia.gov

Bank of Russia U.S. Embassy in Moscow www.cbr.ru moscow.usembassy.gov

U.S. Department of State U.S. Department of Commerce – Doing www.state.gov/r/pa Business in Russia www.buyusainfo.net

Primorsky Krai Resources

Primorsky Territory Administration Russia Beyond the Headlines www.primorsky.ru www.rbth.ru

Global competitiveness report 2008-2009, Russia Today World Economic Forum (2008) www.russiatoday.com www.weforum.org Russian economic report no 17 Russian Ministry of Foreign Affairs World Bank Russia Country Office (economic www.mid.ru policy unit)

50 | Greater Tumen Area Investment Guide Annex 1: GREATER TUMEN INITIATIVE TUMEN SECRETARIAT Trade Development of North-East Asian Countries General Summary North-East Asia (NEA), a sub-region consisting of Democratic People’s Republic of Korea (DPRK), People’s Republic of China (“China”), Mongolia, the Russian Federation (Russia), Republic of Korea (ROK) and Japan, is one of the fastest growing economic regions in the world. Except Japan, all these countries are members of Greater Tumen Initiative – an intergovernmental cooperation mechanism in North-East Asia supported by the UNDP. Japan is participating in GTI events as an observer. Since its creation, GTI has remained a unique intergovernmental platform for economic cooperation, fostering peace, stability and sustainable development in North-East Asia. Moreover, it is playing a significant role in expanding policy dialogues and strengthening business-friendly environments in the region, contributing to the raising of living standards through development of interregional infrastructure and the promotion of trade and investments. I. Trade Growth in North-East Asia North-East Asian countries experienced incredible fast growth trade volume during the last years. All GTI members faced export and import boom after 2002 Asian Economic Crisis, with important highlight to China, Russia and Mongolia. China, Russia and Mongolia reached export volume growth rates between 2002 and 2006 of almost 200 percent, with a compound annual growth rate (CAGR ) of impressive 30 percent. ROK and DPRK export volumes more than doubled between 2002 and 2006, however with significant lower CAGRs of 19 percent and 20 percent, respectively, due to its difficulties of maintaining a steady growth in the period. Japan also faced a significant export growth of 55 percent between 2002 and 2006 and a CAGR of 12 percent.

Source: UNSD Annual Totals Table (ATT) for China, Chart 1.1 - NE Asian Countries’ Export Volume ROK, Russia, Mongolia and Japan figures. CRS Report (in US$ Billion) "The North Korean Economy: Leverage and Policy 1000 Analysis" - Mar 4, 2008 for DPRK figures. 900 800 700 600 500 400 300 200 100 0 2002 2003 2004 2005 2006

China ROK Russia Mongolia DPRK Japan

1 The compound annual growth rate, or CAGR, represents the year over year growth rate applied to a figure over a multiple-year period. The formula for calculating CAGR is: (latest value/base value)^(1/# of years) - 1.

"Trade and Development of North-East Asian Countries" prepared by Nataliya Yacheistova, Beatriz Mauro and Zhao Deyu.

Greater Tumen Area Investment Guide | 51 ANNEX 1

In addition to export volume growth, North-East Asian countries also experienced a strong import volume growth. China, Russia, Mongolia and ROK import volume growth between 2002 and 2006 was 168 percent, 198 percent, 114 percent and 103 percent, respectively, with CAGR for the period of 28 percent, 31 percent, 21 percent and 19 percent, respectively. Japan’s import volume grew by 72 percent in the period, with a CAGR of 14 percent. The DPRK, on the other hand, faced a significant lower growth as compared to its peers: 40 percent import volume growth between 2002 and 2006 with a CAGR of 9 percent. Source: UNSD Annual Totals Table (ATT) for China, Chart 1.2 - NE Asian Countries’ Import Volume ROK, Russia, Mongolia and Japan figures. CRS Report (in US$ Billion) "The North Korean Economy: Leverage and Policy Analysis" 800 700 - Mar 4, 2008 for DPRK figures. 600 500 400 300 200 100 0 2002 2003 2004 2005 2006

China ROK Russia Mongolia DPRK Japan

Overall, GTI countries’ trade volume when measured in USD grew by 160 percent between 2002 and 2006, with a CAGR of 27 percent. Including Japan, North-East Asian countries faced a trade volume increase of 120 percent in the period, with a CAGR of around 22 percent.

Chart 1.3 - NE Asia Countries’ Trade Volume Source: UNSD Annual Totals Table (ATT) for China, (in US$ Billion) ROK, Russia, Mongolia and Japan figures. CRS Report 1800 "The North Korean Economy: Leverage and Policy 1600 Analysis" - Mar 4, 2008 for DPRK figures. 1400 1200 1000 800 600 400 200 0 2002 2003 2004 2005 2006

China ROK Russia Mongolia DPRK Japan

II. Trade Partners of North-East Asian Countries North-East Asia’s tight regional integration can be confirmed by its countries strong and growing trade relationship. The percentage of import partners from peer countries (within the NEA region) of most of North-East Asian countries grew between 2002 and 2006, with the exception of China. Regarding export partners, the ROK and Mongolia expanded their export volumes within peer countries, while Russia, the DPRK and Japan slightly reduced the percentage of export volume from countries of North-East Asia. China once again diversified its export partners during this period, reducing the percentage of countries from this region.

A) China Between 2002 and 2006 China significantly diversified both its export and import directions, with a few countries (such as Germany and Singapore) observing its share of trade volume increase in the period. Export and import volume percentages from North-East Asian countries reduced from 38 percent and 40 percent in 2002 to 30 percent and 35 percent in 2006, respectively. However, it is important to

52 | Greater Tumen Area Investment Guide ANNEX 1 highlight that both the ROK and Japan have been continuously among top five trade partners, stating the importance of Greater Tumen Initiative for the Chinese economy and population.

Chart 2.1 China’s Main Export Partner in 2006 Chart 2.2 China’s Main Export Partner in 2002

USA 21.0 % USA 21.5 %

Hong Kong 16.0 % Hong Kong 18.0 %

Japan 9.5 % Japan 14.9 %

ROK 4.6 % ROK 4.8 %

Germany 4.2 % Germany 3.5 %

Netherlands 3.2 % Netherlands 2.8 %

UK 2.5 % UK 2.5 %

Singapore 2.4 % Singapore 2.1 %

Other Asia 2.1 % Other Asia 2.0 %

Italy 1.6 % Malay sia 1.5 %

Others 32.9 % Others 26.4 %

Chart 2.3 China’s Main Import Partner in 2006 Chart 2.4 China’s Main Import Partner in 2002

Japan 14.6 % Japan 18.1 %

ROK 11.3 % Other Asia 12.9 %

Other Asia 11.0 % ROK 9.7 %

Hong Kong 9.3 % USA 9.2 %

USA 7.5 % Germany 5.6 %

Germany 4.8 % Macau 5.1 %

Malay sia 3.0 % Hong Kong 3.6 %

Australia 2.4 % Malay sia 3.1 %

Thailand 2.3 % Russia 2.8 %

Philippines 2.2 % Singapore 2.4 %

Others 31.6 % Others 27.4 %

Source: United Nations Commodity Trade Statistics Database.

B) Republic of Korea North-East Asian countries play an important role in ROK’s trade, as China and Japan are among top three export and import partners since 2002. The percentage share of NEA countries of the ROK’s trade volume has been steady since 2002, with a few partner countries experiencing large differences, such as the United Staes that lost a significant trade volume margin in this period - mainly to China. Over the last years China has become the ROK’s largest export partner and second largest import partner, demonstrating the increased importance of NEA regional integration. Export and import volume percentages from North-East Asian countries slightly grew from 30 percent and 31 percent in 2002 to 35 percent and 33 percent in 2006, respectively.

Chart 2.5 ROK’s Main Export Partner in 2006 Chart 2.6 ROK’s Main Export Partner in 2002

China 21.3 % USA 20.3 %

USA 13.3 % China 14.6 %

Japan 8.2 % Japan 9.3 %

Hong Kong 5.8 % Hong Kong 6.2 %

Other Asia 4.0 % Other Asia 4.1 %

Germany 3.1 % Germany 2.6 %

Singapore 2.9 % UK 2.6 %

Mexico 1.9 % Singapore 2.6 %

UK 1.7 % Malay sia 2.0 %

India 1.7 % Indonesia 1.9 %

Others 36.0 % Others 33.7 %

Greater Tumen Area Investment Guide | 53 ANNEX 1

Chart 2.7 ROK’s Main Import Partner in 2006 Chart 2.8 ROK’s Main Import Partner in 2002

Japan 16.8 % Japan 19.6 %

China 15.7 % USA 15.2 %

USA 10.9 % China 11.4 %

Saudi Aradia 6.6 % Saudi Aradia 5.0 %

U. Arab Emirates 4.2 % Australia 3.9 %

Germany 3.7 % Germany 3.6 %

Australia 3.7 % Other Asia 3.2 %

Other Asia 3.0 % Indonesia 3.1 %

Indonesia 2.9 % U. Arab Emirates 2.8 %

Kuwait 2.6 % Malay sia 2.7 %

Others 30.0 % Others 29.6 %

Source: United Nations Commodity Trade Statistics Database.

C) Russia Geographically positioned to benefit from trade with Europe, Russia’s trade volume with North-East Asia has nevertheless been significant, with import volume from countries in the region growing considerably since 2002. China has been Russia’s top 5 export partner since 2002, with a stable export volume percentage of 6 percent in 2002 and 5 percent in 2006. Import volume percentage grew from 5 percent in 2002 to 20 percent in 2006 as a result of China’s impressive jump from top 5 in 2002 (with 5 percent share) to top 2 in 2006 (with 10 percent share), besides Japan and the ROK’s appearance at Russia’s top 10 import partners in 2006.

Chart 2.9 Russia’s Main Export Partner in 2006 Chart 2.10 Russia’s Main Export Partner in 2002

Netherlands 11.9 % Germany 7.6 %

Italy 8.3 % Netherlands 7.1 %

Germany 8.1 % Italy 7.0 %

China 5.2 % China 6.4 %

Ukraine 5.0 % Belarus 5.6 %

Turkey 4.7 % Ukraine 5.5 %

Belarus 4.3 % Switzerland 5.0 %

Switzerland 4.0 % USA 3.8 %

Poland 3.8 % UK 3.6 %

UK 3.4 % Poland 3.5 %

Others 41.1 % Others 45.1 %

Chart 2.11 Russia’s Main Import Partner in 2006 Chart 2.12 Russia’s Main Import Partner in 2002

Ger many 13.4 % Germany 14.3 %

China 9.4 % Belarus 8.6 %

Ukraine 6.7 % Ukraine 7.0 %

Japan 5.7 % USA 6.5 %

Belarus 5.0 % China 5.2 %

ROK 4.9 % Italy 4.8 %

USA 4.7 % Kazakhstan 4.2 %

France 4.3 % France 4.1 %

Italy 4.2 % Finland 3.3 %

Finland 2.9 % Brazil 2.8 %

Others 39.0 % Others 39.2 %

Source: United Nations Commodity Trade Statistics Database.

54 | Greater Tumen Area Investment Guide ANNEX 1

D) Mongolia Mongolia is GTI’s most exposed country to North-East Asia regional trade, with China and Russia playing vital roles at Mongolia’s import and export trade volume since 2002. China’s position as number one export partner and number two import partner since 2002 just demonstrate the countries’ bilateral cooperation. Although Russia is top 4 export partner, it has led Mongolia’s import trading since 2002. It is important to highlight that GTI countries are among Mongolia’s top 4 import partners in 2006, accounting for almost 80 percent of the countries import volume. Export and import volume percentages from North-East Asian countries grew from 61 percent and 77 percent in 2002 to 73 percent and 76 percent in 2006, respectively.

Chart 2.13 Mongolia’s Main Export Partner in 2006 Chart 2.14 Mongolia’s Main Export Partner in 2002

China 67.8 % China 45.2 %

Canada 11.1 % USA 27.7 %

USA 7.7 % Russia 9.9 %

Russia 2.9 % ROK 4.6 %

Italy 2.6 % Australia 3.7 %

UK 2.5 % Italy 1.8 %

ROK 1.4 % UK 1.5 %

Luxembourg 0.8 % Japan 1.3 %

Germany 0.6 % Hong Kong 0.7 %

Japan 0.5 % Netherlands 0.7 %

Others 2.1 % Others 2.9 %

Chart 2.15 Mongolia’s Main import Partner in 2006 Chart 2.16 Mongolia’s Main import Partner in 2002

Russia 36.9 % Russia 34.4 % China 27.2 %

Japan 6.6 % China 24.3 % ROK 5.6 %

Ka zakhstan 3.4 % ROK 12.5 %

USA 3.0 %

Germany 2.9 % Japan 6.2 %

Ukraine 1.5 % Germany Singapore 1.4 % 4.4 %

Australia 1.2 % USA 3.4 % Others 10.5 %

Source: United Nations Commodity Trade Statistics for export partners in 2002 and 2006 and import partners in 2006; Mongolian National Chamber of Commerce and Industry for import partners in 2002 (just top 6 partners available).

E) DPRK According to IMF, in 2006 DPRK engaged in international trade with 80 of the 182 countries/territories that report their trade date to the Fund. Although detailed data on the country’s external economic relations suffer from reliability, it is possible to observe that North-East Asian countries have a significant presence at the DPRK’s trade volume since 2002, as China, the ROK, Japan and Russia have been among the DPRK’s major trading partners in the period. The ROK and China have been the DPRK’s first and second largest export and import partners since 2002. While China and the ROK lost some share of DPRK’s total export volume, they almost doubled their share of the DPRK’s total import volume since 2002. NEA countries accounted for 46 percent and 62 percent of the DPRK’s export and import volumes in 2006, respectively.

Greater Tumen Area Investment Guide | 55 ANNEX 1

Chart 2.17 DPRK’s Selected Export Partner in 2006 Chart 2.18 DPRK’s Selected Export Partner in 2002

ROK 22.1 % ROK 23.6 %

China 19.9 % China 23.5 %

Thailand 6.5 % Japan 20.3 %

Japan 3.3 % Thailand 3.6 %

India 2.1 % Germany 2.2 %

Russia 0.8 % Russia 0.9 %

Ger many 0.7 % India 0.3 %

Others 44.6 % Others 25.7 %

Chart 2.19 DPRK’s Selected Import Partner in 2006 Chart 2.20 DPRK’s Selected Import Partner in 2002

China 33.1 % China 17.6 %

ROK 22.3 % ROK 14.0 %

Thailand 6.7 % India 7.4 %

Russia 5.1 % Thailand 7.2 %

India 2.6 % Germany 5.3 %

Germany 1.6 % Japan 5.0 %

Japan 1.2 % Russia 1.8 %

Others 27.4 % Others 41.7 %

Source: CRS Report "The North Korean Economy: Leverage and Policy Analysis" - Mar 4, 2008.

F) Japan North-East Asian countries have a significant role at Japan’s trade volume: China is Japan’s largest import partner and second largest export partner since 2002 and ROK has been Japan’s third largest export partner since 2002. Export and import trade volume from North-East Asian countries accounts for approximately one third of Japan’s total trade volume, and they have been steady in terms of percentage presence since 2002. Export and import volume percentages from North-East Asian countries slightly increased from 23 percent and 23 percent in 2002 to 28 percent and 25 percent in 2006, respectively.

Chart 2.21 Japan’s Main Export Partner in 2006 Chart 2.22 Japan’s Main Export Partner in 2002

USA 22.8 % USA 28.9 %

China 14.3 % China 9.6 %

ROK 7.8 % ROK 6.9 %

Other Asia 6.8 % Other Asia 6.3 %

Hong Kong 5.6 % Hong Kong 6.1 %

Thailand 3.5 % Singapore 3.4 %

Germa ny 3.2 % Germany 3.4 %

Singapore 3.0 % Thailand 3.2 %

UK 2.4 % UK 2.9 %

Netherlands 2.3 % Malay sia 2.6 %

Others 28.4 % Others 26.8 %

56 | Greater Tumen Area Investment Guide ANNEX 1

Chart 2.23 Japan’s Main Import Partner in 2006 Chart 2.24 Japan’s Main Import Partner in 2002

China 20.5 % China 18.3 %

USA 12.0 % USA 17.4 %

Saudi Arabia 6.4 % ROK 4.6 %

United Arab Emirates 5.5 % Indonesia 4.2 %

Australia 4.8 % Australia 4.2 %

ROK 4.7 % Other Asia 4.0 %

Indonesia 4.2 % Germany 3.7 %

Other Asia 3.5 % Saudi Arabia 3.4 %

Germany 3.2 % United Arab Emirates 3.4 %

Thailand 2.9 % Malay sia 3.3 %

Others 32.3 % Others 33.4 %

Source: United Nations Commodity Trade Statistics Database.

North-East Asian countries strong and growing trade relationship demonstrate the potential for further development of intra-regional trade and investment. Although some GTI countries only marginally trade among themselves, it is possible to obverse from the below Tables 1 & 2 that exports within GTI countries have increased significantly between 2002 and 2006. The Greater Tumen Initiative is certainly an invaluable instrument for strengthening regional cooperation and ultimately achieving sustainable economic development of the region.

Table 1 - Intra-Regional Trade in 2006: Direction of Exports (in USD million) To From China ROK Russia Mongolia DPRK Japan China - $44,522 $15,832 $434 $1,232 $91,623 ROK $69,459 - $5,179 $110 $830 $26,534 Russia $15,757 $2,512 - $490 $191 $4,620 Mongolia $1,046 $21 $45 - NA $7 DPRK $468 $520 $20 NA - $78 Japan $92,770 $50,270 $7,066 $106 $44 - Source: United Nations Commodity Trade Statistics Database; China Customs; ROK Customs Service; ROK Ministry of Unification; Russia Customs; Asian Development Bank; CRS Report “The North Korean Economy” - Mar 2008; Japan External Trade Organization; ADB’s Key indicators 2007.

Table 2 - Intra-Regional Trade in 2002: Direction of Exports (in USD million) To From China ROK Russia Mongolia DPRK Japan China - $15,535 $3,521 $140 $467 $48,434 ROK $23,753 - $1,066 $87 $370 $15,140 Russia $6,837 $1,271 - $232 $47 $1,803 Mongolia $217 $22 $48 - NA $6 DPRK $271 $272 $10 NA - $234 Japan $39,823 $28,569 $725 $24 $133 - Source: United Nations Commodity Trade Statistics Database; China Customs; ROK Customs Service; ROK Ministry of Unification; Russia Customs; Asian Development Bank; CRS Report “The North Korean Economy” - Mar 2008; Japan External Trade Organization; ADB’s Key indicators 2007.

Greater Tumen Area Investment Guide | 57 ANNEX 1 III. Trade Structure of North-East Asian Countries North-East Asian countries have quite diverse commodities’ export and import structures, although all countries show a tendency of concentrated export structure and spread import structure. While China, Republic of Korea and Japan’s most representative export commodity is machine and transport equipments, Russia’s strength in export is clearly petroleum and Mongolia has crude materials as its main exported commodity. Machines and transport equipment, manufactured goods and fuels and lubricants tend to appear as important commodities in all NEA countries’ import structure. There is no information available on the DPRK’s trade structure in 2002 and 2006.

A) China China’s exports not only doubled between 2002 and 2006, but also became more concentrated in three commodities that together accounted for almost 90 percent of China’s export in 2006: machines and transport equipments, miscellaneous manufactured articles and manufactured goods. Although animal and vegetable oils/fats/wax and goods not classified by kind are not representative in terms of percentage, it is important to highlight that they grew by 282 percent and 257 percent from 2002 to 2006 in nominal value, while the average growth of export was 198 percent. The country’s import structure diversified between 2002 and 2006, with more commodities being relevant in terms of percentage to total volume. Machines and transport equipment still account for almost 50 percent of import volume, but it was crude materials, fuels and lubricants, and miscellaneous manufactured goods that grew much more than the average between 2002 and 2006: by 266 percent, 362 percent and 260 percent, respectively. Chart 3.1. China’s Export Structure (in US$ Billion and as % of Total)

4.6 %

2006 18.0 % 47. 1 % 24.6 % $968.9

2.7 %

4.7 %

2002 16.3 % 39.0 % 31.1 % $325.6

4.5 %

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

Chart 3.2. China’s Import Structure (in US$ Billion and as % of Total)

2006 10.5 % 11.0 % 11.0 % 11.0 % 45.1 % 9.0 % $791.5

6.5 % 6.7 % 13.2 %

2002 16.4 % 46.4 % $295.2

7.7 %

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

Food & Live Animals Beverages & Tobacco Crude Materials (inedible, except fuels)

Fuels, Lubricants, etc. Animal, Veg. Oils, Fats, Wax Chemicals, Related Prod. Nes.

Manufactured Goods Machines, Transport Equip. Misc Manufactured Articles

Goods Not Class. by kind Source: United Nations Commodity Trade Statistics Database as of July 2008. Figures of share percentage calculated by Tumen Secretariat.

58 | Greater Tumen Area Investment Guide ANNEX 1

B) Republic of Korea Export structure of the ROK is highly concentrated in three commodities that together account for almost 97 percent of total export volume: machines and transport equipments, manufactured goods and chemicals and related products. Machines and transport equipments still represent almost 60 percent of the country’s export volume, although it lost almost two points percentage from 2002 and 2006, growing only 93 percent, slower than the total commodities that doubled in the period. Both fuels and lubricants and miscellaneous manufactured articles gain two points percentage in the period, with growths of 219 percent and 155 percent, respectively. The ROK’s import structure is less concentrated than its export profile, but still has three commodities accounting for almost 70 percent of import volume: machines and transport equipment, manufactured goods and fuels and lubricants. The latter commodity gained almost 7 points percentage between 2002 and 2006, experiencing a growth of 167 percent in the period. Chart 3.3. ROK’s Export Structure (in US$ Billion and as % of Total)

2006 6.4 % 9.8 % 14.3 % 59.1 % 8.2 % $325.5

8.5 % 6.4 %

2002 16.6 % 61.3 % $162.5

4.0 %

$0 $50 $100 $150 $200 $250 $300 $350

Chart 3.4. ROK’s Import Structure (in US$ Billion and as % of Total)

2006 6.4 % 28.0 % 8.9 % 13.7 % 30.0 % 8.6 % $309.4

3.7 %

6.0 % 9.3 % 8.8 %

2002 21.3 % 12.6 % 35.0 % $152.1

5.0 %

$0 $50 $100 $150 $200 $250 $300 $350

Food & Live Animals Beverages & Tobacco Crude Materials (inedible, except fuels)

Fuels, Lubricants, etc. Animal, Veg. Oils, Fats, Wax Chemicals, Related Prod. Nes.

Manufactured Goods Machines, Transport Equip. Misc Manufactured Articles

Goods Not Class. by kind

Source: United Nations Commodity Trade Statistics Database as of July 2008. Figures of share percentage calculated by Tumen Secretariat.

Greater Tumen Area Investment Guide | 59 ANNEX 1

C) Russia Russia has become an important international player at the petroleum export market. Between 2002 and 2006 it gained 10 points percentage in terms of the country’s total export, and it grew by 239 percent in terms of nominal value (in USD), while Russia’s export volume grew by 183 percent. Apart from fuels and lubricants, manufactured goods is also a commodity with significant presence of around 15 percent of Russia’s total export in 2006. The country’s import structure became more concentrated in a few commodities between 2002 and 2006. A special focus to chemicals and related products, manufactured goods and machines and transport equipments, which grew by 204 percent, 202 percent and 324 percent, respectively, in the period, accounting for 68 percent of Russia’s total import volume in 2006.

Chart 3.5. Russia’s Export Structure (in US$ Billion and as % of Total)

2006 62.9 % 14.5 % 8.5 % $301.6

3.8 % 3.8 % 4.1 %

11.6 %

2002 52.5 % 15.9 % $106.7

4.4 % 4.4 % 7.5 %

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 $275 $300 $325

Chart 3.6. Russia’s Import Structure (in US$ Billion and as % of Total)

3.1 %

2006 11.9 % 12.2 % 12.5 % 43.4 % 7.7 % $137.73

5.4 %

16.4 % 12.0 % 8.5 %

2002 $46.2

4.5 % 12.4 % 9.1 %

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225

Food & Live Animals Beverages & Tobacco Crude Materials (inedible, except fuels)

Fuels, Lubricants, etc. Animal, Veg. Oils, Fats, Wax Chemicals, Related Prod. Nes.

Manufactured Goods Machines, Transport Equip. Misc Manufactured Articles

Goods Not Class. by kind

Source: United Nations Commodity Trade Statistics Database as of July 2008. Figures of share percentage calculated by Tumen Secretariat.

60 | Greater Tumen Area Investment Guide ANNEX 1

D) Mongolia Mongolia’s export structure is highly concentrated in crude materials, more specifically copper. The commodity gained almost 17 points percentage of the country’s total export between 2002 and 2006, growing 334 percent. Copper’s export in 2006 reached US$ 635.4 million2, over 41 percent of the country’s total export volume in 2006. Import structure in 2006 was more diluted in terms of commodities - three accounted for 73 percent of total volume: fuels and lubricants, machines and transport equipments and miscellaneous manufactured goods. There is no data available on Mongolia’s import structure in 2002.

Chart 3.7. Mongolia’s Export Structure (in US$ Million and as % of Total)

4.6 %

2006 64.7 % 6.0 % 17.5 % $1,542.3

1.7 % 4.3 %

0.7 % 15.9 %

2002 47.9 % 21.4 % $480.5

8.4 % 5.1 %

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

Chart 3.8. Mongolia’s Import Structure (in US$ Million and as % of Total)

2006 9.6 % 29.3 % 5.5 % 15.0 % 28.3 % 9.3 % $1,485.6

1.9 %

2002 NA

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

Food & Live Animals Beverages & Tobacco Crude Materials (inedible, except fuels)

Fuels, Lubricants, etc. Animal, Veg. Oils, Fats, Wax Chemicals, Related Prod. Nes.

Manufactured Goods Machines, Transport Equip. Misc Manufactured Articles

Goods Not Class. by kind

Source: United Nations Commodity Trade Statistics Database as of July 2008. Figures of share percentage calculated by Tumen Secretariat.

2 Source: United Nations Commodity Trade Statistics Database, according to SITC Rev.3 classification.

Greater Tumen Area Investment Guide | 61 ANNEX 1

E) Japan Machines and transport equipment is the most significant commodity at Japan’s export structure, accounting for 64 percent of total export volume in 2006. Although not relevant in terms of percentage of total export volume, fuels and lubricants exports grew by 320 percent between 2002 and 2006, reaching US$5.9 billion in the latter year. Japan’s import structure is quite spread when compared to its export structure, but three commodities (fuels and lubricants, machines and transport equipment and miscellaneous manufactured goods) accounted for 66 percent of total import volume in 2006. Fuels and lubricants gained almost 8 points percentage at Japan’s import volume between 2002 and 2006, with a significant growth of 146 percent in the period (compared to total import growth of only 72 percent).

Chart 3.9. Japan’s Export Structure (in US$ Billion and as % of Total)

2006 8.9 % 11.5 % 63.7 % 8.1 % 5.1 % $646.7

2002 8.0 % 10.4 % 67.2 % 8.4 % $416.7

4.3 %

$0 $100 $200 $300 $400 $500 $600 $700

Chart 3.10. Japan’s Import Structure (in US$ Billion and as % of Total)

7.4 % 7.2 % 27.9 % 7.1 % 9.4 % 24.5 % 13.6 % 2006 $579.1

1.7 %

2002 11.2 % 19.4% 8.5 % 27.9% 15.6 % $337.6

6.3% 7.6% 2.0%

$0 $100 $200 $300 $400 $500 $600 $700

Food & Live Animals Beverages & Tobacco Crude Materials (inedible, except fuels)

Fuels, Lubricants, etc. Animal, Veg. Oils, Fats, Wax Chemicals, Related Prod. Nes.

Manufactured Goods Machines, Transport Equip. Misc Manufactured Articles

Goods Not Class. by kind Source: United Nations Commodity Trade Statistics Database as of July 2008. Figures of share percentage calculated by Tumen Secretariat.

62 | Greater Tumen Area Investment Guide ANNEX 1 Annexure 1: Reference Tables Trade Volume of North-East Asian Countries

Table 1 - Trade Volume of NE Asian Countries between 2002 and 2006, in US$ Billions China ROK Russia Mongolia DPRK GTI Countries Japan NE Asia Export 2002 $325.6 $162.5 $106.7 $0.5 $1.2 $596.5 $416.7 $1,013.2 2003 $438.2 $193.8 $133.7 $0.6 $1.2 $767.5 $472.0 $1,239.5 2004 $593.3 $253.8 $181.6 $0.9 $1.4 $1,031 $565.8 $1,596.8 2005 $762.0 $284.4 $241.2 $1.1 $1.6 $1,290.3 $594.9 $1,885.2 2006 $969.0 $325.5 $301.6 $1.5 $2.4 $1,600 $646.7 $2,246.7 Import 2002 $295.2 $152.1 $46.2 $0.7 $2.6 $496.8 $337.6 $834.4 2003 $412.8 $178.8 $57.3 $0.8 $2.7 $652.4 $383.5 $1,035.9 2004 $561.2 $224.5 $75.6 $1.0 $3.2 $865.5 $455.3 $1,320.8 2005 $660.0 $261.2 $98.6 $1.2 $3.7 $1,024.7 $515.9 $1,540.6 2006 $791.5 $309.4 $137.7 $1.5 $3.7 $1,243.8 $579.1 $1,822.9 Trade 2002 $620.8 $314.6 $152.9 $1.2 $3.8 $1,093.3 $754.3 $1,847.6 2003 $851.0 $372.6 $191. $1.4 $3.9 $1,419.9 $855.5 $2,275.4 2004 $1,154.5 $478.3 $257.2 $1.9 $4.7 $1,896.6 $1,021.1 $2,917.7 2005 $1,422.0 $545.6 $339.8 $2.3 $5.3 $2,315 $1,110.8 $3,425.8 2006 $1,760.5 $634.9 $439.3 $3.0 $6.1 $2,843.8 $1,225.8 $4,069.6 Notes: 1. Export and import figures adjusted to US$ Blillion, and rounded to one place of decimal. 2. Trade volume figures calculated by Tumen Secretariat, by adding export and import accordingly. 3. GTI countries figures calculated by Tumen Secretariat, by adding figures of China, ROK, Russia, Mongolia and DPRK accordingly. 4. NE Asia figures calculated by Tumen Secretariat, by adding figures of GTI countries and Japan accordingly.

Sources: 1. Export and Import Figures of China, ROK, Russia, Mongolia and Japan: UNSD Annual Totals Table (ATT) for Imports and Exports. 2. Export and Import Figures of DPRK: CRS Report “The North Korean Economy: Leverage and Policy Analysis” - Mar 4, 2008.

Greater Tumen Area Investment Guide | 63 ANNEX 1 Trade Partners of North-East Asian Countries

Table 2.1 China’s Main Trade Partners in 2006 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 USA $203,801,045,737 21.03% Japan $115,672,580,888 14.62% 2 Hong Kong $155,309,068,118 16.03% ROK $89,724,142,142 11.34% 3 Japan $91,622,673,330 9.46% Other Asia $87,098,633,289 11.01% 4 ROK $44,522,206,859 4.60% Hong Kong $73,332,834,178 9.27% 5 Germany $40,314,598,128 4.16% USA $59,314,269,712 7.49% 6 Netherlands $30,861,137,796 3.19% Germany $37,879,365,204 4.79% 7 UK $24,163,209,027 2.49% Malaysia $23,572,434,340 2.98% 8 Singapore $23,185,291,430 2.39% Australia $19,323,299,466 2.44% 9 Other Asia $20,733,250,406 2.14% Thailand $17,962,428,351 2.27% 10 Italy $15,977,188,051 1.65% Philippines $17,674,561,008 2.23% Others $318,445,932,131 32.87% Others $249,906,319,272 31.58% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.2 China’s Main Trade Partners in 2002 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 USA $70,050,092,091 21.51% Japan $53,465,998,850 18.11% 2 Hong Kong $58,463,145,181 17.96% Other Asia $38,061,483,644 12.89% 3 Japan $48,433,840,387 14.88% ROK $28,568,008,001 9.68% 4 ROK $15,534,560,637 4.77% USA $27,261,096,545 9.24% 5 Germany $11,371,849,916 3.49% Germany $16,416,414,964 5.56% 6 Netherlands $9,107,558,607 2.80% Macau $14,980,191,728 5.08% 7 UK $8,059,424,634 2.48% Hong Kong $10,726,243,177 3.63% 8 Singapore $6,984,217,188 2.15% Malaysia $9,296,295,231 3.15% 9 Other Asia $6,586,178,438 2.02% Russia $8,406,690,131 2.85% 10 Malaysia $4,974,206,779 1.53% Singapore $7,046,562,432 2.39% Others $86,030,895,907 26.42% Others $80,941,119,407 27.42% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.3 ROK’s Main Trade Partners in 2006 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 China $69,459,176,983 21.34% Japan $51,926,274,535 16.78% 2 USA $43,320,311,038 13.31% China $48,556,596,186 15.69% 3 Japan $26,533,921,545 8.15% USA $33,796,573,866 10.92% 4 Hong Kong $18,978,454,451 5.83% Saudi Arabia $20,552,109,786 6.64% 5 Other Asia $12,995,658,207 3.99% U. Arab Emirates $12,930,857,029 4.18% 6 Germany $10,056,165,551 3.09% Germany $11,362,539,212 3.67% 7 Singapore $9,489,299,810 2.92% Australia $11,309,081,279 3.66% 8 Mexico $6,284,571,287 1.93% Other Asia $9,287,534,431 3.00% 9 UK $5,634,713,434 1.73% Indonesia $8,848,554,219 2.86% 10 India $5,532,796,943 1.70% Kuwait $8,133,477,435 2.63% Others $117,172,178,081 36.00% Others $92,675,880,894 29.96% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

64 | Greater Tumen Area Investment Guide ANNEX 1

Table 2.4 ROK’s Main Trade Partners in 2002 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 USA $32,942,694,684 20.28% Japan $29,855,162,112 19.63% 2 China $23,753,231,204 14.62% USA $23,111,173,844 15.19% 3 Japan $15,140,351,060 9.32% China $17,399,682,916 11.44% 4 Hong Kong $10,144,876,435 6.24% Saudi Arabia $7,550,842,733 4.96% 5 Other Asia $6,631,581,526 4.08% Australia $5,973,304,300 3.93% 6 Germany $4,287,140,795 2.64% Germany $5,472,292,342 3.60% 7 UK $4,255,459,286 2.62% Other Asia $4,831,995,903 3.18% 8 Singapore $4,221,468,259 2.60% Indonesia $4,723,422,410 3.11% 9 Malaysia $3,218,301,390 1.98% U. Arab Emirates $4,210,179,006 2.77% 10 Indonesia $3,144,766,476 1.94% Malaysia $4,041,431,848 2.66% Others $54,726,226,033 33.68% Others $44,954,884,196 29.55% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.5 Russia’s Main Trade Partners in 2006 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 Netherlands $35,895,848,486 11.90% Germany $18,456,673,216 13.40% 2 Italy $25,111,096,929 8.33% China $12,911,747,272 9.37% 3 Germany $24,499,816,126 8.12% Ukraine $9,235,408,785 6.71% 4 China $15,757,053,282 5.23% Japan $7,788,760,111 5.66% 5 Ukraine $14,986,605,614 4.97% Belarus $6,849,619,000 4.97% 6 Turkey $14,320,660,056 4.75% ROK $6,779,887,927 4.92% 7 Belarus $13,084,338,000 4.34% USA $6,425,578,612 4.67% 8 Switzerland $12,093,012,187 4.01% France $5,866,449,306 4.26% 9 Poland $11,479,852,600 3.81% Italy $5,726,664,815 4.16% 10 UK $10,375,840,188 3.44% Finland $4,001,007,920 2.91% Others $123,946,542,068 41.10% Others $53,686,122,380 38.98% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.6 Russia’s Main Trade Partners in 2002 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 Germany $8,059,298,784 7.55% Germany $6,598,481,282 14.29% 2 Netherlands $7,529,092,361 7.06% Belarus $3,977,107,000 8.61% 3 Italy $7,442,132,957 6.98% Ukraine $3,230,018,642 6.99% 4 China $6,836,946,641 6.41% USA $2,983,348,979 6.46% 5 Belarus $5,922,296,000 5.55% China $2,401,128,472 5.20% 6 Ukraine $5,885,284,417 5.52% Italy $2,228,759,951 4.83% 7 Switzerland $5,362,494,390 5.03% Kazakhstan $1,945,732,081 4.21% 8 USA $4,019,994,409 3.77% France $1,897,097,362 4.11% 9 UK $3,802,771,213 3.56% Finland $1,519,264,927 3.29% 10 Poland $3,720,168,982 3.49% Brazil $1,304,093,049 2.82% Others $48,111,517,718 45.09% Others $18,091,953,294 39.18% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Greater Tumen Area Investment Guide | 65 ANNEX 1

Table 2.7 Mongolia’s Main Trade Partners in 2006 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 China $1,046,078,859 67.83% Russia $547,797,973 36.87% 2 Canada $171,190,117 11.10% China $403,777,198 27.18% 3 USA $119,031,391 7.72% Japan $97,628,535 6.57% 4 Russia $45,112,950 2.93% ROK $82,511,367 5.55% 5 Italy $40,395,745 2.62% Kazakhstan $49,805,221 3.35% 6 UK $38,595,220 2.50% USA $44,059,687 2.97% 7 ROK $21,385,736 1.39% Germany $42,988,881 2.89% 8 Luxembourg $11,943,203 0.77% Ukraine $22,849,353 1.54% 9 Germany $9,228,526 0.60% Singapore $20,727,007 1.40% 10 Japan $7,113,126 0.46% Australia $17,528,513 1.18% Others $32,246,570 2.09% Others $155,925,427 10.50% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.8 Mongolia’s Main Trade Partners in 2002 Top 10 Export Partner Volume (USD) % Share Import Partner Volume (USD) % Share 1 China $217,225,431 45.21% Russia NA 34.40% 2 USA $133,089,598 27.70% China NA 24.30% 3 Russia $47,713,536 9.93% ROK NA 12.50% 4 ROK $22,259,248 4.63% Japan NA 6.20% 5 Australia $17,714,742 3.69% Germany NA 4.40% 6 Italy $8,586,522 1.79% USA NA 3.40% 7 UK $7,241,531 1.51% NA NA NA 8 Japan $6,317,320 1.31% NA NA NA 9 Hong Kong $3,226,410 0.67% NA NA NA 10 Netherlands $3,186,344 0.66% NA NA NA Others $13,892,808 2.89% Others NA NA Note: Figures of export partners percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org) for export partners and Mongolian National Chamber of Commerce and Industry for top 6 import partners.

Table 2.9 DPRK’s Selected Trade Partners in 2006 Export Partner Volume % Share Import Partner Volume % Share (USD Million) (USD Million) 1 ROK $520.0 22.07% China $1,232.0 33.09% 2 China $468.0 19.86% ROK $830.0 22.29% 3 Thailand $153.0 6.49% Thailand $250.0 6.72% 4 Japan $78.0 3.31% Russia $191.0 5.13% 5 India $50.0 2.12% India $96.0 2.58% 6 Russia $20.0 0.85% Germany $59.0 1.58% 7 Germany $17.0 0.72% Japan $44.0 1.18% Others $1,050.0 44.57% Others $1,021.0 27.42% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: CRS Report “The North Korean Economy: Leverage and Policy Analysis” - Mar 4, 2008.

66 | Greater Tumen Area Investment Guide ANNEX 1

Table 2.10 DPRK’s Selected Trade Partners in 2002 Export Partner Volume % Share Import Partner Volume % Share (USD Million) (USD Million) 1 ROK $272.0 23.59% China $467.0 17.65% 2 China $271.0 23.50% ROK $370.0 13.98% 3 Japan $234.0 20.29% India $195.0 7.37% 4 Thailand $41.0 3.56% Thailand $190.0 7.18% 5 Germany $25.0 2.17% Germany $141.0 5.33% 6 Russia $10.0 0.87% Japan $133.0 5.03% 7 India $4.0 0.35% Russia $47.0 1.78% Others $296.0 25.67% Others $1,103.0 41.69% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: CRS Report “The North Korean Economy: Leverage and Policy Analysis” - Mar 4, 2008.

Table 2.11 Japan’s Main Trade Partners in 2006 Top 10 Export Partner Volume (USD) % Sharex Import Partner Volume (USD) % Share 1 USA $147,197,746,505 22.76% China $118,525,736,273 20.47% 2 China $92,769,551,020 14.34% USA $69,384,707,246 11.98% 3 ROK $50,270,020,226 7.77% Saudi Arabia $37,191,495,895 6.42% 4 Other Asia $44,102,734,351 6.82% United Arab Emirates $31,575,378,865 5.45% 5 Hong Kong $36,433,487,772 5.63% Australia $27,927,415,055 4.82% 6 Thailand $22,902,237,677 3.54% ROK $27,328,400,354 4.72% 7 Germany $20,417,587,687 3.16% Indonesia $24,135,022,583 4.17% 8 Singapore $19,339,943,978 2.99% Other Asia $20,337,382,092 3.51% 9 UK $15,211,178,182 2.35% Germany $18,455,301,635 3.19% 10 Netherlands $14,729,834,789 2.28% Thailand $16,886,634,193 2.92% Others $183,350,736,421 28.35% Others $187,316,470,446 32.35% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Table 2.12 Japan’s Main Trade Partners in 2002 Top 10 Export Partner Volume (USD) % Sharex Import Partner Volume (USD) % Share 1 USA $120,384,647,319 28.89% China $61,783,699,552 18.30% 2 China $39,823,423,281 9.56% USA $58,808,221,666 17.42% 3 ROK $28,568,788,712 6.86% ROK $15,484,609,951 4.59% 4 Other Asia $26,239,655,648 6.30% Indonesia $14,183,108,620 4.20% 5 Hong Kong $25,401,343,552 6.10% Australia $14,018,040,630 4.15% 6 Singapore $14,190,958,895 3.41% Other Asia $13,582,910,924 4.02% 7 Germany $14,121,789,275 3.39% Germany $12,414,301,625 3.68% 8 Thailand $13,183,671,455 3.16% Saudi Arabia $11,630,904,265 3.45% 9 UK $11,978,249,984 2.87% United Arab Emirates $11,594,795,926 3.43% 10 Malaysia $11,016,741,527 2.64% Malaysia $11,203,793,241 3.32% Others $111,805,990,616 26.83% Others $112,904,487,004 33.44% Note: Figures of percentage of share calculated by Tumen Secretariat. Source: United Nations Commodity Trade Statistics Database (http://comtrade.un.org).

Greater Tumen Area Investment Guide | 67 ANNEX 1

Table 3.1 Commodity Export Structure in 2006 (in US$) China ROK Russia Mongolia Japan Food & Live Animals $25,723,147,288 $2,354,029,926 $3,758,082,280 $26,590,230 $2,645,931,525

Beverages & Tobacco $1,193,339,193 $606,118,514 $534,295,230 $499,898 $415,357,331 Crude Materials (inedible, except fuels) $7,859,701,908 $3,314,316,192 $11,602,364,434 $997,363,260 $7,800,519,981 Fuels, Lubricants, etc. $17,769,655,947 $20,920,394,518 $189,621,238,027 $70,379,486 $5,896,842,196 Animal, Veg. Oils, Fats, Wax $373,040,856 $24,079,174 $423,722,574 $39,500 $84,566,090 Chemicals, Related Prod. Nes. $44,529,591,438 $31,806,138,320 $11,502,738,150 $1,557,284 $57,849,940,895 Manufactured Goods $174,816,107,045 $46,559,178,971 $43,844,483,468 $66,597,438 $74,121,521,620 Machines, Transport Equip. $456,342,592,561 $192,359,838,141 $12,409,093,129 $17,135,960 $411,968,333,217 Misc Manufactured Articles $238,013,797,779 $26,630,160,501 $2,073,958,422 $92,048,907 $52,645,315,385 Goods Not Class. by Kind $2,314,626,998 $882,993,073 $25,780,689,821 $270,109,480 $33,296,730,368 All Commodities $968,935,601,013 $325,457,247,330 $301,550,665,536 $1,542,321,443 $646,725,058,608 Source: United Nations Commodity Trade Statistics Database. Note: According to SITC Rev.3 classification.

Table 3.2 Commodity Export Structure in 2002 (in US$) China ROK Russia Mongolia Japan Food & Live Animals $14,620,742,791 $2,114,638,035 $1,917,191,561 $24,659,730 $1,765,330,742

Beverages & Tobacco $983,592,688 $346,225,377 $176,280,711 $173,088 $371,807,536 Crude Materials (inedible, except fuels) $4,402,458,449 $1,634,445,263 $4,711,515,529 $229,967,232 $3,558,743,326 Fuels, Lubricants, etc. $8,435,228,520 $6,551,554,091 $56,000,902,964 $3,434,078 $1,403,657,584 Animal, Veg. Oils, Fats, Wax $97,584,454 $21,201,710 $48,257,322 $28,469 $75,773,172 Chemicals, Related Prod. Nes. $15,324,943,959 $13,762,017,491 $4,662,930,288 $201,707 $33,251,856,623 Manufactured Goods $52,954,499,561 $26,993,020,338 $16,914,483,501 $40,485,644 $43,488,576,871 Machines, Transport Equip. $126,976,031,778 $99,597,783,838 $8,043,145,601 $2,321,114 $280,000,132,943 Misc Manufactured Articles $101,152,538,533 $10,466,041,623 $1,865,489,475 $102,904,144 $35,030,035,090 Goods Not Class. by Kind $648,349,032 $979,169,382 $12,351,800,919 $76,277,656 $17,769,346,377 All Commodities $325,595,969,765 $162,466,097,148 $106,691,997,872 $480,453,490 $416,715,260,264 Source: United Nations Commodity Trade Statistics Database. Note: According to SITC Rev.3 classification.

68 | Greater Tumen Area Investment Guide ANNEX 1

Table 3.3 Commodity Import Structure in 2006 (in US$) China ROK Russia Mongolia Japan Food & Live Animals $9,994,272,459 $11,357,947,868 $16,450,611,731 $142,596,336 $43,115,475,535

Beverages & Tobacco $1,040,618,477 $589,378,915 $2,406,203,875 $27,862,377 $5,890,062,027 Crude Materials (inedible, except fuels) $83,156,652,150 $19,664,453,405 $4,330,111,891 $9,832,386 $41,913,099,191 Fuels, Lubricants, etc. $89,000,588,938 $86,706,747,694 $1,822,714,750 $434,670,221 $161,691,373,787 Animal, Veg. Oils, Fats, Wax $3,936,436,948 $629,182,501 $757,149,090 $9,063,920 $927,424,112 Chemicals, Related Prod. Nes. $87,046,841,256 $27,572,963,932 $16,848,059,292 $81,021,174 $40,830,370,846 Manufactured Goods $86,923,800,490 $42,313,892,110 $17,245,919,761 $222,663,255 $54,145,364,326 Machines, Transport Equip. $357,020,746,276 $92,717,641,315 $59,807,897,347 $419,730,808 $141,946,994,025 Misc Manufactured Articles $71,310,507,192 $26,684,015,203 $10,672,635,706 $138,097,622 $78,819,447,077 Goods Not Class. by Kind $2,030,403,664 $1,143,255,929 $7,386,615,902 $61,063 $9,784,333,712 All Commodities $791,460,867,850 $309,379,478,872 $137,727,919,344 $1,485,599,162 $579,063,944,637 Source: United Nations Commodity Trade Statistics Database. Note: According to SITC Rev.3 classification.

Table 3.4 Commodity Import Structure in 2002 (in US$) China ROK Russia Mongolia Japan Food & Live Animals $5,237,782,959 $7,620,735,497 $7,555,041,333 NA $37,690,444,110

Beverages & Tobacco $387,478,805 $693,927,224 $1,382,303,019 NA $4,458,594,807 Crude Materials (inedible, except fuels) $22,736,179,892 $9,178,505,156 $2,087,095,548 NA $21,279,910,684 Fuels, Lubricants, etc. $19,284,554,231 $32,442,190,315 $1,000,354,110 NA $65,635,504,784 Animal, Veg. Oils, Fats, Wax $1,624,650,500 $339,274,752 $640,929,864 NA $610,758,766 Chemicals, Related Prod. Nes. $39,035,951,688 $14,156,258,324 $5,550,096,357 NA $25,504,545,537 Manufactured Goods $48,488,752,439 $19,241,593,611 $5,719,852,077 NA $28,659,450,780 Machines, Transport Equip. $137,009,711,382 $53,307,841,787 $14,123,197,776 NA $94,175,121,629 Misc Manufactured Articles $19,800,950,354 $13,358,579,757 $3,905,685,054 NA $52,730,314,966 Goods Not Class. by Kind $1,564,091,860 $1,785,465,187 $4,212,429,901 NA $6,864,227,341 All Commodities $295,170,104,110 $152,124,371,610 $46,176,985,039 NA $337,608,873,404 Source: United Nations Commodity Trade Statistics Database. Note: According to SITC Rev.3 classification.

Greater Tumen Area Investment Guide | 69

Prepared by the Tumen Secretariat Ben Webbstock

Tumen Secretariat Tayuan Diplomatic Compound 1-1-142 No. 1 Xindong Lu, Chaoyang District Beijing, 100600 PR CHINA

With notable assistance from Dezan Shira & Associates.

Published by Asia Briefing Ltd.

Asia Briefing Ltd Suite 904, 9/F, Wharf T&T Centre, Harbour City 7 Canton Road, Tsimshatsui Kowloon HONG KONG

Printing sponsored by