The Kaesong Industrial Complex is an oddity in impoverished North Korea: there is enough power to keep the lights on at night and factories produce goods that consumers abroad actually want.

The fortunes of the factory park, where South Korean firms use cheap North Korean labor and land—like many foreign ventures in the reclusive state—have been clouded by the diplomatic crisis over Pyongyang’s nuclear arms program.

But Kaesong, about 70 km (45 miles) northwest of Seoul, is nevertheless expected to grow by leaps and bounds.

“We expect that more than 100 companies will start construction there next year,” said Jang Whan-bin, a senior vice president with Hyundai Asan, the Hyundai Group affiliate that is co-developing the park.

There are now 23 South Korean companies at Kaesong. They employ over 14,000 North Koreans producing items such as textiles and cosmetics cases at shiny new plants just a few hundred meters north of the Demilitarized Zone dividing the two countries.

The park will be connected by water and sewage plants paid for by the South in the coming months. Seoul already supplies electricity and has laid fiber optic cables there.

The North, with a decaying infrastructure largely built during Japan’s 1910-1945 colonial rule, is not well equipped to support a modern factory complex. Power shortages mean that many of its antiquated factories stand idle.

South Korea sees the park as a model of economic integration.

“A project like Kaesong, if it succeeds, is a sure way to cut the cost of unification,” President Roh Moo-hyun said in an interview with a newspaper.


Hyundai Asan, which broke ground in June 2003, plans for more than 500,000 North Koreans to eventually work at the complex and turn it into a city with hotels, golf courses and a peace park.

But when it comes to mercurial North Korea, long-term plans often clash with cold political reality.

North Korea was hit with U.N. sanctions last year after it defied international warnings by firing a volley of missiles in July and conducting its first nuclear test three months later.

This led the South Korean government to delay expansion at Kaesong for several months, and a few companies also pulled out of building factories there because of the political turmoil.

Hyundai Asan and Korea Land, another co-developer, have set aside parts of Kaesong for non-Korean companies, but there are no firm plans yet for any foreign firms to set up shop there.

“They want to see a resolution of the political situation before going ahead,” Jang said.

South Korea has also tried to include goods made in Kaesong in free trade pacts.

Kaesong’s factories need assurances that their goods will be included in trade deals in order to help them compete with goods made in China. Wages at Kaesong, which start at a base pay of $50 a month, are lower than those typically offered in China.

The United States and other have complained that wages are not paid directly to workers, giving Pyongyang’s leaders a chance to siphon off foreign currency for their own designs.

South Korea has big dreams for the border region near Kaesong. It has built a rail link into the North that runs by the complex as well as cavernous stations on its side of the border in anticipation of travel between the two.

Recently, the two Koreas sent trains across the border for the first time since their 1950-1953 war for a one-off run sweetened by an $80 million gift of supplies from the South if the North agreed to the symbolic crossing. (Reuters)