World Economy

Two Koreas Warming Ties Raise Hopes for Investment in North

South Korea plans to link the Donghae line on the east coast and the Gyeongui line on the west coast.South Korea plans to link the Donghae line on the east coast and the Gyeongui line on the west coast.

South Korea has begun tentative preparations for infrastructure projects in North Korea, chiefly to connect railways along the coast and modernize those in the North, paving the way for further economic cooperation between the two countries.

South Korean President Moon Jae-in agreed with North Korean leader Kim Jong-un during an unprecedented summit last week to link the Donghae line on the east coast and the Gyeongui line on the west coast. But with UN sanctions against Pyongyang that ban investments in North Korea and joint projects with the country, analysts say Moon's administration is likely to tread carefully, Nikkei reported.

They say that Seoul is unlikely to take the process beyond voicing these initial plans until after the summit between US President Donald Trump and Kim later this month to discuss ways to denuclearize the North.

But analysts acknowledge that the new relationship will open up fresh business opportunities for South Korean companies that will benefit hugely from investing in North Korea.

"Considering North Korea lacks social overhead capital, economic cooperation between the North and the South will be led by infrastructure investment such as construction, utilities, transportation and telecommunications," said Chae Sang-wook, an analyst at Hana Financial Investment.

Chae estimated that the two railway projects will cost 2.6 trillion won ($2.4 billion)—1.7 trillion won for Donghae and 900 billion won for Gyeongui—quoting data from state agency Korea Rail Network Authority.

The South Korean government said that it plans to set up an economic belt in North Korea that will connect the two Koreas by rail, as well as to establish an area for tourism along the 250km demilitarized zone.

"We will create new economic orders which will contribute to establishing peace and prosperity on the Korean peninsula and the East Asian region," said South Korea's Ministry of Unification in a statement.

Already, big businesses, such as major food producer CJ Cheiljedang, are poised to enter the new market. "We expect more demand for our products from North Korea when economic cooperation widens," said a spokesperson for the company. "We are studying the projects and plan to catch any opportunity when they arise."

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