Mick Hartley

Kaesong, the industrial park (of Choco Pie fame) closed for five months in April after a fit of sabre-rattling by Pyongyang, is having problems:

South Korean businesses are exiting the Kaesong industrial park in North Korea, making Seoul’s efforts to attract foreign investment to the site an even tougher sell.

At least nine South Korean firms have ended or have decided to end business at the Kaesong Industrial Complex, just north of the inter-Korean military border, because of uncertain investment prospects and financial crunches following a five-month operational halt amid cross-border tensions.

Officials at the Unification Ministry in Seoul confirmed two of 123 South Korean firms in Kaesong had fully withdrawn from North Korea after selling out their business assets there. They withheld the names of the companies—one manufacturing electronics parts and the other textile.

Korea Exim Bank, which manages state insurance funds for South Korean firms in Kaesong, said another seven South Korean companies, which had leased land to build factories in the industrial complex, informed the state bank of their decision to give up and scrap their business plan.

Operations at the industrial park were suspended in April after Pyongyang abruptly pulled its workforce in protest to South Korean media portraying the joint venture as a cash cow for the cash-strapped North Korean regime. North Korea also complained about U.S.-South Korean military drills at that time. The industrial park reopened in September.

South Korean firms are still reeling from months of suspended operations, with client orders still not back to normal following the long hiatus. The Unification Ministry said on Tuesday the number of North Korean employees in Kaesong had dropped to 43,000, 20% fewer than before April, because of reduced work.

Those plans for a Kaesong Mark 2, then, are looking a little premature – along with Pyongyang's other efforts to attract investment:

Meanwhile, the [Unification] ministry said the North had called off an investor relations event scheduled to take place in Beijing this week.

Pyongyang had originally called a meeting in mid October, but pushed it back when it seemed unlikely that South Korean companies would show up.

"The communist country seems to have invited Chinese firms and global businesses owned by ethnic Koreans for the November meeting, but there seems to have been a lack of interest," a source said without giving more details.

I wonder why.