Who thinks it is a good idea to build cars in North Korea
where almost no one knows how to drive?
Would it even be possible to open a profitable factory in the communist state?
Kim Byeong-gyu, an executive with Pyonghwa Motors, says it can be done. Not
only that, he says it is possible to make money in the process. Mr. Kim’s
company, which started assembling cars last year in the southwestern port of
Nampo in North Korea, projects it will soon be making a profit from its new car
plant.
Seoul-based Pyonghwa, principally a car dealer that imports Ford Motor Co.
products into South Korea, is associated with the Unification Church, run by
the Rev. Moon Sun-myung. The church paved the way for Pyonghwa’s investment.
As a participant in the inter-Korean economic exchange programs, the company
was authorized to build an automobile factory in the North by the governments
of both Koreas in 1999. Pyonghwa Motors has plunged $100 million into the
project so far, while its Northern partner, Ryonbong Corp., has provided labor
and other support. In April 2002, a production line was completed in Nampo, and
the first car named the Hwiparam, or “Whistle,” rolled off the line.
The Hwiparam is actually a 1,600-cc Fiat Siena. The Italian carmaker’s model is
being assembled in the Nampo factory backed by South Korean capital and North
Korean labor. The assembly line also recently started producing Fiat’s
commercial Doblo van under its own name, Ppeokkugi, or “Cuckoo.”
Pyonghwa says its will be able to design its own models soon.
The basic Hwiparam is priced at $10,000, which puts it beyond the reach of most
North Koreans whose per-capita GDP last year was $762. Mr. Kim says most buyers
are foreign residents in the North, as well as North Korean government
officials.
Pyonghwa has been promoting its cars on the streets of Pyeongyang with
billboard advertising. “It is the first time anyone has put up a commercial
billboard in the North,” says Mr. Kim. The billboard shows a North Korean boy
next to a Hwiparam expressing “happiness and awe,” a facial expression North
Koreans usually reserve for their “Dear Leader” Kim Jong-il.
Mr. Kim says Pyonghwa even produced a seven-minute-long commercial for North
Korea’s state-run television network, which he claims was the first commercial
to be broadcast in the North.
Pyonghwa has not produced a profit yet, but the company expects to be in the
black by 2006, when production is forecast to reach 12,000 cars per year. It
plans exports to China, Vietnam and other countries, including South Korea.
A little-known company, Pyonghwa is just four years old. So how could the
upstart successfully establish a business in the North, overtaking Hyundai, a
world automobile giant, whose former parent the Hyundai Group is the South’s
trail blazer for North Korean business projects?
“We started contacting the North even before Hyundai started,” says Mr. Kim.
“We initiated our business with a higher aim that we would help the North,
which was not for monetary gain, and we thus gained their confidence.” Pyonghwa
has also gained such benefits from the North as an exclusive right to car
production, tax exemption until 2007, as well as additional exclusive rights to
buy and sell used cars.
But how did it gain such benefits? The answer, those familiar with the deal
say, is the strong relationship between the North Korean government and the
Unification Church, or Family Federation for World Peace and Unification.
The church, which owns Pyonghwa and such companies as the Tongil Group, the
Washington Times, and UPI news service, among others, has had close ties with
the North.
The church and its business empire have engaged in not only North Korean
business projects, but also many inter-Korean cultural exchange programs since
the early 1990s. They have held inter-Korean art exhibitions, scholarly
exchange programs and sports exchange programs. Recently, the Moon empire has
established a hotel, a park and a church in the North.
The church says it follows its religious precepts in helping North Korea. “It
is our principle to achieve peace on the Korean Peninsula by promoting mutual
prosperity,” says Ahn Ho-yeol, a senior church official.
Still, how could the church successfully approach the tightly-closed North more
than a decade ago? Hwang Sun-jo, chairman of the Tongil Group, the largest
business operation of the church, says, “The West during the Cold War saw the
North as a more closed and problematic country than it actually was. Mr. Moon
then worked to improve the image of the North. He, for example, sent a
Washington Times reporter to the North and made the country known to the West
with a better image. Since then, the North has confided in the church.”
The church’s effort to build close ties with the North started in 1991 when Mr.
Moon met with the late North Korean founder, Kim Il-sung. There, Mr. Kim
reportedly asked Mr. Moon to take care of North Korean projects, including the
Mount Geumgang project. Kim Chong-suh, professor of religion at Seoul National
University, says, “The church approached the North not so much from the
perspective of religion as business.”
It has been suggested that the church gave large sums to the Pyeongyang regime
to gain an economic foothold in the country.
Consortium News, a Virginia-based U.S. newspaper, reported in 2000 that the
church paid millions of dollars to Kim Jong-il on his birthday. But the Tongil
Group chairman, Mr. Hwang, strongly denied such an allegation, saying, “It is
inconceivable.”
The church and its business group were overtaken by Hyundai which later
initiated a number of projects. The church claims that even though it first
cultivated projects in the North, the South Korean government preferred Hyundai
for economic and political reasons.
Mr. Kim at Pyonghwa says the church was not a big factor for the North to
consider when awarding his company contract rights. “Pyonghwa Motors has only
six to seven people related to the church,” he says. But, he does not deny the
church helped the car company in getting its start.
What is important, he adds, is that North Korea is now changing and is ready to
open its economy. “Our project is making the North more approachable to the
international society,” Mr. Kim says.