Understanding Korea

Korean Flag

Korea had generally occupied this region as a unified state for nearly 1000 years before division in 1948.

Relation with the Rest of World

•Military invasion by France (1866) and the United States (1871), which were attempting to establish trade relations with Korea. •In 1895 Japan defeated China in the Sino-Japanese War, •In 1905, Japan was victorious over Russia in the Russo-Japanese War. •1910 Japanese annexation of Korea and the end of the Chosŏn dynasty.

JAPANESE RULE (1910-1945)

•Protectorate Treaty (1905), forced on Korea after the Russo-Japanese War. Under this treaty, Japan assumed role of protectorate.

•In 1910 Japan formally annexed Korea.

•From 1910 to 1919 Japan solidified its rule by purging nationalists, gaining control of the land system, and enforcing rigid administrative changes.

•During WWII, Japan imposed several measures designed to assimilate the Korean population, including outlawing Korean language and even Korean family names.

Division by USSR & US After 1945

Korean War

Korean War (June 1950 to July 1953) North Korea invaded South Korea in June 1950 Before the North Koreans were stopped in August,

they had captured Seoul, and the Americans and South Koreans had been pushed back to Pusan.

In September, a daring amphibious landing at Inch’ŏn, MacArthur drove the invaders out of South Korea and pursued them to the Chinese border.

In October, China initiated a new conflict by sending troops into Korea, The Communists reoccupied P’yŏngyang on December 5 and, sweeping into South Korea, recaptured Seoul in January 1951.

Wanted to fight a total war with China, but “Fade away” Under superior firepower, the Chinese slowly withdrew

from South Korea. Seoul fell to the UN again in Mar 1951.

A Very Costly WarIn July 1953, the truce agreement was signed at

P'anmunjǒm. The U.S. suffered 157,530 casualties; deaths

from all causes totaled 33,629, of which 23,300 occurred in combat.

South Korea sustained 1,312,836 military casualties, including 415,004 dead;

Estimated Communist casualties were 2 million.

First South Korean LeaderEducated in Harvard

and Princeton1919-41, president of

a Korean government-in-exile based in Hawaii

1948-1960, elected president, instituted several reforms in education and in the ownership of land

The Remarkable Park Chung Hee •a schoolteacher & a soldier in Japanese army in Manchuria

•took over power in a coup in 1961 and became a dictator (KCIA)•launched energetic economic reforms and, despite widespread opposition

•concluded a treaty with Japan in 1965

•Earned foreign exchange by sending troops and contract workers to aid the United States during the Vietnam War

•Assassinated in 1979 by KCIA

Father of the Korean Miracle

(1961-1979)

An Astonishing 57 Times Increase in Real GDP

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978

Chun Doo Hwan: Transitional Figure •trained with the United States Army and led a regiment of South Korean forces during the Vietnam War

•Took over power in a coup in 1979

•In 1980 he declared martial law, military troops killed several hundred civilian protesters in the city of Kwangju.

•Following a series of mass protest in 1987, President Chun promised democratic reforms, including direct presidential elections.

President of South Korea (1980-1988)

From Dictatorship to Democracy

First Elected President (1988-1993)

First Opposition President (1998-2003)

First Civilian President (1993-1997)

A Remarkable Democracy Fighter •Born in a poor farmer’s family

•Went to Shipping and publishing

•Democracy leader, elected to National Assembly many times

•Nearly killed in 1971 “accident”

•Put in jail or house arrest many times and sentence to death in 1980, exiled in 1982

•Ran for president in 1987, 1992 and won in 1997.

Continued Rapid GDP Growth 1980-1996

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

1980 1982 1984 1986 1988 1990 1992 1994 1996

Equity Market Capitalization (1980-1997)

$-

$50,000

$100,000

$150,000

$200,000

$250,000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Financial Ratings and Ratios

Methodology: By comparing the financial ratios with rating tables, one can judge for yourself whether a company has a good financial health.

Three-Year (1994-1996) Medians

AAA AA A BBB BB B

EBITDA InterestCoverage (x)

20.3 14.9 8.51 6.03 3.63 2.27

Funds fromOperations/TotalDebt (%)

116 72.3 47.5 34.7 18.4 10.9

Pretax Return onCapital (%)

31.5 23.6 19.5 15.1 11.9 9.1

OperatingIncome/Sales (%)

24 19.2 16.1 15.4 15.1 12.6

Long-TermDebt/Capital (%)

13.4 21.9 32.7 43.4 53.9 65.9

Total Debt/Capitalization (%)

23.6 29.7 38.7 46.8 55.8 68.9

Financing Pattern

3

Total Debt/Equity 92 93 94 95 96Hong Kong 26 23 33 36 39Indonesia 59 54 58 81 92Korea 123 129 127 132 NAMalaysia 31 29 38 45 62Philippines 81 78 50 49 69Singapore 37 34 33 45 58Taiwan 71 73 71 67 65Thailand 71 81 103 135 155Latin America 31 35 34 33 31France 141 133 117 112 111Germany 61 67 61 59 58Japan 136 139 139 135 138U.S 106 102 97 94 90Question: Which country had too much financial leverage? Why France and Japan do not suffer from financial crisis?

Percentage Change in Fixed Assets

Question: Why Asian countries (Korea) are investing feverishly?

93 94 95 96 Avg.Hong Kong 21 17 15 13 17Indonesia NA 37 36 35 33Korea 11 15 24 NA 17Malaysia 15 21 18 26 20Philippines NA 9 5 15 11Singapore NA 32 20 27 25Taiwan NA 3 -5 24 8Thailand NA 47 27 17 29Latin America NA 8 12 8 7France NA 1 -1 2 1Germany NA 1 1 6 3Japan NA 5 5 3 6U.S NA 3 3 5 3

92 93 94 95 96 Avg.Hong Kong 58 62 63 64 61 63Indonesia 52 56 56 50 45 52Korea 54 52 53 52 n/a 52Malaysia 66 64 61 61 59 61Philippines 51 52 60 58 54 56Singapore 77 82 80 80 78 80Taiwan 64 66 65 68 61 65Thailand 64 64 62 60 60 62Latin America 38 33 40 39 48 40France 51 50 50 51 52 51Germany 31 31 31 31 31 31Japan 57 56 53 54 56 55U.S. 40 35 38 35 36 36

Total Current Liability/total Liability (%)

Warning: Most payment due within a Year!

Cash flow-EBITDA/Interest payable

EBITDA-earnings before interest, taxes and depreciation.

Interest payments too high and earnings too little for Korea.

92 93 94 95 96 Avg.

HongKong

19.29 25.85 21.77 13.59 11.07 18.31

Indonesia 0.03 0.52 2.18 3.07 2.44 1.65Korea 1.42 1.41 1.89 1.77 1.07 1.51Malaysia 9.09 9.76 11.73 9.62 6.74 9.39Philippines 1.89 2.59 2.93 4.31 3.68 3.08Singapore 12.4 14.37 11.7 8.8 8.05 11.06Taiwan 5.73 4.71 6.3 5.12 4.08 5.19Thailand 4.6 4.12 3.83 2.47 1.92 3.39LatinAmerica

15.57 9.52 14.45 14.28 25.36 15.84

France 3.06 2.88 3.87 3.85 4.75 3.68Germany 5.3 4.79 5.96 6.29 7.09 5.89Japan 21.57 3.49 3.68 3.46 4.31 7.3U.S. 4.61 5.57 6.83 7.33 7.62 6.39

Return on Capital Employed before Tax

Deteriorating earnings may have contributed to crisis in investor confidence.

92 93 94 95 96 Avg.Hong Kong 22 21 21 19 16 20Indonesia 12 11 11 11 10 11Korea 7 6 8 9 NA 8Malaysia 12 12 11 11 10 11Philippines 6 7 7 8 5 7Singapore 9 8 8 7 7 8Taiwan 8 7 10 7 5 8Thailand 9 7 7 7 5 7Latin America 15 15 14 14 23 16France 7 5 6 5 5 5Germany 4 2 4 3 5 4Japan 6 5 4 5 6 5U.S. 9 9 11 12 13 11

EVA = Return on Capital Employed (ROCE) - lending rate

Korean companies were not making enough

money to cover their cost of capital. France and

German firms also were wasting their capital.

92 93 94 95 96 Avg.Hong Kong 15 14 12 10 7 12Indonesia -12 -10 -7 -8 -9 -9Korea -3 -3 -1 0 NA -2Malaysia 3 3 3 3 1 3Philippines -13 -8 -8 -7 -10 -9Singapore 3 3 2 1 1 2Thailand -9 -9 -7 NA NA -8Latin America NA NA NA NA NA NAFrance -3 -4 -2 -3 -2 -3Germany -10 -11 -7 -8 -5 -8Japan 0 1 0 2 3 1U.S. 3 3 4 3 5 4

Market Value/book value of asset (x100)92 93 94 95 96 Avg.

Hong Kong 230 277 254 205 210 235Indonesia 77 96 149 137 136 119Korea 65 77 77 72 72 72Malaysia 149 217 202 162 157 178Philippines 109 162 162 141 150 145Singapore 88 135 108 102 91 105Taiwan 117 158 164 124 145 142Thailand 141 249 174 147 107 164Latin America 21 25 NA 38 38 31France 52 57 52 53 58 54Germany 42 51 50 49 57 50Japan 90 94 98 89 96 93U.S. 98 95 96 121 124 107

What Does Kim Jung IL Want? •A playboy known to like Disney Cartoons, Cognac XO, and Women

•Leader of poorest nation on earth

•Clever in play with US

•Would like to end international isolation. “Great Leader”

•Has launched economic reform by freeing prices

•Like to learn from China’s reform experience, not like Castro

•Would like to get three things from US:

a) Non-aggression b) Food Aid & Investment c) Respect

Could be A Very Costly War! North Korea has thousands of artillery pieces and

hundreds of missiles within striking range of Seoul. At more than a million men under arms, North Korea's

army is one of the largest in the world. The CIA thinks North Korea has enough material to have

constructed one or two crude nuclear bombs. Pentagon estimate suggested four months of high-

intensity combat would be required, using more than 600,000 South Korean troops and half a million U.S. reinforcements to the personnel already stationed in South Korea.

Expected 52,000 U.S. casualties in the first 90 days of combat alone! Civilian casualty could be in the millions.