Strategy for Entering China’s Regional and Provincial Domestic Markets

Pyeong Seob Yang, Jihyun Jung, Suyeon No, Furong Jin, Hyunjung Park, Minkyung Lim, Jonghyuk Oh, Hongwon Kim, Jinhee Park and Sanghee Lee



This paper aims to present comprehensive strategies for promoting export and investment and advances in Chinese consumer markets and production bases in response to the new Chinese policy boosting domestic demand and changes in provincial economic climate.

First, by analyzing regional statistics with weighted values and policy papers for 288 Chinese cities, we selected potential consumption and production footholds. Chengdu (成都), Wenzhou (温州), Xian (西安), Wuhan (武汉), Zhengzhou (郑州), Ningbo (宁波), Changsha (长沙), Jiaxing (), Jinhua (金华), and Chongqing (重庆) were selected as top ten consumption bases, and for the top ten production bases, Chengdu (成都), Chongqing (重庆), Tianjin (天津), Wuhan (武汉), Zhengzhou (郑州), Nanjing (南京), Shanghai (上海), Changsha (长沙), Wuxi (无锡), and Qingdao (青岛) were chosen.

In terms of trade, we reconfirmed that Eastern region (华东) is the main destination of Korean exports, regardless of products, 38.5% of all exports to China go to this region. The Bohai economic region (环渤海) receives 27.3%, the Southern region (华南) receives 17.8%, and Shandong province(山东) receives 19.1%. When we break down the transactions between Korea and China, it is clear that import of primary and capital goods in the Northeastern region (东北三省) and the Central region(中部) is greater than in the other regions. In the Bohai economic region, consumer goods, in particular automobiles are heavily imported in comparison with other regions. The Eastern region and the Southern region, which are known as major production bases in China, mostly import goods. We also found that chemical products are primarily exported to the Eastern region, while electronic components and visual and communication equipment are primarily exported to the Southern region and automobiles are primarily exported to the Bohai economic region.

While Korea has a comparative advantage in import markets in Shandong Province, the Eastern region, and the Southern region, its market shares in the Northeastern region, the Central region, and the Western (西部) region are very low. Moreover, the structure of Korean exports is very similar to that of Taiwan in the Eastern region and the Southern region to that of Japan in the Eastern region, the Northeastern region, the Bohai economic region, and Shandong Province and to that of the United States and Germany in the Bohai economic region.

For investment feasibility analysis, we conducted a survey and case study on Korean businesses in China from September to October 2013. The results show that these companies have made progress in localizing procurement since previous investigations.

Korean manufacturers seem to be more competitive than local Chinese companies in terms of quality, technology, and design. However on service sector, they valued similar to or lower than their foreign competitors in China. Korean entrepreneurs indicated that they selected locations by considering local market potential; this has been successful, as sales have taken place on site. In terms of bottleneck factors, personnel problems were considered as the main regardless of the region and business. Too much competition in the local Chinese markets and the collection of payments are also mentioned as problems.

Based on this analysis, this paper suggests methods for advancement in regional Chinese domestic markets and considers the competitive composition of the Chinese import market as a strategy for FTA negotiation further market access. Also, it recommends Chinese efforts to reduce non-tariff barriers and legal discordance between central and local governments and between local ones. In addition, it urges the Korean government to build support systems for small and medium enterprises (SMEs), renew the current export support programs, and provide specialized information on local markets.

China’s Long-Term Economic Reform: Perspectives and Implications

Pyeong Seob Yang and Suyeob Na ed.

This report examines the content and prospects of Chinese economic reforms in finance, fiscal systems, taxation, SOEs, market, pricing, labor/hukou, and international economy; followed by proposed implications and responses for Korea.

According to the analyses of this report, the direction of the Chinese economic reforms is as follows. The main theme in the SOE reform, for example, is diversification of ownership. Financial reforms include abolition of limits to market access, interest rate marketization, capital market reforms, and reforms related to RMB internationalization. For fiscal systems and taxation, an appropriate reform in accordance with the transformation of economic development mode will be adopted; and in order to establish the price mechanism determined by the market, government intervention in the price-decision process will be reduced. In terms of rural-urban integration, land reform and hukou reform will be promoted and a variety of demonstrative actions will be undertaken to expedite domestic reform following opening-up policies. In addition, to improve people's livelihood, social reforms such as increased distribution to laborers and resolution of the income inequality issue will be enacted.

China's economic reform have important implications not only for Korean enterprises in China but also for Korea's external trade with China. Foremost, China’s economic growth rate is expected to be slowed due to extensive economic reforms. At this point, Korea is noticing a marked slowdown in the rate of increase of its exports to China. Moreover, Korea should be prepared as the reforms in China may become a double-edged sword in terms of investment and export to China. On one hand, the Chinese market will provide more opportunities in new fields, in case the reform leads to improved investment systems and enhanced level of openness. On the other, increased factor-price could develop into a big threat for Korea.

It is necessary for the Korean government to concentrate efforts on creating an institutional framework to improve the environment for economic cooperation with China in order to counteract the effects of extensive economic reform policies of the new Chinese government. In this context, the Korea-China FTA will become key and during the negotiation, Korea should seek ways to take advantage of the progress from China's long-term economic reform and changes in international economic policy.

Analysis on the Expansion of Financial Opening and Changes in the Effects of Exchange Rates

Deok Ryong Yoon, Su Bin Kim and Sammo Kang

Five years have passed since the onset of the global financial crisis, and yet the world economy has not regained its normal state. Each country has been implementing the policies for its own domestic economy, such as the quantitative easing. Considering these circumstances, we cannot rule out the possibility of the currency war. In fact, if the world economy turns into such situations, the impact on South Korea, an open and small scale economy, would be significant. South Korea, whose degree of dependence upon foreign trade reaches over 100%, will face the current account deficit resulting from the acceleration of appreciation of the Korean Won. Also, the price fluctuation will be worsened and overall macroeconomic variations will become unstable. Besides, judging from the current state of Korea’s economy, which is experiencing continuous expansion of financial opening and is prone to changes in the financial environment, if the macroeconomic environment were to deteriorate, it is possible that South Korea will experience a sudden stop in foreign capital inflows.

If we take those points into account, it is necessary to take a close look at changes in the system and policies regarding the exchange rates and the deregulation process of foreign exchange dealings, along with the financial opening that has occurred since the currency crisis in 1997. Also, the necessity to conduct studies which examine the changes in the effects of exchange rates on main economic indicators is being brought up. This study was conducted based on these demands, and its main contents are explained as follows.

In chapter 2, it examines the exchange rate system and policies that were implemented in South Korea, and then it introduces and analyzes the characteristics of the regulatory scheme that was carried out after the 2000s to minimize the side effects of rapid financial opening and analyzes its characteristics. It can be said that South Korea’s foreign exchange system has been developed in a way that it adapts to changes in both the domestic and overseas financial environment and to policy issues of the time. In addition, advanced economies’ policies concerning the QE since the global financial crisis are significantly affecting not only the South Korea’s foreign currencies market but the increasing volatility in capital flows. This paper argues that long-term plans and concrete actions are required to reduce the volatility in capital flows resulting from the changes in the QE policies.

In the third chapter, it examines whether there were any changes in the relationship between the financial accounts and reserve assets that were caused by the exchange rates, current account and capital transactions after the currency crisis in 1997. Since the currency crisis, the financial opening and the liberalization of capital transactions turned financial transactions itself into the autonomous ones. This has caused changes in the structure of foreign exchange supply and demand, and as a result, not only the volume of transactions in foreign exchange market but the volume of capital flows have been increased. Therefore, it can be said that the new policy tools need to be developed to minimize the artificial market interventions by the smoothing operation. Also, from analyzing the relationship between the current account and the financial accounts, this paper was able to identify their gradual co-movement. We observed that, when you have a current account surplus, a financial account also turns to surplus and when you have a current account deficit, a financial account also turns negative after a certain period of time. We were able to see that, after the 2000s, the financial accounts have greater direct impacts than current accounts. However, current account is still the main factor in determining exchange rates, while the effect of financial account surplus on determining exchange rates is increasing. From these observations, this paper suggests alternative measures that can continuously manage the current account and expand tools that ease the volatility in capital inflows for the foreign exchange market stabilization.

Chapter 4 conducts the VAR shock reaction analysis and the variance decomposition analysis on the effects of exchange rates on inflation and current account. Results show that the changes in exchange rates increase import prices and consumer prices while the changes have relatively minor negative effects on the economic growth rates and the trade balance. Thus, it is necessary to consider the introduction of measures to prevent rapid fluctuations in exchange rates for the price stabilization, and foreign exchange hedging measures to prevent the financial market’s exchange risk. In addition, the results of the empirical analysis show that urgent attention on yen exchange rate is required as the effects of the yen exchange rate from Japan, a trade rival, are seem to be as significant as that of the dollar exchange rate.

This report’s overall conclusion and policy implications based on the above materials are as follows; first, the government needs to establish the long-term plans for the institutional development. The long-term plans can be established with the agendas such as, making Korean won as the key currency through the internationalization of Korean won, and market development through diversification of participants in the foreign exchange market and enhancement of influence of the private sector. These agendas can be carried out through the institutional development; second, we need to seek for tools that can reduce volatility within the market, and measures that enable economic agents to cope with the volatilities and to hedge risks. This can be viewed in the same context of capability strengthening in private sector for coping with the foreign exchange market, and it is essential to improve this particular area in order to bring efficiency of the market functions; third, continuous political efforts are required to manage the current account. As it can be seen from the results of this study, it is true that the current account determines the direction of investment funds within the financial accounts. Thus, until the Korean won gains international compatibility through its internationalization, we need to prepare a foundation to stabilize the foreign exchange market while maintaining current account surplus. Although, we need to take caution as the excessive amount of surplus can rapidly turn into a deficit; fourth, as capital inflows from the financial markets, especially the portfolio funds which aim to gain the short-term profits, can cause a sudden stop, tools that can be activated in an emergency to secure the stability in foreign exchange market are required; lastly, efforts to reduce possible excessive fluctuations in prices resulting from the exchange rates changes are required. Rapid changes in exchange rates directly affect import prices and consumer prices, and consequently put overwhelming amount of pressure on consumers. Therefore, it is necessary to find various ways to alleviate such impacts. Although the government does intervene the foreign exchange market for fine tuning to avoid rapid exchange rates changes, it is advisable to set up a new system that can be used by the other economic agents.

If there are various options that can be implemented to relieve the volatility in exchange rates and capital flows, there will be less necessity of market intervention, and more chance of implementing appropriate policy tools that are adequate to the time and the conditions.

The Educational Development and Cooperation Plan in Vietnam: Focusing on Vocational Education and Training

Jae-Eun Chae and Myung-Suk Woo

This study aims to present the goal and strategies in plans of the Korean government for educational development and cooperation in Vietnam, focusing on vocational education and training (VET). The study focused on VET because Vietnam has set VET as a main strategic area in terms of becoming a modernized industrial country which was stipulated in its Socio-Economic Development Strategy 2011-2020. Besides, Korea has much experience in cooperation with Vietnam in the field of VET since its education ODA programs in Vietnam are mostly related with VET. In this context, this study has reviewed issues of education development and cooperation in Vietnam and then suggests a range of policy options to improve education ODA programs.

The study consists of six chapters. Chapter I depicts the background and purpose of this study. Chapter II describes Vietnam’s development plans and related demands. Since the initiation of Doi Moi (Vietnam Economic Reform) in 1986, Vietnam showed annual average economic growth rate of 7% during 2000-2008 and thus was able to join the Lower Middle Income Country Groups in 2010. Vietnam has since drawn up a series of plans, including the Socio-Economic Development Strategy 2011-2020 and the Socio-Economic Development Plan 2011-2015. In order to achieve the goals set in these plans, Vietnam needs to invest highly on VET which will help produce skilled workers. Many evidence such as statistics on education and industry, educational development plans, previous research, and the interview results in Vietnam showed that VET is the area most in demand with respect to education ODA.

Chapter III analyzes educational ODA in Vietnam by major donors such as the World Bank and Asia Development Bank, and advanced countries including Japan, Germany, and Australia. The World Bank and Asia Development Bank has simultaneously supported VET of Vietnam despite some differences. In addition, Japan, Germany, and Australia have all jointly supported programs for development of highly skilled workforce of Vietnam in common.

Chapter IV examines education ODA to Vietnam provided by Korea. The findings showed that the total ODA to Vietnamese education by Korea amounted to 231 million dollars as of 2013. The education ODA to higher education was the largest, amounting to 669 million dollars (70.6%). Most of the educational ODA to higher education was used to establishing vocational colleges. Secondary education and VET were the second largest, amounting to 225 million dollars (23.7%). Despite the contribution of Korea to Vietnam, there is still room for improvement. First, educational ODA programs were not based on the investigation of demand of Vietnamese themselves for the development of education nor thorough examination results of Vietnamese educational infrastructures. Rather, they were formulated without a systematic plan when the Korean president made an official visit to Vietnam. And when the program was designed, it did not include evaluation and follow-up management, which often resulted in inefficiencies in the ODA. In addition, even though many Korean companies do business in Vietnam, they did not establish any connections with Vietnamese vocational institutions.

Chapter V describes the objective and strategies, and program areas of educational development and cooperation in Vietnam based on the findings. This study suggests that Korea’s objective in educational development and cooperation in Vietnam is to support a modern industrialization of Vietnam through development of a highly skilled workforce. The directions should be toward enhancement of efficiency, expertise and accountability in educational development and cooperation. The strategies are as follows: 1) target for educational ODA support should be strategically determined; 2) educational ODA programs should be improved qualitatively; 3) partnerships in educational ODA should be strengthened; 4) the implementation of educational ODA programs should be efficient; and 5) performance management system of educational ODA should be enhanced.

Based on these criteria, this study suggests five education ODA programs related to VET in Vietnam. In developing these programs, it adopted three criteria. First, they should contribute to the realization of the Vietnamese government’s goal of becoming a industrialized country. Second, the programs should address the ODA areas where Korea has accumulated expertise and know-how through the previous VET projects both at home and abroad. Third, they should be implemented in partnership with multi-donor agencies, and private entities such as NGOs and private companies. Based on these criteria, the study suggests the following programs: 1) VET programs in economic zones, 2) Public Private Partnership VET for increased employment, 3) Transforming vocational colleges into four-year university programs, 4) Science and technology scholarship programs in Vietnam; and 5) the Korea-ADB Vietnam VET program.

Chapter Ⅵ summarizes the findings and suggests policy implications for the Korean government in conducting educational ODA programs.

International Cooperation for Industrial Development in Indonesia


Jongil Kim and Mikyung Yun



Industrial development is crucial for creating employment and income growth in developing countries. Since the recognition of the importance of development effectiveness in addition to aid effectiveness at the recent G20 Seoul Summit and Busan High Level Forum on Aid Effectiveness, development cooperation in the field of industrial capability enhancement has received increasing attention from the international development community. As a country which achieved rapid development based on industrial competitiveness, Korea is now facing high demand from developing countries for development cooperation in building industrial capabilities.

Against this background, the present study has selected Indonesia, with which Korea is increasing economic cooperation, for the country case study in order to undertake an analysis of desirable forms of development cooperation in industrial capability enhancement. The study first explores general economic conditions and the level of industrial development in Indonesia, and Indonesia’s Masterplan for development. Then, the study examines how Korean ODA to Indonesia is currently conducted, especially with respect to industrial capability enhancement, and evaluates its performance. On the basis of such analysis, the study proposes possible development cooperation programs between Korea and Indonesia in the field of industrial capability enhancement. The reason for selecting Indonesia as a cases study is that, above all, Indonesia is one of the core countries that has received the largest proportion of Korean ODA. This trend has continued, with the total amount of Korean ODA going to Indonesia increasing even more during the 2000s. Not only that, increasing comprehensive economic cooperation between the two countries after 2012 is brightening the prospects for even greater industrial development cooperation between the two countries in the future.

Chapter 2 looks at Indonesia’s macroeconomic performance in general, explores the level of its industrial development and related policies, and critically examines its overall economic development Masterplan as to appraise Indonesia’s demand for ODA in the field of industrial development. Indonesia has successfully overcome the economic and political crisis caused by the Asian financial crisis, through democratization and sustained growth. It has achieved middle income country status in 2012 when it attained GDP per capita of more than 3,500 dollars. Despite bright prospects for growth in the long run, Indonesia has at present a great deal of structural problems to solve, before turning that prospect into reality. Deficient social infrastructure and private sector development, slow growth of the manufacturing sector and rising economic inequality along with issues of corruption, are among the most serious problems. Since the focus of this study lies in private sector development and strengthening industrial capability, when analysing the Indonesian economy, Chapter 2 devotes most of its effort on understanding the industrial structure and related policies.

In Chapter 3, the study looks at development cooperation in Indonesia in general, and then evaluates the performance of Korean ODA to Indonesia. Although Indonesia has attained middle income country status, ODA to Indonesia showed an increasing trend during the 2000s. Important bilateral donors in terms of total ODA amount are Japan, Australia, US, and Germany. Compared to those countries, Korea’s ODA in terms of absolute size is miniscule, for example, only 1/40th of Japan’s total ODA. Nevertheless, Indonesia is the fourth largest recipient of Korean ODA, and Korea’s share of total ODA going to Indonesia has continued to increase over the past ten years. Governance, energy and health sectors received the most ODA. Despite rising comprehensive economic cooperation between the two countries, development cooperation in the field of industrial sector has been minimal. According to Korea’s CPS for Indonesia, the three fields selected as the core focus of Korean ODA, considering Indonesia’s development needs and Korea’s comparative advantage, are public administration, economic infrastructure and management of environment and natural resources.

Chapter 4 continues with a more detailed study of specific development cooperation projects undertaken in the industrial sector by Korea’s three major ODA organizations: KOICA, EDCF, and KSP. Korean ODA organizations seemed to have specialized by concentrating their projects in the fields of information & telecommunication, and industrial energy, which are believed to be areas where Korea has a competitive edge. However, the strategy of specialization was not fully successful in that each of these projects were small grant aid, unrelated with each other in project substance. Such fragmented character of aid has greatly impaired development effectiveness. Whether Indonesia, already a high middle income country, should continue to receive grant aid predominantly should also come under review. For Korean ODA to become more effective in supporting industrial capability and infrastructure development in Indonesia, Korea must consider increasing the size of its aid in the form of loans, and integrating various small scale industrial projects into a closely-related, sector-based programs. KOICA’s technical cooperation in the textile industry, and industrial park feasibility study, if placed under an overall industrial sector development program, would be promising projects. They point to the right direction in the way of designing appropriate, specific development cooperation projects that can support strengthening the industrial capability of Indonesia.

Chapter 5 proposes new directions for Korea’s development cooperation in the industrial sector by suggesting four promising types of aid programs for industrial sector development: enhancing business development service (BDS) provision for SMEs, building global business partnership programs which embraces corporate social responsibility (CSR)-related activities to foster cooperation between large and small firms, assisting human resources development through connecting training programs with migrant labor programs, and supporting development of industrial parks. The programs proposed here are only rough schemes, requiring detailed feasibility studies and specific implementation plans or strategies. If the Korean ODA organizations decide to adopt the proposals made here and apply it to specific industrial sectors and regions in Indonesia, appropriate implementation plan for the sector or the region will need to be fully developed. The most important thing is not to lose sight of 1) making use of Korea’s comparative advantage in successfully implementing industrial capability enhancing policies in designing sufficiently specialized programs; 2) merging various small projects into a single, adequately-sized aid, linking loans and grants if necessary; and 3) complying with the overall development Masterplan and specific industrial policies of Indonesia.

Environmental ODA to Africa: Policies, Determinants and Implications

Sungil Kwak and Hyelin Jeon

We explore the trends and policies of environmental ODA and empirically analyze the determinants of Japanese and Swedish environmental ODA for Africa. We choose two countries, Japan and Sweden; Japan is the largest donor of environmental ODA, and Sweden is a role model of this type of ODA provision. From the CRS data, we find that many major donors have expressed interest in environmental ODA as time passes. However, each country has its own environmental ODA policies.

The Japanese environmental ODA determinants and its policies can be summarized as follows. First, whereas Japan is the world’s largest donor of environmental ODA, the amount of giving to Africa has been relatively small. That is, Japan has not been interested in the environmental issues in Africa for years. Second, the amount of trade significantly affects the decision to grant environmental ODA for Africa. This implies that the economic relationship between Japan and its recipient countries is a major factor in determining whether Japan provides environmental ODA or not. Third, recently Japan seems to have changed its environmental ODA policy for Africa. For example, Japan announced that it would increase the amount of environmental ODA for Africa at the 3rd and 4th TICADs. Fourth, Japan provides environmental ODA for resource-poor rather than resource-rich African countries. For instance, Nigeria, a major oil exporter, got relatively little environmental ODA from Japan, while it is the number 1 recipient country in Africa of ODA from Japan.

On the other hand, the Swedish environmental ODA determinants and its policies can be summarized as follows. First, Sweden, with extensive experience providing ODA, has focused on environmental mainstreaming, even though the size of ODA is relatively small. Second, the Swedish environmental ODA has been meeting the needs of recipient countries. To investigate their individual needs, Sweden often holds a policy dialogue with recipients. Fourth, the ratio of the total amount of ODA to environmental ODA continues to maintain a certain level and converges to a small number. However, Japan’s number does not; this number is stable due to the fact that Sweden many times has held policy dialogues to persuade the recipient countries to satisfy their needs.

Our findings give the following implications. First, Korea has to reflect the issues of the environmental mainstreaming to the ODA policy. By doing so, Korea can grow to become one of the significant donors in this field. In particular, Korea must note that Japan has expressed the will to take part in environmental mainstreaming through the announcement at the 4th and 5th TICADs. Second, Korea has to hold more policy dialogues with recipient countries. Policy implementation is a totally different process from policy making. When the Korean government determines that it will give environmental ODA to African recipients, the distinct features of Africa should be understood. In particular, the causes of environmental deterioration differ across regions, as the poor in Africa have different reasons that they remain poor across residential regions. Hence, the causes should be explored in a dynamic view to provide suitable treatments, rather than in a static view. To do so, more policy dialogues with African recipient countries are required.

The Investment Environment Changes in the Mining Industry of the Kyrgyz Republic and Implications

Jinhong Joo

The Kyrgyz Republic is one of the most impoverished countries in Central Asia and its economic cooperation with Korea has been far from robust. However, the Kyrgyz Republic has untapped mineral resources including those of precious minerals that was first developed during the Soviet era. The Kyrgyz Republic is the 3rd largest gold producing country in Central Asia and is also noted for mining of rare earth elements. The mining industry is the most important export industry in the Kyrgyz Republic and the core industry of the Kyrgyz economy. The export of mineral resources represents more than 50% of total exports of the Kyrgyz Republic and the gold export accounts for the largest share of the country’s mineral resources export. The foreign mining companies have entered the Kyrgyz Republic since its independence but their operations have been less than successful due to severe interference of the Kyrgyz government. After the first revolution, the Bakiyev government put forth efforts to attract the foreign investment to its mining industry, which led to increased Kazakh and Chinese investments in the industry.

However, since the new Kyrgyz government declared the investment policy to attract foreign capital after the second revolution in 2010, the investment environment has deteriorated. The main reason for the deterioration is increased political risk from the change of political structure and an unstable political environment. The political risk stems from the fact that the government is a fragile coalition; the policies adopted are often the based on populism and there is much political strife surrounding the core industry, mining. Such political risk has obstructed the long term investment. In addition, the Kyrgyz government did not expend sufficient effort towards improving its investment environment. The investment environment for the mining industry as the Kyrgyz Republic's core industry also became worse, because of the government's policy of increasing its control over the mineral resources and the mining industry, in addition to rising conflicts between the Kyrgyz government and foreign mining companies resulting from the Kyrgyz government interference in the mining industry, conflicts between foreign mining companies and local populations around the mines, and the growing awareness among foreign mining companies of the negative investment environment of the Kyrgyz mining sector.

The Kyrgyz government policies to reinforce its control over mineral resources and the mining industry is not expected continue, however, as development of the Kyrgyz mining industry is essential for economic development in Kyrgyzstan, which is only feasible through infusion of foreign capital into the mining sector. There is actually historical precedence regarding Kyrgyz government easing regulations related to its mining sector as a response to the weak foreign investment into its mining sector. Also, any stringent policy on the part of Kyrgyz government would not be successful given the fragile coalition government, the parliamentary government system, and the nearly even distribution of parliamentary seats among parties. This is the reason why the failure of economic policy threatens to turn into political failure immediately. Recently, the Kyrgyz government's policy regarding the mining sector seems to have relaxed somewhat because of foreign mining companies' legal battles against the government and their announcements of possible divestment from the Kyrgyz mining sector, threatening and frustrating the government. On the other hand, the new Kyrgyz government's policy on mining sector is opposed to those of the former Kyrgyz government. The abolition of the former government's policy could ease the way for the new government, which means new mining projects permitted by the new government would not be overly burdened by regulations.

In summary, the present, deteriorated state of investment environment in the Kyrgyz mining sector could continue until the 2015 parliamentary elections changes the present distribution of present parliamentary seats. But the investment environment would be improved for the mid and long terms because the Kyrgyz republic sees prospects for continued exploitation of minerals such as gold and rare earth elements and the present Kyrgyz government does not have the economic and political leverage for exerting strong influence on the mining sector.

Therefore, based on this analysis of prospects for foreign mining companies and the investment cases, the implications for companies are as follows: First, the deterioration of the Kyrgyz mining sector's investment environment would continue at least until 2015 but the improvement of investment environment is expected for the mid and long terms. Second, changes in Kyrgyz mining regulations are aimed at transparency of its mining sector and the removal of corruption, so the companies would do well in adhering to them. Third, the mining projects are vital to local populations, and so companies have to recognize the need to create jobs around the mining areas and of the contribution to the local economy. Fourth, companies need to respect Kyrgyz sensitivity to environmental pollution and thus must heed relevant environmental regulations. Fifth, Korean companies need to recognize the strategy of the foreign mining companies. Foreign mining companies are perfectly willing to accept the Kyrgyz government's demand for contribution to the local economy, in order to participate in the mining industry in the Kyrgyz Republic.

The strategy for the mining companies are as follows: First, the companies must focus on the development of prospective mineral resources such as gold and rare earth elements. Second, they must meet demands for contribution to the local economy, meaning mining companies need to plan together in advance with agricultural products-processing companies or infrastructure construction companies, as local communities need to develop agricultural business networks and build infrastructure. Third, companies should try to invest in the mining sector with local companies in joint ventures because joint ventures with local companies will allow them to avoid political controversies. To support the mining companies, the Korean government is able to utilize Official Development Aid especially for job education and training programs, construction of healthcare infrastructure and cleanup of environmental pollution caused by mining. These ODAs will help create a qualified local labor force in the mining sector and contribute to the health of locals and the local economy. In the end, this would lead to increased competitiveness for Korean companies in the Kyrgyz mining sector.

Toward Korea-Belarus Cooperation in the ICT Sector

Jiyoung Min

Belarus’s ICT sector is burgeoning since 2000. In 2012, the country ranked 48th in the world in terms of IT infrastructure and 46th in ICT development index in 2012. The ICT industry of Belarus is competitive in ICT service, offshore programing and so forth. Considering the rapid growth rate and excellence of ICT experts, the ICT sector has many potentials in the coming years.

Recently, the Korean government has set “Creative Economy” as a key agenda for the nation. Further development of the ICT sector is one of pillar industries. For internationalization of Korean ICT and international cooperation in the fields should be realized. Given Korea’s recent policy and Belarus’s relative competence in the ICT sector, the author tried to find out possibilities of cooperation between the two sides.

Due to lack of interest and information, Belarus’s potential promising ICT industry is undervalued in Korea. Therefore, the study contributes to study on Belarus in Korea and provides guidelines for cooperation in ICT the ICT sector between Korea and Belarus by analyzing Belarus’s ICT sector, policies, projects, etc.

The study is consisted of five chapters. The first chapter introduces background and purpose of the study and previous research. Then, an overview on the Belarusian economy and industry is presented in the second part.

In the third chapter, structure and features of Belarus’s fast growing ICT industry is discussed. Also, the study contains evaluations on institutions, infrastructure, ICT experts of the Belarusian ICT sector. Chapter four exhibits how major organizations of the ICT in Belarus collaborate with foreign counterparts. Although, ICT-related bodies in Belarus have few international cooperation experience so far, they are open to work with foreign partners and actively trying to strengthen relations with them. The study is concluded with suggestions to cooperate in the ICT sector between Korea and Belarus, based on the first four chapters.

Third-term Putin Government's ‘Concept of Foreign Policy’ and Korea-Russia Cooperation

Sung Hoon Jeh and Boo Gyun Kang

Since 2000, Russia has announced a foreign policy doctrine under the Concept of the Foreign Policy of the Russian Federation (hereinafter, the “Foreign Policy Concept”). The Foreign Policy Concept, which is created by the Ministry of Foreign Affairs and approved by a Presidential Decree, is the most basic document that defines the basic principles, preferential orientations, objectives, and tasks related to foreign policies, including foreign economic policy.

The Foreign Policy Concept updated on February 12, 2013 is structured in a similar manner as those of 2000 and 2008. In terms of content, however, it reflects the global economic crisis, and the changed global economic-political situation since the Arab Spring. Accordingly, it can be considered a new doctrine that defines the orientation of the foreign policies of the third-term Putin Government in that Russia’s priorities for the global and regional levels have been modified.

The implications of the adoption of the new Foreign Policy Concept are as follows: First, the third-term Putin Government's perception of foreign countries are well-established. The perception is that the world order is being transformed from the one once led by the U.S. to a multipolar system in which major powers share responsibilities. Moreover, there is an increase of instability and unpredictability on the global and regional levels because during the process of the transformation, the challenge is brought up due to persisting global economic crisis, changing balance of military power, increasing influence of ideological factors, risk solutions that deviates from the UN Security Council, and misuse of “soft power”.

Second, foreign policy tasks President Putin previously mentioned have materialized. Major contents of various articles, publicized by Putin during his premiership and presidential campaigns, have been systematized into foreign policy tasks. These ‘tasks’ revolve around the key contents of the “Decree by the President of the Russian Federation on Measures to Implement the Foreign Policy of the Russian Federation (No. 605 of 7 May 2012)” signed by President Putin immediately after his inauguration on May 7, 2012.

Third, prior tasks on the global/regional levels have been readjusted. Russia's global-level priorities in terms of foreign policy have been readjusted to include the following: “Emergence of a New World Order”, which is based on a strengthened role of the UN and the collective leadership of major powers; “Rule of Law in International Relations”, centered around conformance with international legal norms and securing of national sovereignty; “Strengthening of International Security” through control of military power and reinforcement of trust regarding military issues; “International Cooperation in the Sphere of Economy”, for innovative development of the national economy and for minimizing risks; “International Humanitarian Cooperation” at the global level that contributes to the guarantee of human rights of the Russian diaspora and the enhancement of “soft power”; and “Information Support for Foreign Policy Activities”, which increases efficiency of the fulfillment of foreign policies.

Russia's regional-level priorities have also been modified and supplemented to reflect economic-political changes of and Russia's changed relationship with various regions of the world, such as the former Soviet region, Europe, USA, the Arctic and the Antarctic regions, the Asia-Pacific, the Middle East, Northern Africa, the Latin Americas, and Sub-Saharan Africa. Most remarkably, Russia has presented a new framework for economic integration centered around the countries of the Commonwealth of Independent States (CIS), namely, the “Eurasian Economic Union”. It also has clearly expressed negative opinions and concerns about the activities of the North Atlantic Treaty Organization, and voiced a strong warning toward the foreign policies of USA as well as willingness to improve its relationship with USA at the same time. In addition, they have decided on their priorities regarding the Arctic and the Antarctic regions, which have never been mentioned in the past “Foreign Policy Concepts”. Moreover, reinforcement of relationship with countries in the Asia-Pacific and its neighboring regions has been further emphasized.

Given such a background, Korea's main tasks related to its cooperation with Russia are as follows:
First, Korea should consider the establishment of a cooperative relationship with the Customs Union and the Common Economic Space, which are being led by Russia in the former Soviet region aimed at the realization of the “Eurasia Initiative”. The “Eurasia Initiative” consists of proposals promoting the formation of the Eurasian economic zone by connecting economic zones in various parts of Eurasia, under the concept of “one continent”. Russia is forming a Customs Union and the Common Economic Space with Belarus and Kazakhstan, bordering EU on the west and APEC on the east. This forms the basis upon which the third-term Putin Government is attempting to establish the “Eurasian Economic Union” by 2015. In addition, other CIS countries are expressing their intentions to participate in such former Soviet regional economic integration. In order for Korea to become the starting point of the “Eurasian economic zone”, and the portal through which Eurasia and the Pacific are connected, it should consider establishing an institutional basis on which it can reinforce economic solidarity with the former Soviet regions, as well as with the Asia-Pacific. Accordingly, although the method of participating in such an initiative might require more policy reviews, it is deemed necessary for participation in the Customs Union and to establish a cooperative relationship within the Common Economic Space.

Second, as Russia is pursuing the development of its Far East region to take advantage of the potential of the Asia-Pacific, Korea urgently needs to expand Korea-Russia economic cooperation, which would target the area. As Russia has yet to resolve its conflicts with Europe and USA in areas of energy and national security, it would naturally reinforce its relationship with Asia-Pacific countries. In reality, the third-term Putin Government is giving much emphasis to economic-political emergence of the Asia-Pacific region, and is showing a significant interest in the expansion of economic cooperation with Northeast Asian countries, such as China, Japan, South Korea, and North Korea. Taking advantage of such a situation, therefore, South Korea should seek various measures to expand Korea-Russia economic cooperation in the region.

Third, as Russia is maintaining a balanced relationship with both Koreas while it pursues the realization of trilateral economic cooperation projects, Korea should actively utilize it to move forward with the “Korean Peninsula Trust Process”. South-North-Russia trilateral economic cooperation projects promoted by Russia to connect railways, construct gas pipelines, and interlink power system networks, will stimulate North Korea's economic development, and establish infrastructure connecting the South and the North in preparation for the unification of the Korean Peninsula. Therefore, the realization of the trilateral economic cooperation projects will be instrumental in moving the “Korean Peninsula Trust Process” a step further.

Fourth, Korea needs to establish and implement tasks of cooperation with Russia in the Arctic region. The fact that the Arctic region is mentioned in the “Foreign Policy Concept” for the first time in history clearly shows the special interest of the third-term Putin Government in the region. Korea-Russia cooperation in the Arctic region should be deemed significant. Considering that areas under Russian sovereignty or jurisdiction contain very large petroleum and gas reserves, and that it is required to pass through the waters under the Russian jurisdiction by using Russian ports and icebreakers in accessing the Arctic route, a new international maritime trading passage. Therefore, for Korea to enter the Arctic region in earnest, it needs to establish and implement cooperative tasks in a systematic manner through creating an “Overall Strategy for Cooperation with Russia in the Arctic Region” or a similar initiative.

Russian Arctic Development Strategy and New Possibility for Korea-Russia Cooperation

Sung Hoon Jeh and Jiyoung Min

The Arctic is changing due to global warming. While this poses potential environmental risks, the region is also emerging as a new shipping route and an alternative source of energy supply. Recognizing the enormous potential of the region, both Arctic and non-Arctic countries are devoting increased attention to the use and development of the area. Korea, a non-littoral nation, also is moving quickly to involve itself in Arctic issues. Namely, it received permanent observer status at the Arctic Council in May 2013 and adopted the “Comprehensive Arctic Plan” in July.

In fact, participation in activities in the Arctic is an arduous task for a non-Arctic country under the current Arctic governance regime. However, Korea, an energy-and-trade-dependent economy, is seeing new opportunities, because the opening of the Arctic provides an irresistible attraction. In order to actively participate in the Arctic, Korea needs to take part in tackling relevant global issues, such as environmental protection and preservation, development of technology applicable to the Arctic, etc. as a member of the global community. Building and maintaining close relationships with relevant countries should be sought as well.

In this context, cooperation with Russia, in particular regarding the Arctic, has significant meaning to Korea for the following reasons. First, the majority of hydrocarbon resources in the region lay in the Russian Arctic region. Since Russia is developing fields for exploitation of energy resources through international cooperation, Korea needs to consider ways to participate in such projects. Second, when using the Northern Sea Route, it is inevitable that shipping pass through waters under the authority of the Russian Federation and employ Russian facilities, such as ports and ice-breakers. In addition, the Russian government’s plans to establish infrastructure for the development of the region including an integrated transport system and ICT network may provide chances to Korean investors. Third, Russia is an influential participant in Arctic governance such as the Arctic Council, BEAC, etc. Thus, closer cooperation with Russia can make Korea‘s participation in Arctic governance much easier.

In this report, the following measures are suggested in order to strengthen cooperation with Russia. First, apart from the “Comprehensive Arctic Plan,” an “Extensive Cooperation Strategy toward Russia” should be devised. The document needs to encompass all possible forms of collaboration and opinions of experts regarding Arctic issues. Second, establishment of an “Arctic Cooperation Committee” under the Korea-Russia Joint Commission on Economic, Scientific and Technological Cooperation and “Korea-Russia Joint Arctic Research Center” will be helpful in developing constructive bilateral cooperation. All Arctic-related topics between the two nations can be discussed within the Committee and the Center will take a role as a think-tank on Arctic issues. Third, creation of Asia-Pacific-Arctic Council modeled on the Barents Euro-Arctic Council jointly with Russia will help intensify regional cooperation. Through this system, Korea may have more chances to engage in the Arctic issues earnestly as an active member. Fourth, the opening of the Arctic provides investment opportunities for Korean companies. Participating in consortium or joint investment projects, and technological cooperation with Russian organizations can be viable ways to become involved in the Arctic. Since Russia’s dilapidated ports require new construction or maintenance, investing in relevant projects could also be considered. Fifth, various civil and academic exchange programs will contribute to nurturing Arctic specialists, extending cooperation with indigenous peoples, and raising Korea’s image as a trustworthy partner in the Arctic for the long term.