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Entrepreneur Recalls How NK Biz Dream Turned Into Failure

Entrepreneur Recalls How NK Biz Dream Turned Into Failure

Posted July. 03, 2009 05:21,   


A gray-haired man in a business suit in October last year spoke to some 300 people who gathered to mark the completion of a textile manufacturer in Pyongyang. The 60-something man was Kim Jeong-tae, president of Pyongyang Hemp Textile.

He carefully took out a sheet of paper from his jacket’s breast pocket and read it with a quivering voice. It was a congratulatory letter from former President Kim Dae-jung.

“The opening of Pyongyang Hemp Textile is an accomplishment by businessmen from the two Koreas and another remarkable achievement matching the establishment of the Kaesong joint industrial complex.”

A big round of applause followed, after which Kim broke into tears.

Nine months later, Kim sat down for an interview with The Dong-A Ilbo with shocking news. Growing haggard over the period, he said “Pyongyang Hemp Textile, which I put my all energy into over a decade, is about to be shut down.”

His company is the first inter-Korean joint venture to be set up in downtown Pyongyang. Kim closed factories in China and Andong in South Korea’s North Gyeongsang Province to focus on the North Korean venture, leaving only one factory in Seongnam in the South’s Gyeonggi Province. The latter, however, was recently seized by a court.

The financial difficulty of the Pyongyang venture that cost 18 billion won (14.2 million U.S. dollars) has led to bankruptcy of the parent company in South Korea. Kim said he cannot pay the interest of 37 million won (29,100 dollars) on a loan of 1.5 billion won (1.2 million dollars) he took out from Korea Development Bank.

“I’m approaching 70 but I might go broke,” he said in dejection.

Kim was awarded the (South) Korea Textile Grand Prize in 1999 for inventing hemp underwear and obtained ISO 9001 certification for hemp products. So what happened to such a successful entrepreneur over the past 10 years?

In April 1998, Kim met a teenage boy who fled North Korea after his parents starved to death near the Duman River in China. Though young, the teen was addicted to alcohol and tobacco.

Kim at the time ran a textile factory in Taian in China’s Shandong province. He then began thinking of advancing to the North.

A devout Catholic, Kim began community work with Franciscan priests for North Korean children who fled their impoverished country. He sent them back to the North by giving each of them 500 U.S. dollars to help them earn a living.

Kim said he cannot forget what one teen told him: “I’d like to acquire a skill and set up a company like you.”

After much thought, Kim decided to extend his business in North Korea. He said he believed the North Korean people should stand on their own two feet by learning skills and not by relying on international food aid.

To that end, he decided to set up a factory in the North. First, he looked for ethnic Korean businessmen and Korean residents in Japan who raised hemp near the Duman River and who traded with North Korea. Through them, he sent hemp seeds and his business plan to North Korea’s National Economic Cooperation Federation in charge of inter-Korean business projects, the military, and the State Security Department.

After three years of preparation, Kim got a business offer from a company under North Korea’s National Economic Cooperation Federation in December 2002, which led to the establishment of the first inter-Korean joint venture in November the following year. South Korea agreed to provide the capital and technology and North Korea ran the company.

Construction work for the company’s factory started with the aim of completion in June 2006. Everything looked smooth back then.

The first crisis came in June 2005, however. Without prior notice, North Korea unilaterally suspended construction of the factory. Construction stopped until December the next year.

To pay interest on loans, Kim had to close two factories and even lay off employees at a South Korean company. He was later informed that Pyongyang stopped the construction over fears that unlike the joint complex in Kaesong, which is isolated from the North Korean people, a South Korean company in the heart of the North Korean capital would unsettle its people.

After the resumption of construction, Kim faced another obstacle. A month after a sock factory started test operations in 2006, 44 of its 50 machines broke down due to electrical problems. The machines designed to run at 60 hertz were overloaded because North Korea could provide only 42 hertz. To resolve this problem, Kim had to invest an additional two billion won to upgrade electricity generators.

Water treatment, a basic element of factory operation, also plagued him. Though waste water treatment was the responsibility of North Korea under the contract, it did nothing and passed the buck to Kim. Instead of dumping waste water into sewers and rivers, he sought to install treatment facilities and asked for help from South Korean Unification Ministry.

The ministry refused his request because he had already borrowed 3.5 billion won (2.8 million dollars) and he ended up having to give up the dyeing process.

After many twists and turns, the hemp factory was opened in October last year. This time, however, the North’s second nuclear test and trouble in the Kaesong joint complex got in the way. In the wake of the detention of a Hyundai Asan Corp. employee, Seoul banned all of its nationals from entering North Korea other than the joint complex.

The hemp factory has stopped operations due to lack of raw materials stemming from financial difficulty. Kim said, “I thought I realized my 10-year dream of building a factory in North Korea, but it cannot produce goods.”

Seeing his debt increase by 100 million won (78,800 dollars) every month, Kim said, “I wanted to serve our northern brethren with my textile expertise that I had accumulated throughout my life,” adding, “Though my company went under, I hope the textile facility in the North will operate again and fulfill my dream.”