Kim, Jeongho , President of RIG

Spatial Planning and Economic Development in Border Region: The Experiences of Gangwon Province in Korea. 2009. 11 Kim, Jeongho, President of RIG

Table of Contents Gangwon Province: Geographical & Demographic Features ■ Geographical location ■change in population II. Rationale behind the Slow Regional Economic Growth ■Change in industrial Structure ■Other Factors III. Efforts for Sustained Regional Growth? ■ Promoted Strategic Industries ■Inducement of Firms from Outsides ■Improving Competitive Edges of the Farming and Tourism Sectors IV. Further Efforts Required to Make Regional Industries Competitive ■Increase Value-added of the Prevailing Leading Industries ■Utilize ‘Naturally Endowed Green Resources’ V. Any Conceivable Green Growth Strategies? ■Locally and Regionally Initiated Renewable Energy Production ■Further Development Potential for Renewable Energy ■ Promote Tourism Industry ■Conceivable Projects Integrated with National Green Growth Strategy Conclusions 1

I. Geographical & Demographic Features ■ Geographical Location 2

I. Geographical & Demographic Features ■ Demographic Features <Change in Population> Source: Gangwon Census of Population and Households, Gangwon Provincial Government 3

II. Rationale behind the Slow Regional Growth ■ Change in Industrial Structure Nation as a whole / Components 4

II. Rationale behind the Slow Regional Economic Growth - The Province’s GRDP as of 2007 amounted to 20.6trillion won (12billion Euro) or 2.5% of the GDP and it grew at an annual rate of 2.3% between 1996 and 2006; - As shown in Table 1, the industrial structure is skewed toward such sectors as farming, construction, tourism, and service (public service included), which comprise about 65% of the GRDP, and the share of manufacturing sector is only 11.5% in 2007, about 1/3 of its national share, which is more likely to create a large number of jobs relative to other sectors (larger employment multiplier.) - One of critical industrial characteristics is low value-added and inter- and intra-industry value chain is weak or rarely exists in many cases. - Intra-regional production inducement rate is estimated at 56%, implying that almost half of the production takes place outside the province. 5

II. Rationale behind the Slow Regional Economic Growth ■ Other Factors 1) The poor quality of physical infrastructure 2) Insufficiency in capital investment funds 3) A series of regulations and controls 4) Conservation and preservation 5) Poor access to markets and professional labor force 6

III. Efforts for Sustained Regional Growth? ■ Promoted Strategic Industries; more on knowledge-based R/D and green ocean industries, less on cash cow ones <R/D Expenditures by Types> <R/D Expenditures by industrial type> 7

III. Efforts for Sustained Regional Growth? <contribution of strategic industriesto value added and jobs created as of 2008 > #of Companies #of Employees Patents registered Patents issued Patents in use Exports (10 millions) Sales (in million won) Bio tech Medical equipment Ceramics Disaster Prevention * Plasma IT Total * Disaster prevention industry refers to those firms which manufacture fire extinction equipments and chemical substances for fire works, mostly located in Samchuk city. 8

III. Efforts for Sustained Regional Growth? <patents issued and formally registered as of 2005> 9

Impacts of the High-tech, Green Ocean Industries on Regional Economy and Future Perspective III. Efforts for Sustained Regional Growth? - Economic impacts: total sales, 927b. won (537m Euro); total value added, 700b won (405m Euro) or about 3% of the province’s GRDP; total number of jobs created, 6,305; and 292b (169m Euro). worth of goods exported; - Intends to raise GRDP percentage ratio up to 15% by successfully implementing the Second Stage Plan; Gangwon will generate 45trillion worth of GRDP and witness per capita GRDP of $30G by 2015; the plan reveals that when fully implemented it’ll help create 800 firms and export 1.6 trillion won worth of high value added products. - But this rosy picture could be realized only if the R/D efforts continue and in particular, sufficiently large amount of venture capital be mobilized to help transform newly developed technologies into marketable, high value added products. 10

III. Efforts for Sustained Regional Growth? • ■ Inducement of Firms from Outside • Actively induced firms from the Seoul Metropolitan Area(SMA) • A total of 314 firms moved between 2000-2005, but a majority • of them were unstable and marginal ones with low level of job • creation; only a few made a significant contribution to local • employment market! • * 140 firms employed less than 10 persons; 250 firms, less than 30 • persons • ■ Improving Competitive Edge for Farming and Tourism Sectors • Highland vegetable farming, introduction of new wellbeing products, • and localized high quality meat branding efforts have been partially • successful; entrepreneur farming made selected few rich, but had • only limited effect on income distribution! • Increasing number of tourists notwithstanding, tourism-generated • incomes were not substantial, partially due to short supply of good • or high quality products (or tourism sale packages.) 11

IV. Efforts Required to Make Regional Industries Competitive ■Increase value added of the prevailing, leading industries 1) tourism industry - expand scale and maximize value chain with such industries as MICE, cultural/food/entertainment, and event 2) agriculture & fishery industry - search for new niche markets (e.g. for high income wellness-conscious class), - develop high value- added products to make the most of the special tastes of new urban high income BOBOs 3) service industry - diversify service industry and put more focus on business support services rather than personal services; e.g. business call service (call center), legend- teller, accounting and consulting for green business, etc. 4) medical equipment industry - promote R/D efforts to develop high value added medical equipment products - integrate its activities with other medical industrial activities in nearby regions; e.g., pharmacuetical, medical/health care, and medical tourism etc. 12

IV. Efforts Required to Make Regional Industries Competitive ■ Utilize ‘Naturally Endowed, Green & Indigenous Resources’ 1) water : Develop water industry and secure ‘water rights’ - water, perceived as economic good, no longer free good! - Gangwon province produces 43b tons of water, but consumes only 1.6b tons; the rest being supplied very cheaply for SMA-residents, -factories and -businesses. - conceivable to enter the bottled pure water global market if water taste be made globally appealing to compete with Perrier, Pure Life, Evian & Sweppe? <Water Usage by Types>` (Unit: million ton) Household use (Piped water) Total Industrial use Agriculture use Quantity 1,610.8 328.0 58.0 1,224.8 20% % ratio 100% 4% 76% 13

IV. Efforts Required to Make Regional Industries Competitive 2) Forest: Reassess the value of forest in the greening era - % share of forest area : 32%; cumulative density of tree: 1.5times the national average; may serve as major carbon absorption agent - big asset when carbon emission market opens (estimated to be worth 80b won (46m Euro)) <Forest Area Size and Tree Stock Density> Country as A whole(A) Gangwon Province(B) B/A, % Total areas in 1000㎢(a) Forestry covered area In 1000㎢(b) % ratio (b/a%) Tree cumulative In hectare Total tree stock density in 1000㎡ 14

IV. Efforts Required to Make Regional Industries Competitive -Other uses: e.g., air cleaning, water reserve, therapeutic uses, etc. <Estimated Monetary Value of Public Functions of Forest (asof 2000)> (Unit: 100million won) Country as a whole (A) B/A, % Gangwon Province (B) Total value Cleaning the air Water reserve and supply Prevention of soil loss Recreation/therapy Purification of forest Prevention of mud sliding Wild life protection 3) Mining Resources: coal, dolomite, silicon, etc. -coal: low carbon extraction and use technology under study -dolomite: raw material for Mg; its demand rapidly increases! -silicon: ingredient for solar cell to generate solar power 15

V. Any Conceivable Green Growth Strategies ? ■ Locally or Regionally Initiated Renewable Energy Production <Electricity Produced by Renewable Energy Sources as of 2007> h 16

V. Any Conceivable Green Growth Strategies ? ■Further Development Potential for Renewable Energy 1) Wind Power - potentially up to 29, 200MW/h of additional power can be generated. <Technical Potential of Gangwon Wind Power> (Unit: 1000toe) Inje Wonju Yanggu Sokcho Donghae Taebaek Goseong Yangyang Cheorwon Yeongwol Hawcheon Jeongseon Chuncheon Samcheok Gangneung Hongcheon Hoengseong Pyeongchang 17

V. Any Conceivable Green Growth Strategies ? 2) Solar Energy - estimated to grow further by at least 908MW/h - thermal power plant seems to be too costly to be built! 3) Biomass - very difficult to estimate, but; - potentially very optimistic because the province generates large amount of animal and other wastes, including wood product wastes and wood pellet, methane gas, fishery and agricultural wastes, etc. 4) Develop and Execute 5-Year Renewable Energy Development Plan as suggested by Korea Energy Economy Institute (KEI); - requires a total of1.2trillion won (694million Euro) of new investment into renewable energy (w. 260b of government share) - effects: reduces 1.3m tons of CO2, thousands of green job creation, regional investment multipliers of 2.5 to 2.8, with big intra-regional linkage and trickle down effects expected. 18

V. Any Conceivable Green Growth Strategies ? ■ Promote Tourism Industry <Tourism Resources as of 2006> Source: Korea Tourism Business Corporation 19

V. Any Conceivable Green Growth Strategies ? ■ Conceivable Projects Integrated with National Green Growth Strategies 1) National: 4 Major River Revival Projects (Han, Nakdong, Kum & Sumjin), involving cleaning river basin, improving water quality, expansion of water holding capacity, building dikes for flood control, development of recreation & park facilities, etc. Gangwon: cleaning & streamlining upstream of Han rivers to improve water quality and building water parks and water-born park & recreation areas 2) National: Green Transportation, involving modal shift to rail transportation, expansion of carbon free public transit system (e.g., CNG buses, battery operated cars, development of hydrogen fueled cars, etc.) Gangwon: construction of E/W high speed railroad, speedy completion of Wonju-Gangreung Rail Transit System, modernization of Central Railroad Line, construction of bike roads, and other related improvements 20

V. Any Conceivable Green Growth Strategies ? 3) National: Construction of small- and medium-sized dams for water storage and power generation Gangwon: push for small & medium sized dam construction along S & N Han River upper basin areas and further improvements of the dam sites for leisure facilities and tourist attraction 4) National: Produce renewable energy as much as possible to reduce CO2 Gangwon: produces 67b. won worthy of renewable energy, including hydro electric power, solar heat/generator, methane gas, wind power etc. can double its output if incentives are given to the producers, including such ones as purchase of such energy at cost-plus basis. Efforts be made to cut the costs down! 5) National: Green home, green office and green school, including 2M units of green home project Gangwon: will develop 4 basic passive house modules; hill house, ocean/sea cliff house, lake house and regular house reflecting Gangwon’s natural setting; all geared to fuel efficiency, resource reduction/reuse/recycling and heavy dependence on renewable energy; similar efforts will be made for greening offices, factories and schools if incentives are announced to promote green buildings; all of them ’ll help stimulate construction business; design, material supply, construction and maintenance. 21

V. Any Conceivable Green Growth Strategies ? 6) National: Promotion of ‘Green Business’,including carbon free automobile, LED and its related products, smart GRID and other environmentally sustainable goods and services Gangwon: when the government’s promotional incentive system materializes, Gangwon will facilitate such green businesses as follows; - Renewable energy production business, - Fuel efficiency technology development business (hardware and software such as Smart Grid). - Environmentally motivated business, including resource reuse, reduction and recycling business, and - Medical (care service) tourism and medical equipment and tool production related business. - Green tourism and leisure business 22

Conclusions • In order to revitalize Gangwon’s economy, a major shift in regional development strategies is required as follows: 1. Streamline the strategic Industries in such a way that they could ‘commercialize’ new technologies and knowledge accumulated from R/D activities; 2. Reinforce conventional industries, farming and tourism in particular, so that they can take advantage of scale economies and focus on ‘new green markets’; 3. Be selective when inducing firms from outside; preferably the ones producing high value added parts and components, and with ‘green and clean image’; 4. Make the most of ‘Naturally Endowed Resources’; water, forestry, wind, and the nature itself as tourist attraction; and especially, 5. Ride on green wave to take advantage of government incentives and develop projects integrated with National Green Growth Strategies 23

Thank You!

Kim, Jeongho , President of RIG