SEOUL, April 9 (Yonhap) -- South Korean companies operating in the joint inter-Korean industrial complex in North Korea could collapse amid escalating tensions on the divided Korean Peninsula, company officials said Tuesday.
The development represented the biggest crisis facing hundreds of small and medium-sized companies since 2004 when they set up plants in the North's western border city of Kaesong.
For about a decade, the industrial enclave had been hailed as a key symbol of economic cooperation between the rival Koreas as it marries South Korean capital and technology with cheap labor from the cash-strapped country.
South Korean officials believed that the project could eventually help prod North Korea to open up to the outside world and take steps to embrace reform to revive its faltering economy.
The cross-border project has been kept intact despite previous crises over the North's deadly attacks on the South in 2010 that killed 50 South Koreans.
However, the project appears to be doomed.
The North pulled out tens of thousands of its workers from the joint complex in the latest standoff with South Korea on Tuesday, dealing a heavy blow to South Korean companies there.
"The companies could go bankrupt if the current situation persists," Yu Chang-geun, vice president of the Association for South Korean companies in the Kaesong complex, said in a news conference in Seoul.
He also claimed all companies in Kaesong are on the brink of a critical situation, noting operation in the complex could halt unless the South Korean companies deliver raw materials and other supplies to their plants in the complex.
The head of a South Korean company based in Seoul said that about 300 North Koreans used to work at his factory in Kaesong between 7 a.m. and 7:30 p.m. and the factory was running normally on Monday.
But he said he could not run his factory in Kaesong because the North Korean workers did not show up for work on Tuesday, citing his phone conversation with his South Korean staff in Kaesong.
"I am thinking of the worst case scenario, but I could not set up any countermeasures," he said, asking not to identified.
The complex is connected with South Korea by a railway and a parallel road across the heavily fortified inter-Korean border.
The North has banned all South Korean personnel and workers from entering the complex, home to 123 South Korean companies.
Still, Yu said the South Korean companies have no plan to withdraw their South Korean nationals from Kaesong as a sign of their desperate attempt to put the complex back on track.
A total of 438 South Koreans remain in the factory park as of 4 p.m.
Yu said he will ask the South Korean government to allow his association to quickly send a delegation to the North to try to resolve the shutdown of the complex, but it remains unclear whether the North will accept the private delegation, though chances appear slim amid tensions with South Korea and the United States.
"Our position remains unchanged that the complex should be up and running," said an official at the Unification Ministry, which handles inter-Korean affairs.
The heads of the South Korean companies are concerned that they could face liquidity crisis and cancellation of business contracts with large South Korean firms.
South Korea has invested 900 billion won (US$802 million) into Kaesong with output reaching $469.5 million worth of goods as of 2012.
Cho Bong-hyun, an analyst at the IBK Economic Research Institute in Seoul, estimated in 2009 that South Korea's economic damages could reach 6 trillion won, if the complex is shuttered and companies operating at the zone go bankrupt.
President Park Geun-hye said that South Korea will have to use state funds meant to facilitate inter-Korean exchanges and cooperation to compensate the South Korean companies, unless the operation of the factory park is normalized. She did not elaborate on details.
South Korea has set aside 1.97 trillion won as the state funds this year, up 9.1 percent from a year ago.
The shutdown could put a burden on the North as it will strip the impoverished country of a key legitimate cash cow.
Last year, South Korea funneled $80 million to the North, mostly as wages of more than 53,000 North Koreans working at the South Korean firms in Kaesong, according to the Unification Ministry.
The South Korean companies used to pay wages to their North Korean workers between the 10th and the 20th day of each month, but they may not be able to make the payments as the North blocked a South Korean vehicle carrying U.S. dollars from entering the complex.
"We have no choice but to shut down our company if the operation of the complex is suspended, but we have no measures to take," said an official of a company in Incheon, west of Seoul. He asked not to be identified, citing the issue's sensitivity.