FACTOBX-South Korea's industrial park in the North

(For full North Korea coverage, click [nNORKOR])

Sept 11 (Reuters) - North Korea decreased its demands for hefty wage and rent increases for a joint factory park it runs with the South, signalling it wants to restore business deals with its neighbour and defrost frigid ties. [ID:nSP39278]

Here are some facts about the park located in the North Korean border city of Kaesong where South Korean companies use cheap North Korean land and labour to make goods:

OPERATIONS

Just over 110 small to medium-sized South Korean companies employ nearly 40,000 North Korean workers to make products such as cooking pots, clothes, shoes and watches. The companies receive tax breaks and other incentives from the South to set up there and pay workers a basic salary and social welfare benefits that total $70.

REASON FOR EXISTENCE

The project, which began construction in 2003 and is run by a Hyundai Group affiliate and the South's Korea Land Corp, was designed to serve as a model of future economic cooperation between the states, which have not formally signed a peace treaty to end their 1950-53 war. South Korea's leaders envisioned the park eventually employing more than half a million North Koreans working at 2,000 firms while adding a peace park and hotels.

BENEFIT FOR NORTH

Wages and other fees paid by the South in hard cash go directly into the coffers of the North's leaders. Critics say the park allows the North to exploit the Kaesong workers for its own benefit with funds generated there helping Pyongyang pay for its various weapons programmes.

RECENT TROUBLES

At the end of last year North Korea began to restrict traffic over the border, making it more difficult for goods and workers from the South to enter. In May, North Korea said it was cancelling all wage, rent and tax deals at Kaesong in what analysts said was a hard-nosed negotiating ploy to squeeze more money out of the South. The North in August released a South Korean worker it had held there for about five months for defaming the North's leaders and also lifted restrictions on border crossings.

LOGISTICS

The South Korean-built park is located about 70 km (45 miles) northwest of Seoul. A new highway and restored rail link run through the Demilitarised Zone buffer dividing the two since the end of the Korean War, taking materials to and from the park. The fenced-off park, with its new buildings, paved roads and steady supply of electricity from the South, marks a stark contrast to the North's impoverished city of Kaesong, with its dilapidated buildings and broken down infrastructure.

RISKS AND REWARDS

At present, the park brings in tens of millions of dollars a year in legitimate cash for the North's secretive leaders. But it poses risks because the gleaming South Korean factories turning out high-end consumer goods unavailable in the destitute North serve as a vivid reminder to the expanding North Korean workforce of the vast wealth gap between the two states. (Reporting by Jon Herskovitz and Christine Kim)