Seoul: North Korea allowed South Korean workers on Wednesday to enter a joint industrial park that is a lucrative source of income for the Pyongyang government, despite having said a day earlier it was cutting all ties with the South.
The move to let in workers suggested that behind its latest furious rhetoric, which follows the South accusing it of sinking one of its warships, the isolated North is being careful not to take steps that will cause it real material damage.
Seoul`s financial markets, battered the previous day partly on rising tensions on the divided peninsula, looked stable in early trading, although both shares and the won were down a little after initial gains.
Analysts say both Koreas, who have never repeated the open conflict of the 1950-53 Korean War, were unlikely to let their current hostility turn to war.
A spokesman for the Unification Ministry in Seoul said the North had sent approval for the entry of South Korean workers to the Kaesong industrial park, where companies from the South have factories employing some 40,000 low-cost North Korean workers.
Late on Tuesday, North Korea announced it was cutting all ties with the conservative government in Seoul and threatened its wealthy neighbor with military action over alleged violations of its waters off the west coast.
Its anger follows a report for the South Korean government by international investigators last week that accused the communist North, already under international pressure over its nuclear programme, of torpedoing the Cheonan corvette in March, killing 46 sailors.
The South subsequently announced measures to punish its hermit neighbor.
Apart from the Kaesong complex, there is anyway little economic relationship left between the two, their ties almost frozen since South Korea`s conservative President Lee Myung-bak took office in 2008.
"North Korea is not closing up Kaesong immediately because it is saving the cards it needs in order to play the game," said Jang Cheol-hyeon, researcher at the Institute for National Security Strategy.
The issue is certain to dominate talks in Seoul on Wednesday with U.S. Secretary of State Hillary Clinton, who was arriving later in the day from Beijing.
The South Korean government promised swift action if necessary to help stabilize local markets.
It is acutely aware from past experience, most recently at the height of the global economic downturn, how vulnerable Asia`s fourth largest economy is to rapid fund flows out of the country.
No mention of factories
North Korea said it would expel South Korean staff from a joint office in the industrial park but made no mention of the factories themselves.
By paying the workers` wages directly to Pyongyang, Kaesong is one of the few major legitimate income sources for the North`s secretive leaders, worth tens of millions of dollars a year.
Both North and South Koreas have threatened to fight if the other attacks but both have been at pains not to suggest they would be first to pull the trigger.
The North said on Tuesday that if the South continued to cross into its side of the disputed sea border -- the scene of deadly clashes in the past -- the North would "put into force practical military measures to defend its waters."
On Monday, South Korean President Lee Myung-bak cut trade with his impoverished neighbor and blocked its commercial ships from sailing through the South`s waters.
He also plans to take the issue to the U.N. Security Council but is near-certain to fail in any attempt to win more sanctions against the North because of opposition from China, Pyongyang`s only powerful ally which effectively bankrolls its economy.
China has studiously tried to keep out of the fray, urging calm and refusing to voice support for the international report on the Cheonan sinking.