Economy 경제
8
The Korean Economy – the Miracle on the Hangang River Korea’s Open Market Capitalist Economy Industrial Brand Leaders and Korean Industrial Standards Efforts to Grow as a Global Power
8
South Korea’s five leading export items and export amounts
Economy
Liquid crystal devices 28,160
Liquid crystal devices 25,971
경제
Petroleum products
Petroleum products 56,098
Ships
52,787
Ships
37,168
2012
2013
39,753
The Korean Economy – the Miracle on the Hangang River property shall be guaranteed for every citizen.” In short, the country has adopted the market economy system, respects
Semiconductors
Semiconductors
The Constitution of South Korea stipulates that “the right of
57,143
50,430 Cars 47,201
Cars 48,635
[Unit: Millions of dollars /Source: Ministry of Trade, Industry and Energy]
individuals’ and businesses’ right to conduct free economic Cars Exported from Hyundai Motor’s Ulsan Factory Cars are one of the country’s major export items.
activities, and guarantees the profits and properties made and accumulated by them. However, the Constitution does not guarantee the limitless,
stipulates that an unjust situation should be rectified if the abuse
unfettered pursuit of capitalistic free economy. The Constitution
of capital is found to cause damage to people as an apparatus set to improve things relating to the free market economy. South Korea has achieved economic growth at an unprecedented speed. Observers called what the country has accomplished the “Miracle of the Hangang River”, as most of the country’s industrial facilities were destroyed during the three-year-long Korean War, and the country was devoid of capital and natural resources. In the early 1960s, the country pushed ahead with exportoriented economic development plans. At first, the country’s major export items were mainly light industrial products manufactured in small factories, or raw materials. In the 1970s, the country invested in heavy chemical facilities and laid the basis for the export of heavy industrial products. At present, the country has a number of industries that boast solid international
240
241
competitiveness, such as the shipbuilding, iron/steel, and chemical
economic structure centered on large businesses in the process
industries. The foundation of such strong competitiveness was
of pursuing growth as a country with insufficient capital and
built around that time.
resources. Conglomerates came to dominate industry, while the
The country hosted the 1988 Seoul Olympic Games, which provided the country with the momentum to join the ranks of
In November 1997, a foreign exchange crisis hit the country,
the country one of the four Asian tigers, along with Taiwan,
forcing it to turn to the IMF for a bailout. It was the first ordeal
Singapore, and Hong Kong. In December 1996, the country
the country had had to face after years of rapid economic growth.
became the 29th country to join the OECD, which is largely
The country took the drastic step of driving poorly performing
composed of advanced countries.
businesses out of the market and then pushed ahead with
In 1960, South Korea’s exports amounted to US$ 32.8 million;
industrial restructuring. In only two years, the country regained its
but by 2013 they reached US$ 559.6 billion. In 1948 GDP per-
previous growth rate and price levels as well as a current account
capita was a paltry US$ 60; whereas in 2013 it was US$ 26,205.
balance surplus. In the process, some 3.5 million people joined in
GDP 2013
13,043
2013
26,205
2012
22,489
2011
11,164
2011
22,489
2010
10,147 8,344
2008
10,493 5,335
1990
1970
2010
2,703 643 81
(Unit: Hundreds of millions dollars / Source: Bank of Korea)
2008
2,541
19,296
1,547
21,695
2000
1,246
1,233
1,118
11,292
1990
1970
3,848
17,193
2007
1980
4,157
20,759
2009
9,309
2007
242
South Korea’s Foreign Trade Volume (2013)
11,292
2009
the campaign to collect gold to help the government repay the
Per-capita GNI
2012
1980
and imports, leaving it susceptible to external conditions.
semi-advanced countries. The international mass media called
South Korea gradually established an export-oriented
2000
country’s economic structure became heavily reliant on exports
1,075
983
966
6,303 1,660 225
(Unit: Dollar / Source: Bank of Korea)
China
U.S.A.
Germany
Japan
Netherlands France
U.K.
South Korea Hong Kong Canada (Unit: Billions of dollars / Source: IMF)
243
The Signing of the Korea-US FTA Mr. Kim Hyun-jong, the representative of South Korea, and Deputy USTR Karan K. Bhatia, shake hands upon completing the bilateral FTA negotiations.
Foreign Currency Reserves 2013
346.5
2012
327.0
2011
306.4
2010
291.6
2009
270.0
2008
201.2
2007 2000
262.2 96.2
(Unit: Billions of dollars / Source: Bank of Korea)
fund borrowed from the IMF. A total of 227 tons of gold were collected. The world marveled at the Koran people’s voluntary participation in the determined effort to repay its national debts.
country’s accomplishment as a “textbook recovery”. By 2010, South Korea had emerged as the world’s 7th largest exporting country. From 2011 to 2013, the total volume of
While making concerted efforts to extricate itself from the
the country’s exports and imports stood at US$1 trillion. Thus,
foreign exchange crisis, the country benefitted from certain
the country became the world’s 9th country to attain the
ancillary effects, such as the adoption of the globalized economic
target of US$1 trillion in annual foreign trade. The country’s
and financial system. However, the restructuring process also had
foreign currency reserves stood at US$346.5 billion as of the
its dark sides. The government’s fiscal expenditure increased and
end of December 2013, and the country is in a sufficiently
the income imbalance deepened.
stable position to cope with a foreign exchange crisis, with the
After overcoming the economic crisis, the South Korean economy continued to record solid growth. Nominal GDP doubled from US$504.6 billion in 2001 to US$1,049.3 billion by
percentage of its short-term foreign debts being 27.7% in 2013 The country’s sovereign credit rating has risen in recognition of the dazzling economic results recorded by the country.
2007, recording a high growth rate of 4~5% a year, except during
244
the period of global economic crisis. In fact, during the period
Korea’s Open Market Capitalist Economy
2008-10, when most of the world was experiencing a devastating
South Korea has adopted the open market economy, and is
financial crisis, the country recorded an amazing 6.3% economic
thus negotiating with other countries to sign more FTAs, as
growth rate. The world’s major mass media organs referred to the
well as allowing foreigners to invest in the country freely while 245
encouraging domestic businesses to invest in foreign countries equally freely. The country offers advantages to foreign investors under the long-term objective of establishing itself as a major financial hub and logistics base of Northeast Asia. Market Opening and FTAs The country has opened its market in most sectors, including agriculture. Koreans have traditionally attached great importance to agriculture, viewing it as the basis of the universe. Nonetheless, the country plans to open its rice market, which will be the last item to be opened in the agricultural sector, completely by 2015. The country is pushing ahead with the complete opening of the market through FTAs. The country plans to sign FTAs with numerous countries with the aim of expanding its economic territory worldwide.
guarantees the profits earned by foreign investors and offers them
As of June, 2015, South Korea has signed FTAs with 50
a variety of benefits, such as tax incentives, cash support, and
countries, including Chile, Singapore, EFTA, ASEAN, India, the EU,
mitigation of land-related regulations. The country also protects
Peru, the United States, and Turkey. The FTA signed with Columbia,
foreigners’ intellectual property rights and foreign exchange
Vietnam is awaiting effectuation. The country is currently engaged
transactions. Foreign investors are allowed to take the profits they
in FTA-related negotiations with RCEP, Indonesia.
earn in South Korea out of the country, on the basis of creative
A view of Busan Harbour, the largest port in South Korea
and efficient operation. Support for FDI (Foreign Direct Investment) South Korea encourages FDI under the Foreign Investment
Korean government concerning the land required for the
Promotion Act. In South Korea, “FDI” refers to “a foreigner’s
establishment of a factory or research facilities, the purchase or
acquisition of 10% or more of the equity share of a domestic
lease or construction of a building, or the installation of electric
business through an investment of not less than 100 million won,
or communication facilities. They may ask for partial payment of
or a foreign-based business’s borrowing of a long-term (5 years or
the amount for up to 20 years in cases involving the purchase of
longer) loan from its parent business in a foreign country and the like.”
land owned by either the central or a local government.
Under the Foreign Investment Promotion Act, the government 246
Foreign investors are eligible for support from the South
The government also provides cash support in consideration 247
of the FDI amount and the number of locals to be employed. The
Investment to Become a Regional Logistics Hub
government is ready and willing to provide land and capital if
South Korea is making preparations for a period when its
a foreign business displays excellent technological prowess and
combined export/import volume is expected to reach US$2
maintains the employment of a given number of locals.
trillion. The country is also striving to become a major logistics
FDIs in the country surged right after the foreign exchange
hub of Northeast Asia.
crisis in 1998, with the increasing trend continuing. The
The country is investing heavily in automation and the
accumulated reported amount of FDI as of 3Q of 2014 stood
sophistication of export/import cargo stevedoring facilities, with
at $14.82 billion, the highest among the past 3Q accumulated
the aim of greatly enhancing its logistics competitiveness.
figures. The FDI amount suggests balanced growth trend in terms of business types, regions, and investment types.
The country is striving to invigorate its air cargo network and expand industrial complexes situated close to airports. The
The government continues to improve the system for the
country ranks third in the world in terms of ICAO-subscribed
provision of support to foreign investors. In October 2010, the
heavy cargo transportation, while Incheon International Airport
government mitigated the criteria for cash support for foreign
ranks second in the world in terms of its international cargo
investors and expanded the scope of state/municipality-owned
handling capacity.
land eligible for private contracts in a bid to mitigate the FDI
Air cargo has high added value. It accounts for about one
conditions. Korea improved the conditions for FDI. In 2014, the Enforcement Decree and the Enforcement Rules of the Foreign Investment Promotion Act were amended to provide the basis Foreign Direct Investment
for the recognition of headquarters and R&D facilities of global
19,003
business. The country also plans to attract FDIs by providing cash
16,286
15,454
support for such headquarters and R&D facilities and incentives
14,548
13,673
such as tax reduction/exemption, including holding IR sessions, etc.
11,563
11,712
2005
2008
9,093
The country also invites newly emerging countries with surplus funds, including China and the Middle Eastern countries, to invest in the service sector of the country with high added value. To that
3,204
end, the “China Desk” was launched in May 2010, and a “red carpet service” is also provided to foreign investors. The country also designates locals in the Unites States, the United Kingdom, China,
1996
1999
2002
2011
2012
2013
2014
(Unit: Millions of dollars / Source: Ministry of Trade, Industry & Energy)
and Japan as PR ambassadors for FDI in the country. 248
249
Incheon Airport as a Hub Airport One important prerequisite for a regional hub airport i s a l l - we a t h e r ro u n d the-clock operation. In Northeast Asia, the main re gi o n a l hu b a i rp o r t s include Kansai Airport in Osaka, Chek Lap Kok Airport in Hong Kong , Pudong Airport in Shanghai, and Incheon Airport in South Korea. (Photo: A view of Incheon International Airport)
tracking. It is expected that the volume of international cargo handled at Incheon International Airport will increase dramatically from 2.72 million tons in 2010 to 3.5 million tons by 2015. It is noteworthy that Incheon International Airport has ranked first in the world for nine consecutive years in the annual evaluation of airport services conducted by the ACI (Aviation Consultants, Inc), a consultative council for more than 1,700 airports around the world. This testifies to the sheer quality of operation of Incheon International Airport. Furthermore, the airport became the first airport in the world to be registered with the Airports Council International Hall of Fame. Located on the peninsula, South Korea has many international trade ports including Busan, Incheon, Pyeongtaek, Gwangyang,
Trends in air Cargo through put and transshipment volume at Incheon International Airport 50.1
quarter of the total transportation charge, although it accounts for only 0.2~0.3% of all forms of transportation cargoes in terms
46.7
46.2
46.4
48.1
46.2
49.2 47.8
44.2
43.8
of weight. The South Korean government has expanded the cargo terminal of Incheon Airport and trains talented young people to take charge of airfreight logistics at the relevant educational institutions.
1.70
1.84
2002
2003
2.13
2.15
2004
2005
2.34
2.56
2.42
2.31
2008
2009
45.6
44.6
42.9
40.6
2.68
2.54
2.46
2.46
2.56
2010
2011
2012
2013
2014
1.18
In addition, the country is committed to improving the airfreight logistics system to a great extent, using high-end information technology. Incheon International Airport operates a sophisticated system for information-based operation of airfreight
2001
2006
Cargo throughput (in metric tons)
2007
(Source: Ministry of Land, Infrastructure and Transport)
Transshipment volume (% of cargo throughput)
logistics, which handles such matters as airfreight booking and 250
251
Cargo Volume (including transshipment) handled at ports in South Korea 39.7 37.7
36.4 35.4
34.9
35.5
35.5
35.1
34.5
35
35.7 34.3 21.61
31.1
9.99
2001
11.89
2002
13.19
2003
14.52
15.22
15.97
2004
2005
2006
17.54
17.93
2007
2008
22.55
23.47
2012
2013
19.37 16.34
2009
Container throughput (in millions of TEU)
2010
2011
(Source: Ministry of Oceans and Fisheries)
Transshipment volume (% of container throughput)
Ulsan, Pohang, and Donghae. In 2013, the volume of cargo
in 2012, the number of those enjoying the highest world market
handled at the country’s ports stood at 1,358.96 million tons,
share stood at 143 items, including memory semiconductors,
showing an overall increase of 1.5% year-on-year. Of this,
TFT-LCDs, seawater desalination facilities, LNG carriers, and flash
container throughput amounted to 23.47 million TEU and trans-
memory. Their number has increased year on year.
shipment volume amounted to 9.32 million TEU, a 4.1% increase
Information technology is the strongest element of the
and 9.7% increase, respectively, from the previous year. Such
country’s economy, a sector that encompasses all the skills
growth served to cement the nation’s role as a major logistics
required for management innovation and administrative reform
base in Northeast Asia.
as well as skills relating to computer software, the Internet,
Competitiveness in shipbuilding South Korea's shipbuilding industry boasts a competitive edge in ships with high added value associated with resource development and transportation.
multimedia, and communication devices.
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South Korea is the world’s leading force in mobile communications
Industrial Brand Leaders and Korean Industrial Standards
technology, with a formidable communications infrastructure:
The government is committed to diversifying export items and
there are currently two nationwide 4G networks, using WiBro
enhancing their quality through the annual selection of first-
and Long-Term Evolution (LTE) technologies. On the back of this
rate quality goods. Among the first-rate quality goods selected
infrastructure, the country’s IT-related foreign trade recorded a 253
Hanbit Nuclear Power Plant South Korea has made continuous investments in nuclear power generation. Nuclear power occupies an important position in the country’s power generation. The country displayed its technological prowess worldwide with the export of a Koreantype nuclear power plant to the UAE in 2011.
surplus of more than US$70billion in both 2011 and 2012. The
number of cars produced (4.56 million), apparently as a result
country displays solid international competitiveness in cellphones,
of efforts to improve quality and the signing of FTAs with other
semiconductors, computers, and peripheral devices, and continues
countries. It is noteworthy that the number of cars produced in
striving to maintain its leading position in these sectors amid the
2012 was a record figure achieved amid a worldwide economic
rapidly changing information technology environment.
recession and high international oil prices.
Shipbuilding is another South Korean success story, and
Many countries use nuclear power, but most of these rely
in 2011, the country won orders worth 13.55 million CGT,
upon a handful of countries to design and build their nuclear
accounting for 48.2% of global shipbuilding orders. The country
power plants for them. Currently only five countries: the US,
boasts strong competitiveness- particularly in the building of
Japan, Russia, France, and now South Korea are equipped with
ships and structures with high added value, such as offshore
nuclear power plant technology. The country became the
plants, large-sized container ships, and LNG ships.
world’s 6th nuclear power plant exporting country by supplying
In 2012, the country ranked 5th in the world in terms of the 254
Video Games, Leading Cultural Contents South Korea has emerged as a leading exporter of cultural contents, such as K-Pop, broadcast programs, and video games, as well as cars and electronic goods. (Photo: young people playing video games at the G-Star 2013 event held in Busan.)
a Korean-developed plant to the UAE. The country also boasts 255
people spend their time playing video games in them. In 2012, the country’s video game industry generated 10 trillion won in domestic sales and exported goods worth a combined total of 2.853 billion won. The cultural contents industry is important for its significant contribution to the economy in terms of exports and job creation, and has great growth potential as a promising sector of the future. South Korea is doing its utmost to enhance its international competitiveness in the information technology sector. The country is pushing ahead with the work of integrating information technology with other technologies under the blueprint Vision 2020 - A Country with IT-related Creative Ideas. Such ideas include the convergence of communications technology with the carmanufacturing industry or the enhancement of safety by fusion information technology with the shipbuilding industry. It is expected that such efforts will go a long way towards improving quality and promoting the development of sectors with high The G20 Seoul Summit 2010.
solid international competitiveness in the iron/steel and
added value.
chemistry sectors. A relatively new export sector for South Korea, and one which
256
Efforts to Grow as a Global Power
is growing strongly, is cultural products, including publishing,
At present, South Korea is striving to transform itself into a global
music, video games, and TV and film production. In 2008-12 the
economic system. Although the country accomplished rapid
value of this sector grew from US$ 23.38 to 46.12 billion, partly
growth within a short period of time, this led to the problem of
on the back of “Hallyu� (the current vogue for South Korean pop
an imbalance in the development of large businesses and SMEs
culture). The country is pouring considerable efforts into video
due to the implementation of an economic policy that was
game contents, which are viewed as a promising sector that
heavily dependent on the export of large enterprises. As such, the
combines film and computer technology with creative ideas.
need for shared growth was singled out as a potential solution to
South Korea is perhaps the only country in the world with so
the problem. The issue emerged as a problem that would have to
many PC cafes across the country and where so many young
be resolved at the international level amid the global economic 257
crisis in 2008.
the foreign exchange war between major countries and to reform
In 2010, the Presidential Commission for Shared Growth
the IMF, which used to be centered on industrialized countries.
for Large and Small Companies was launched with a view to
Its contents were focused on the pressing need to stabilize global
settling conflicts between large-sized businesses and SMEs.
financial markets and provide support for impoverished countries
The commission is assigned with the duties of fostering an
striving for economic development. The declaration went a long
atmosphere conducive to shared growth in industries, monitoring
way towards enhancing the status of South Korea in global
and announcing large businesses’ shared growth indices,
economic and financial markets.
designating sectors and items suitable for SMEs, and settling conflicts between large businesses and SMEs based on a social consensus. The G20 Summit in Seoul in 2010 was held under a similar theme. The G20 Summit came into being following the global economic crisis in 2008, based on the view that it was necessary to have major emerging countries take part in international economic discussions, as the G7 Summit inevitably had certain limitations in this respect. It was pointed out that the international financial system had failed to reflect the fact that the share and role of emerging countries had expanded to a considerable extent over the previous three decades. At the G20 Summit held in Seoul in 2010, South Korea assumed the position of the Chair, indicating that the country had assumed a positive role in the international economic order. The G20 Summit Seoul adopted the 20-item Seoul Summit Leaders’ Declaration and came up with an agreement containing 74 items. Other results of the summit included the announcement of the Seoul Development Consensus for Shared Growth, the Multiyear Action Plan, and the Anti-Corruption Action Plan. The Seoul Summit Leaders’ Declaration stressed the role of developing and emerging countries in a move to put an end to 258
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