151109 facts economy

FACTS ABOUT KOREA

Economy 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 Economy 경제

The Korean Economy – the Miracle on the Hangang River The Constitution of South Korea stipulates that “the right of property shall be guaranteed for every citizen.” In short, the country has adopted the market economy system, respects 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.

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activities, and guarantees the profits and properties made and accumulated by them.

However, the Constitution does not guarantee the limitless, unfettered pursuit of capitalistic free economy. The Constitution

South Korea’s five leading export items and export amounts Liquid crystal devices 28,160

Liquid crystal devices 25,971

Petroleum products

Petroleum products 56,098

Ships

52,787

Ships

37,168

2012

2013

39,753

Semiconductors

Semiconductors

57,143

50,430 Cars 47,201

Cars 48,635

[Unit: Millions of dollars /Source: Ministry of Trade, Industry and Energy]

stipulates that an unjust situation should be rectified if the abuse 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 241

competitiveness, such as the shipbuilding, iron/steel, and chemical industries. The foundation of such strong competitiveness was built around that time.

The country hosted the 1988 Seoul Olympic Games, which provided the country with the momentum to join the ranks of semi-advanced countries. The international mass media called the country one of the four Asian tigers, along with Taiwan, Singapore, and Hong Kong. In December 1996, the country became the 29th country to join the OECD, which is largely composed of advanced countries.

In 1960, South Korea’s exports amounted to US$ 32.8 million; but by 2013 they reached US$ 559.6 billion. In 1948 GDP percapita was a paltry US$ 60; whereas in 2013 it was US$ 26,205.

South Korea gradually established an export-oriented

GDP

Per-capita GNI

2014

14,495

2013

13,043

2014

28,180

2013

26,205

2012

11,292

2012

22,489

2011

11,164

2011

22,489

2010

10,147

2009

8,344

2008

10,493

2000

5,335

1990 1980 1970

2,703 643 81

(Unit: Hundreds of millions dollars / Source: Bank of Korea)

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20,759

2009

9,309

2007

2010

17,193

2008

19,296

2007

21,695

2000

11,292

1990 1980 1970

6,303 1,660 225

(Unit: Dollar / Source: Bank of Korea)

economic structure centered on large businesses in the process of pursuing growth as a country with insufficient capital and resources. Conglomerates came to dominate industry, while the country’s economic structure became heavily reliant on exports and imports, leaving it susceptible to external conditions.

In November 1997, a foreign exchange crisis hit the country, forcing it to turn to the IMF for a bailout. It was the first ordeal the country had had to face after years of rapid economic growth.

The country took the drastic step of driving poorly performing businesses out of the market and then pushed ahead with industrial restructuring. In only two years, the country regained its previous growth rate and price levels as well as a current account balance surplus. In the process, some 3.5 million people joined in the campaign to collect gold to help the government repay the

South Korea’s Foreign Trade Volume (2013) 4,157 3,848

2,541

1,547 1,246

China

U.S.A.

Germany

Japan

1,233

Netherlands France

1,118

U.K.

1,075

983

966

South Korea Hong Kong Canada (Unit: Billions of dollars / Source: IMF)

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Foreign Currency Reserves 2014

363.6

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.

While making concerted efforts to extricate itself from the foreign exchange crisis, the country benefitted from certain ancillary effects, such as the adoption of the globalized economic and financial system. However, the restructuring process also had its dark sides. The government’s fiscal expenditure increased and the income imbalance deepened.

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 2007, recording a high growth rate of 4~5% a year, except during the period of global economic crisis. In fact, during the period 2008-10, when most of the world was experiencing a devastating financial crisis, the country recorded an amazing 6.3% economic growth rate. The world’s major mass media organs referred to the 244

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.

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 the country’s exports and imports stood at US$1 trillion. Thus, the country became the world’s 9th country to attain the target of US$1 trillion in annual foreign trade. The country’s foreign currency reserves stood at US$363.6 billion as of the end of December 2014, and the country is in a sufficiently stable position to cope with a foreign exchange crisis, with the percentage of its short-term foreign debts being 31.7% in 2014 The country’s sovereign credit rating has risen in recognition of the dazzling economic results recorded by the country.

Korea’s Open Market Capitalist Economy South Korea has adopted the open market economy, and is thus negotiating with other countries to sign more FTAs, as 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.

As of June, 2015, South Korea has signed FTAs with 50 countries, including Chile, Singapore, EFTA, ASEAN, India, the EU, Peru, the United States, and Turkey. The FTA signed with Columbia, Vietnam is awaiting effectuation. The country is currently engaged in FTA-related negotiations with RCEP, Indonesia.

Support for FDI (Foreign Direct Investment) South Korea encourages FDI under the Foreign Investment Promotion Act. In South Korea, “FDI” refers to “a foreigner’s acquisition of 10% or more of the equity share of a domestic business through an investment of not less than 100 million won, or a foreign-based business’s borrowing of a long-term (5 years or longer) loan from its parent business in a foreign country and the like.”

Under the Foreign Investment Promotion Act, the government 246

guarantees the profits earned by foreign investors and offers them a variety of benefits, such as tax incentives, cash support, and

A view of Busan Harbour, the largest port in South Korea

mitigation of land-related regulations. The country also protects foreigners’ intellectual property rights and foreign exchange transactions. Foreign investors are allowed to take the profits they earn in South Korea out of the country, on the basis of creative and efficient operation.

Foreign investors are eligible for support from the South Korean government concerning the land required for the establishment of a factory or research facilities, the purchase or lease or construction of a building, or the installation of electric or communication facilities. They may ask for partial payment of the amount for up to 20 years in cases involving the purchase of land owned by either the central or a local government.

The government also provides cash support in consideration 247

of the FDI amount and the number of locals to be employed. The government is ready and willing to provide land and capital if a foreign business displays excellent technological prowess and maintains the employment of a given number of locals.

FDIs in the country surged right after the foreign exchange crisis in 1998, with the increasing trend continuing. The accumulated reported amount of FDI as of 3Q of 2014 stood at $14.82 billion, the highest among the past 3Q accumulated figures. The FDI amount suggests balanced growth trend in terms of business types, regions, and investment types.

The government continues to improve the system for the provision of support to foreign investors. In October 2010, the government mitigated the criteria for cash support for foreign investors and expanded the scope of state/municipality-owned land eligible for private contracts in a bid to mitigate the FDI 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 for the recognition of headquarters and R&D facilities of global business. The country also plans to attract FDIs by providing cash support for such headquarters and R&D facilities and incentives such as tax reduction/exemption, including holding IR sessions, etc.

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 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, and Japan as PR ambassadors for FDI in the country.

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Investment to Become a Regional Logistics Hub South Korea is making preparations for a period when its combined export/import volume is expected to reach US$2 trillion. The country is also striving to become a major logistics hub of Northeast Asia.

The country is investing heavily in automation and the sophistication of export/import cargo stevedoring facilities, with the aim of greatly enhancing its logistics competitiveness.

The country is striving to invigorate its air cargo network and expand industrial complexes situated close to airports. The country ranks third in the world in terms of ICAO-subscribed heavy cargo transportation, while Incheon International Airport ranks second in the world in terms of its international cargo handling capacity.

Air cargo has high added value. It accounts for about one

Foreign Direct Investment 19,003 16,286

15,454

14,548

13,673 11,563

11,712

2005

2008

9,093

3,204

1996

1999

2002

2011

2012

2013

2014

(Unit: Millions of dollars / Source: Ministry of Trade, Industry & Energy)

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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)

quarter of the total transportation charge, although it accounts for only 0.2~0.3% of all forms of transportation cargoes in terms 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.

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 logistics, which handles such matters as airfreight booking and 250

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 46.7

46.2

46.4

48.1

46.2

49.2 47.8

44.2

1.70

1.84

2002

2003

2.13

2.15

2004

2005

43.8

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

2001

2006

Cargo throughput (in metric tons)

2007

(Source: Ministry of Land, Infrastructure and Transport)

Transshipment volume (% of cargo throughput)

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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

35.7 34.5

35

34.3 21.61

31.1

9.99

2001

11.89

2002

13.19

2003

40.3

14.52

15.22

15.97

2004

2005

2006

17.54

17.93

2007

2008

22.55

23.47

2012

2013

24.73

19.37 16.34

2009

Container throughput (in millions of TEU)

2010

2011

2014

(Source: Ministry of Oceans and Fisheries)

Transshipment volume (% of container throughput)

Ulsan, Pohang, and Donghae. In 2013, the volume of cargo handled at the country’s ports stood at 1,358.96 million tons, showing an overall increase of 1.5% year-on-year. Of this, container throughput amounted to 23.47 million TEU and transshipment volume amounted to 9.32 million TEU, a 4.1% increase and 9.7% increase, respectively, from the previous year. Such growth served to cement the nation’s role as a major logistics base in Northeast Asia.

Industrial Brand Leaders and Korean Industrial Standards The government is committed to diversifying export items and enhancing their quality through the annual selection of firstrate quality goods. Among the first-rate quality goods selected 252

in 2012, the number of those enjoying the highest world market share stood at 143 items, including memory semiconductors, TFT-LCDs, seawater desalination facilities, LNG carriers, and flash memory. Their number has increased year on year.

Information technology is the strongest element of the

Competitiveness in shipbuilding South Korea's shipbuilding industry boasts a competitive edge in ships with high added value associated with resource development and transportation.

country’s economy, a sector that encompasses all the skills required for management innovation and administrative reform as well as skills relating to computer software, the Internet, multimedia, and communication devices.

South Korea is the world’s leading force in mobile communications technology, with a formidable communications infrastructure: there are currently two nationwide 4G networks, using WiBro and Long-Term Evolution (LTE) technologies. On the back of this 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 country displays solid international competitiveness in cellphones, semiconductors, computers, and peripheral devices, and continues striving to maintain its leading position in these sectors amid the rapidly changing information technology environment.

Shipbuilding is another South Korean success story, and in 2011, the country won orders worth 13.55 million CGT, accounting for 48.2% of global shipbuilding orders. The country boasts strong competitiveness- particularly in the building of ships and structures with high added value, such as offshore plants, large-sized container ships, and LNG ships.

In 2012, the country ranked 5th in the world in terms of the

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number of cars produced (4.56 million), apparently as a result of efforts to improve quality and the signing of FTAs with other countries. It is noteworthy that the number of cars produced in 2012 was a record figure achieved amid a worldwide economic recession and high international oil prices.

Many countries use nuclear power, but most of these rely upon a handful of countries to design and build their nuclear

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.)

power plants for them. Currently only five countries: the US, Japan, Russia, France, and now South Korea are equipped with nuclear power plant technology. The country became the world’s 6th nuclear power plant exporting country by supplying a Korean-developed plant to the UAE. The country also boasts 255

The G20 Seoul Summit 2010.

solid international competitiveness in the iron/steel and chemistry sectors.

A relatively new export sector for South Korea, and one which is growing strongly, is cultural products, including publishing, music, video games, and TV and film production. In 2008-12 the value of this sector grew from US$ 23.38 to 46.12 billion, partly on the back of “Hallyu� (the current vogue for South Korean pop culture). The country is pouring considerable efforts into video game contents, which are viewed as a promising sector that combines film and computer technology with creative ideas.

South Korea is perhaps the only country in the world with so many PC cafes across the country and where so many young

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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 added value.

Efforts to Grow as a Global Power At present, South Korea is striving to transform itself into a global economic system. Although the country accomplished rapid growth within a short period of time, this led to the problem of an imbalance in the development of large businesses and SMEs due to the implementation of an economic policy that was heavily dependent on the export of large enterprises. As such, the need for shared growth was singled out as a potential solution to the problem. The issue emerged as a problem that would have to be resolved at the international level amid the global economic 257

crisis in 2008.

In 2010, the Presidential Commission for Shared Growth for Large and Small Companies was launched with a view to settling conflicts between large-sized businesses and SMEs. The commission is assigned with the duties of fostering an atmosphere conducive to shared growth in industries, monitoring and announcing large businesses’ shared growth indices, 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

the foreign exchange war between major countries and to reform the IMF, which used to be centered on industrialized countries.

Its contents were focused on the pressing need to stabilize global financial markets and provide support for impoverished countries striving for economic development. The declaration went a long way towards enhancing the status of South Korea in global economic and financial markets.

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