Crisis as opportunity

The Wuhan coronavirus has hit the Korean economy hard. It has stopped production lines of Korea’s key automakers, Hyundai Motor and Kia Motors, as well as foreign carmakers after parts supplies were cut off from China. Electronics companies must check on inventory of key parts because the supply chain in China has come to a halt as a result of the epidemic.

Some companies are already running short on liquidity. Hyundai Motor Group promised 1 trillion won ($842 million) in emergency funds to its supply chain. The government must pay extra attention to companies falling into liquidity crunches as the result of the outbreak.

This calls for a new long-term vision for Korea Inc., which is so heavily reliant on parts from China. Many companies moved their manufacturing bases to China to take advantage of cheaper labor costs and geographic proximity to such a colossal market. The same goes for multinationals. After the epidemic is controlled, Korea and other foreign companies would likely readjust their supply chains to reduce their reliance on China. Korea must use the momentum to draw foreign capital into Korea and also bring home some local companies.

Opportunities won’t just fall from the sky. The Korean market has been rapidly losing appeal to foreign capital due to the market-unfriendly policies of the administration of President Moon Jae-in. The government has increased corporate income tax rates. It ignored repeated advice from international bodies like the Organisation for Economic Cooperation and Development (OECD) to address to the country’s labor rigidity. The labor cooperative rate in Korea ranks at the bottom among OECD members. Union umbrella groups are more audacious than ever, cashing in their contributions to getting Moon elected. They went so far as to threaten to file an administrative injunction after the government permitted overtime at mask-producing factories to meet surging demand. Regulations have only piled up to choke corporate activities.

Facilities investment fell 8 percent on year last year, whereas overseas investment by Korean companies increased 15 percent. Foreign investment in Korea’s manufacturing sector fell 18 percent last year. Korea cannot attract foreign or domestic capital if the environment remains unchanged. France enjoys the lowest unemployment rate in a decade because the government pushed ahead with reforms. It is up the government to use this crisis as an opportunity.

JoongAng Sunday, Feb. 8, Page 30