[Viewpoint]To advance, Korea should look west

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[Viewpoint]To advance, Korea should look west

The reports about Asia’s stock markets these days carry stark warnings about financial shock and risk in China. Foreign businesses that want to secure a foothold in China’s market have no choice but to pay attention to the direction of the Chinese government’s policies. But it is getting more and more difficult to predict when China’s policies will change, and in which direction.
Prime Minister Wen Jiabao announced plans at the Fifth Session of the Fifth National People’s Congress, which opened on March 5, that provide good guidelines to China’s future policies. The most noteworthy policies include lowering the target rate for economic growth in 2007 to 8 percent; making large-scale investments in the agricultural sector; saving energy and developing environment-friendly industries; promoting domestic consumption to reduce the trade surplus; introducing a corporate income tax system; and adopting a real estate law.
Those policies suggest that China has the will to restructure its economy and improve the people’s standard of living.
China needs stability both inside and outside the country for a smooth succession of power at the 17th National Congress of the Chinese Communist Party, which will be held in autumn of this year.
The adjustment of the target for economic growth to a lower rate is a measure designed to prevent an excessive economic boom and stabilize commodity prices. The government also plans to emphasize the modernization of its agricultural sector and the resolution of its income gap to build a more harmonious society.
Since the Chinese government is going to implement policies aimed at increasing imports from the United States and European Union countries in order to reduce trade conflicts with them and enhance domestic consumption, the Chinese market is expected to get even more vitalized.
The adoption of the real estate law also attracts attention, because recognizing the right of an individual to own public property can be considered the recognition of the practice of land ownership itself. Under a socialist system, private land ownership is not allowed. It is an example of the maturity of the socialist market economy. However, there is also a pessimistic forecast that, in the case of foreign businesses, the management environment will deteriorate.
Foreign businesses should pay special attention to the revision of corporate income tax and labor contract laws, as well as the policy that encourages environment-friendly industries. The main point of the corporate income tax is to unify the tax rates, which were 15 percent for foreign businesses and 33 percent for domestic businesses, to 25 percent for everyone.
The growth of China’s market, one could argue, has reduced the importance of preferential tax treatment for foreign companies to spur investment.
However, the truth is that China wants to make its domestic businesses stronger by equalizing the tax burden following China’s admission to the World Trade Organization. The World Bank report also points out that the transparency of the tax system and government policies that do not discriminate are more important than tax benefits.
It is expected that the new law will curb indiscriminate investments and induce, through tax benefits, development and growth in the fields of environmental protection, water resource conservation and high technology.
The Chinese government proclaimed that it would not approve projects that do not pass the government’s criteria for conserving energy and not damaging the environment.
China has already become the world’s factory. That is the reason the world must pay attention to the changes in China’s policies.
South Korea, which is sandwiched between China and Japan, must revive its economy by actively responding to the changes in China’s policies. Korea should get rid of the old way of thinking -- that Korean companies should march into China in search of cheap labor -- instead, they should compete with the rest of the world by entering into businesses that follow the direction of China’s industrial development policies.
To do this, they need to understand the changes in Chinese society in general, not just in the business and market sectors, and have an in-depth understanding of the political meaning of the government’s policies, including the modernization of the agricultural community.
Korea should try to advance into China’s markets by strengthening the networking of its professionals with their Chinese counterparts, and by promoting a long-term and systematic study on Chinese policy.

*The writer is a senior researcher of the Sejong Institute. Translation by the JoongAng Daily staff.

by Lee Tai-hwan
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