Time to retool for a third China boom

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Time to retool for a third China boom

The day after the Third Plenary Session, the Communist Party’s 18th Central Committee released a reform plan titled “The Decision on Major Issues Concerning Comprehensively Deepening Reforms,” and I decided to visit Qingdao in Shandong Province. In 2008, more than 3,000 Korean companies were operating in Qingdao, but toll manufacturers left the city and only about 800 Korean companies remain. That’s why I want to review the history of economic cooperation between Korea and China in Qingdao.

We have experienced two China booms. The first one began with the establishment of diplomatic ties in 1992. As toll manufacturers that made shoes and toys relocated their plants to China, investments and exports increased rapidly. Between 1992 and 1997, Korea’s exports to China increased by an average of 32 percent annually.

The second boom came with China’s entry into the World Trade Organization in 2001. Korea emerged as an intermediate-goods provider for the world’s factory. Until 2006, Korea’s exports to China continued to grow by 33 percent every year. Can we expect another China boom?

Local businessmen hope for a free trade agreement between Korea and China. They anticipate that an FTA would lower market barriers and boost investment and trade again. Some hope that talks will begin as early as the end of next year. Even if an FTA is signed, my outlook is that it will be different from the first two booms. We can see the change in the 20,000-word “decision” made at the Third Plenum.

The economic reform in the decision focuses on re-establishing relationships among the government, market and businesses. The key is the market. By reducing government intervention, market autonomy will be enhanced and market entry barriers will be lowered to encourage corporate competition. The plan also proposes the elimination of administrative regulations, liberalization of interest and exchange rates, and private companies’ participation in industries monopolized by state-owned enterprises. Ultimately, China hopes to change the growth pattern from a structure that was heavily dependent on investment to a consumer-oriented economy.

If an FTA with China brings another China boom, the keyword will be “market.” If the first and second booms were cooperation in the manufacturing sector for intermediate goods, the third one needs to focus on products and services for Chinese consumers. If we once contemplated what to produce in China, we now need to study what we can sell to Chinese consumers. Designs and brands will be emphasized in the Chinese market.

The boom would not come for free. We will have to compete intensely and create synergy by combining the “market” trend of China with the Korea-China FTA. Only then we will enjoy the third China boom in Qingdao.

*The author is the director of the China Institute of the JoongAng Ilbo.

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