Bring spending back homeDeregulation and invigorating domestic demand make up the keystone of the Park Geun-hye administration’s three-year blueprint to reinvent the economy. Retooling the export-reliant economy to focus on domestic consumption and removing red tape are steps in the right direction. But it is easier said than done. The recent data on overseas credit card use by Koreans underscore the growing difficulty of persuading locals to open their wallets at home.
According to the Bank of Korea, credit card financed overseas spending by Korean citizens reached an all-time high of $10.5 billion last year. Overseas credit card spending has hit record highs for the fourth consecutive year. Because more people choose to spend their holidays and savings abroad, they have less to spend at home. What needs to be studied is why Koreans prefer to go abroad. Golf is one example. It is cheaper to play golf abroad because the fee in Korea includes a special excise tax. Without fundamental changes in the social mood and in regulations, promises to vitalize domestic demand won’t produce tangible results.
The growing preference in buying goods directly from foreign online shopping malls and stores is behind the surge in overseas credit card use. According to customs at Incheon International Airport, more than 10,000 parcels were purchased in this way last year. Malltail, a logistics company that specializes in rerouting deliveries from the United States, Japan, Europe, and China to Korea, saw its revenue balloon to 26 billion won ($24.4 million) last year from 2 billion won in 2010. Credit card companies estimate that online purchases of foreign products by Koreans reached over 1 trillion won last year, up nearly 10 times from four years ago.
Web-savvy Koreans are seeking discounts and bargains on foreign brands. To lure them to spend at home, exclusive importers must stop abusing their monopoly status. The same brands, from ice cream to luxury wristwatches, cost much more here than abroad because they are supplied by select importers. To cut the prices of imports, parallel imports should be vitalized so that foreign brands are available through various distribution channels.
To boost domestic demand, we must also draw in more foreigners, like Chinese tourists, and encourage them to spend here. More than 400 million potential consumers are just a three-hour flight away. Foreigners rarely use online Korean stores because they can’t get through local encryption for credit card use. We need more realistic ways to remove red tape - and not just slogans - to encourage spending in Korea.
JoongAng Ilbo, March 1, Page 30