Revive our manufacturing base

Electronics, automobile, shipbuilding, steel-making and petrochemical industries are the pillars of our economy. But an ominous downturn in the sector rings alarm bells. Despite the Bank of Korea’s latest cut in its benchmark rate, their operating profit margin ratio continues to nose-dive. We wonder if our economy has reached a structural limit.

What concerns us most is the so-called “earing shock.” Compared to Apple’s remarkable performance in the third quarter of this year - a whopping $11.1 billion operating profits and 26.5 percent operating profit margin ratio - its rival Samsung Electronics saw its operating profits cut in half to 4.1 trillion won ($3.88 billion) with its operating profit margin ratio plunging to 8.7 percent.

Hyundai and Kia Motors are no exception. Hyundai’s operating profits in the third quarter decreased to 1.649 trillion won, an 18 percent drop compared to the same period last year. Kia also saw its operating profits fall to 566.5 billion won, an 18.6 percent plunge. Hyundai Heavy Industries also was hard-hit by its Chinese competitors in the category of container ships and by a drastic reduction of high-value off-shore drilling due to the shale gas revolution.

The dark clouds over our export manufacturers are palpable in the BOK’s statistics released yesterday. Our economy recorded a trivial 0.9 percent growth in the third quarter, lower than one percent for four consecutive quarters. The details are even gloomier. Despite the increases in the government investment (2.2 percent compared to the previous quarter) and in civilian-sector consumption (1.1 percent) thanks to so-called Choinomic’s aggressive fiscal policies and the BOK’s cut of the benchmark rate, our export volumes and facility investment fell into the negative range. As a result, our exports in the third quarter registered the steepest plunge (2.6 percent) in the third quarter since the 2008 global financial crisis. Facility investment also dropped by 0.8 percent despite the fall in the benchmark rate.

The world’s major economies are bent on revitalizing their manufacturing industries. The Obama administration began to rejuvenate investment through its “On-shoring” policies and a corporate tax cut, while Japan seeks to revive its export power through the steep devaluation of yen and Germany began to create “smart factories” which merge high-end information technology with its traditional industial base.

But our government’s initiative to innovate the manufacturing sector is not working, as seen in its shabby scorecard compared to its competitors. The power to push ahead with the “creative economy” comes from manufacturing industries. The government must hurry a precise diagnosis of the situation and come up with realistic ways to find a breakthrough.

JoongAng Ilbo, Oct. 25, Page 30