Saving the ‘China bonus’
South Korea had three secret weapons that defended the local economy during the global financial meltdown and crisis of 2008. The first was Samsung Electronics’ Galaxy smartphone. It was Apple Inc. that introduced the concept of a smartphone, but Samsung Electronics made more money from the handheld device. The second was Hyundai Motor Group. Hyundai and Kia Motors invested heavily during a time when the global market was jittery from the liquidity crisis and raised its market share to 9 percent from 6 percent, and its success trickled down to the entire automotive and parts industry. The third was Chinese tourists. From 2008, Chinese visitors swarmed into the country.
China has a central role in the Korean economy. Samsung is not doing so well these days, but it once accounted for more than 20 percent of the Chinese smartphone market that is now the world’s largest. Of Hyundai cars sold overseas, 22 percent, or 1.76 million units, are purchased in China. According to the Korea Tourism Corporation, about 6.13 million Chinese nationals visited last year, generating revenue of 18.6 trillion won ($16.9 billion) for the economy. About 3.4 million jobs were created because of them.
Koreans found a revenue base in China. The phrase “Chinese bonus” was created, tweaked from the term “demographic bonus or dividend” referring to a period when the working-age population matures, cutting spending on dependents and spurring economic growth. In much the same way that a demographic bonus is bestowed by demographic factors, the Chinese bonus aided economic growth through the Chinese factor. The Korean economy gained one of its biggest growth engines through normalization of diplomatic ties with China in 1992.
But we need not be grateful to China alone for the growth. Koreans were quick to adapt to changes in Asian industries from the rise of China. We beat the competition through advanced technology. We cleverly moved low-value processing factories to China and exported highly profitable intermediary goods there. About a quarter of Korean exports headed to China. It was a win-win arrangement for Korea and its fast-growing neighbor.
But the party is coming to an end. China has become confident about its home-grown technology. Today, China gets most of the intermediary goods necessary to turn out completed output from home. The equation that growths in Chinese and Korean exports go hand in hand is being challenged. Instead, China has turned Korea’s competitive industries to its favor. In semiconductors and liquid crystal displays, shipments to China are 26 percent of Korea’s total exports. Because Samsung and LG have built manufacturing facilities in China, exports are declining. Since factories have moved out, there are fewer jobs for Koreans. Young people are finding it harder to find employment. The Chinese boon may be over.
But there is still hope. A bilateral free trade agreement (FTA) could be the new window. A FTA pact does not mean just smaller tariffs. We must use the opportunity to revive the Chinese bonus. Korea must serve as a focal point in the FTA network. When China is added, we will have free trade arrangements with the world’s three largest economies, since we already struck deals with the United States and European Union. The expressway for commerce has been laid out. We must make sure U.S. and European companies use our highway to make inroads to China.
We are qualified to play to role. We already have a market economy system that China can only envy and sufficient manpower leading the advanced technology. We also have enough knowledge of China. We must establish our reputation as a credible gateway to China in advanced technology.
Seoul and Beijing are putting the final touches on a bilateral FTA. If one or two issues are resolved, the two countries could sign a deal within the week. We first must ruminate on whether we are ready and qualified. Do we have a work environment where foreigners feel safe about investing? Is the research and development habitat well organized? Do we have a good manpower incubation system? If there are too many regulations, they must be removed. If the management environment is unstable, we must fix it. We must make necessary repairs to get the China-bound expressway ready for traffic. Otherwise, it could end up as a road nobody uses.
The beginning of Korea-China diplomatic relations in 1992 has put the Korean economy and industry on a new level. A 2015 FTA also would be a monumental service. JoongAng Ilbo, Feb. 9, Page 32
*The author is director of the JoongAng Ilbo China Institute.
by Han Woo-duk