Korean economy in crisis

Korea’s manufacturing base faces a full-fledged crisis. Shipbuilding, semiconductors, steelmaking and automobile industries are experiencing alarming reductions in sales and weakening competitiveness. Yet it’s not easy to find a breakthrough. While being squeezed between China and Japan, Korea’s drive for the structural reform of the corporate sector and a rekindling of entrepreneurial spirit is losing steam fast.

Scorecards of our mainstay industries are quite depressing as seen by the largest-ever 4.75 trillion won ($405 billion) deficit in the second quarter of Hyndai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering combined. The shipbuilding industry, a major contributor to our exports, has become a nuisance that calls for tax money to make up for its loss.

Semiconductor business is no different. Though Samsung Electronic’s performance in the second quarter was not so bad, it still fell short of experts’ expectations. Its sales and operating profits have dropped by 7.3 percent and 4 percent, respectively, compared to the same period last year. But the future is even bleaker since China drastically increased government investment in the semiconductor business to catch up with Korea. Intel, the world’s top semiconductor manufacturer, announced an ambitious plan to manufacture next-generation memory chips - 1,000 times faster than Samsung’s mainstay NAND flash chips - in tandem with Micron Technology, the fifth-largest semiconductor producer.

The automobile industry is still mired in stagnation. Five local carmakers exported a total of 809,643 units worth $11.49 billion in the second quarter, a 0.2 percent decrease in the number of cars and a 3.9 percent drop in sales numbers. Hyundai Motor and Kia Motors registered two-digit reductions in their operating profits. Korea’s once-proud steelmaking industry saw its exports plunge by more than 11 percent.

It all boils down to a critical lack of the innovative energy of which Korean companies were once proud. Instead of reinventing their founders’ dynamic entrepreneurial spirit, they are stuck in the status quo. The cash reserves of Korea’s 30 largest conglomerates amount to 710 trillion won, up 40 trillion won in just a year due to the corporate sector’s unwillingness to invest and the government’s lukewarm deregulation.

Core industry crises bode ill for our economy. That calls for a colossal change in our thinking and a rejuvenation of entrepreneurial spirit. If we can’t change now, there’s no future for the economy.

JoongAng Ilbo, Aug. 1, Page 26