Bracing for a ‘new normal’

Loud alarm bells are ringing over our lackluster exports, which decreased by 14.7 percent in August compared to the same period last year. That’s the sharpest plunge since August 2009, when Korea’s exports fell by 20.9 percent at the height of the global financial crisis. Exports in August dropped to $39.3 billion - the first time they fell below $40 billion since February 2011. The drop was led by major exports other than mobile devices and semiconductors.

The plunge occurred in nearly all countries barring Vietnam. If the trend continues, we can hardly expect the accomplishment of $1 trillion in exports and imports combined for five consecutive years. That’s a shocking development for Korea whose growth and jobs heavily depend on exports.

Plummeting exports can be attributed to the slowdown of the Chinese economy. As China’s exports decreased, its demand for intermediary goods - Korea’s major export to China - dwindled, and as a result the prices fell. For instance, even when overall exports to China decreased by 8.8 percent last month, exports of petrochemical products - half of which go to China - slipped by over 25 percent. The fall in crude oil prices also stems from China’s slowdown. As China’s demand for petroleum decreased and the value of the yuan fell, prices of commodities plunged. For Korea, which relies on China and emerging economies for 58 percent of overall exports, that makes things even worse.

But the problem is that we can hardly expect such situations to turn around soon. China already shifted the focus of its economic policy from two-digit growth to a stable 7 percent growth per year. Beijing strives to restructure its export-driven economy toward a consumption-oriented one to ramp up the competitiveness of its industries and take the uncharted path of “new normal” to help alleviate the side effects of high growth over the past two decades, such as the ever-growing income disparity among citizens. The stock market crash, which shook the world’s financial markets last month, could be a painful result of the transition.

If Korea cannot adjust to that quickly, it will have a stronger impact on its economy than others due to its overdependence on China for exports. China accounted for 25 percent of total exports and 40 percent of Korea’s overseas investment last year. The only way to get out of the China trap is strengthening economic fundamentals through relentless restructuring across the board. The corporate and government sectors must first address daunting challenges such as labor reform.

JoongAng Ilbo, Sept. 2, Page 34