Korea faces its own ‘new normal’

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Korea faces its own ‘new normal’

As China enters an era of slower growth, Korean businesses should brace for the advent of the “new normal” and come up with strategic countermeasures, said the Korea Chamber of Commerce & Industry on Monday.

Compared to 2010, when the Chinese economy spearheaded global growth, China’s year-on-year import growth rate will fall from 22.1 percent to 14.9 percent next year, a chamber report said.

The rate of increase in consumption will also slump from 9.4 percent in 2010 to 7.7 percent in 2016 and the investment growth rate will tumble from 15.3 percent to a mere 4.7 percent over the same period, according to the report from the business lobby group.

Many Korean companies fear that China will replace imports with made-in-China products by fostering its own materials and parts industries.

Of all the items exported from Korea to China, intermediary goods - semi-finished products used in the production of other goods - account for 73 percent, and a reduction in this area would deal a serious blow to Korean exporters.

The concern has been slowly materializing since 2000. China relied on Korea to satisfy 64.4 percent of its entire intermediary goods demands in 2000, but the percentage fell to 49.8 percent last year.

“As Chinese companies advanced their technologies, the quality of parts and materials enhanced,” the chamber quoted a source at a textiles company in Korea as saying.

The lobby group advised Korean exporters to overhaul their focus by raising the portion of final products for export and to depend less on smaller-margin intermediary goods.

As the Chinese become less inclined to keep up with their shopping spree, Korean companies should find a niche with a premium product lineup, the chamber said. It used as an example Korea’s high-end rice cookers that have been custom-made to cater to China’s dining habit of making rice porridge in a cooker as well as steamed rice.

Export volume of upscale, made-in-Korea rice cookers more than quadrupled from $4.22 million in 2005 to $17.17 million in just a decade.

As China no longer provides cheap labor, Korean companies need to find new sources of profits in other parts of Asia. Countries such as Thailand, Indonesia, India and Pakistan are placing orders for infrastructure construction and Korea needs to be more active in finding opportunities there, said the chamber.

The “new normal,” or “Xinchangtai,” refers to the term Chinese President Xi Jinping mentioned in May last year when he said the country needs to adapt to a new normal for economic growth.

China’s growth fundamentals have not changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website.

The government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.

The advice from the Korean chamber falls in line with several of the features Xi described at the APEC CEO Summit in November last year.

“First, the economy has shifted gears from the previous high speed to a medium-to-high speed growth. Second, the economic structure is constantly improved and upgraded. Third, the economy is increasingly driven by innovation instead of input and investment,” he said.

China has already seen its GDP grow 7.4 percent in 2014, the slowest rate of increase since 1990. That compares to an average of 9.4 percent recorded over the period from 1988 to 2013. The Brookings Institute forecast in 2014 China’s potential growth rate would slow to 7.3 percent over the next 10 years.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]
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