A last chance for growth
The author is a vice chairman of the Federation of Korean Industries.
“A perfect storm could hit the Korean economy at the end of the year,” said a high-level American figure who attended a recent Korea-U.S. Business Council Meeting in Washington, D.C., organized by the Federation of Korean Industries (FKI). He claimed that the impeachment crisis of U.S. President Donald Trump was more serious than people thought. Considering Trump’s unpredictable style, no one knows what the next move may be, he said.
He said that South Korea was faced with a number of negative factors, such as discord over trade and defense cost sharing with the United States, as well as cracks in the South Korea-U.S.-Japan security alliance following Seoul’s threat to pull out of the Korea-Japan General Security of Military Information Agreement (Gsomia). He also warned that South Korea’s economic strength was not as good as earlier and the country could suffer. I was shocked that the Korean economy was perceived to be unstable from the outside.
As he said, the Korean economy is cornered. South Korea has maintained a chilly relationship with China after the discord over the Thaad missile defense system deployment, and China is its largest trade partner. With the United States — Korea’s second largest trade partner — there are economic and diplomatic challenges over tariffs and defense cost sharing. With Japan, its third largest partner, there is even worse discord.
Moreover, negative factors such as the U.S.-China trade dispute, Brexit and a slowdown in China’s growth rate are piling up for the Korean economy, which heavily relies on exports. Yet exports have been decreasing for 10 consecutive months, and I don’t know how long they will plummet.
In fact, Korean companies’ investment abroad hit a record-high last year, at $49.8 billion. Foreigners’ investment in Korea was just one-third of that at $17.2 billion. Small- and medium-sized companies have joined the ranks of investors abroad. Last year, small- and mid-sized companies invested $10 billion abroad, the largest amount ever. Escaping Korea is not a buzzword but a reality.
So how can the Korean economy thrive? The IMF recently lowered Korea’s economic growth prospect from 2.6 percent to 2.0 percent. Many agencies forecast 1 percent. The closing rate of self-owned businesses — an indicator of economic vitality — is nearly 90 percent. The top 10 groups are struggling as their operating profits halved in the first half of the year.
Youth unemployment is disastrous: one in four young people are unemployed. Polarization also has deepened. The income gap between the top 20 percent earners and the bottom 20 percent widened to the worst level in the second quarter. The consumer price index was negative for two consecutive months, and concerns about deflation are growing. At this rate, I am worried that the Korean economy could collapse like a sand castle.
Sirens of crisis are ringing everywhere, but regrettably, the signals were drowned out by the Cho Kuk scandal in the past two months. While the developed countries are rushing to stimulate their economies, Korea is wasting time like an abandoned emergency room patient. The only consolation is that the resignation of the controversial justice minister brought a new chapter.
What’s important is the future. There is no need to blame someone. As economy is like a game of dominos, it is hard to build but can collapse all at once. Let’s abandon the ideological warfare of the left and the right and get proactive.
When Korea is shaken from all directions, how can we overcome the crisis if we don’t find balance? We must listen to the countless warning signals and put our heads together. Answers are already out there. A business-friendly environment should be created through regulatory reforms and labor market reform. Now is the last chance.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Oct. 30, Page 33