South Korea's exports reached 43.2 billion US dollars in February, up 20.2% from a year earlier. Thanks to soaring demands for the country’s semiconductors, both last month’s rate of increase and the export figure hit the highest marks in 5 years. After a long slump, South Korea’s export is finally showing some signs of recovery. To keep the momentum going, the government unveiled a set of measures aimed at further boosting trades. Economic analyst Chung Chul-jin (정철진) walks us through the major points.
The 11th trade and investment promotion meeting focused much on the diversification of export markets. South Korea’s biggest trade partner is China followed by the United States. Put together, exports to China and the U.S. account for over 38% of the whole. In other words, nearly 40% of our trades depend on the two countries. In the case of the U.S., President Donald Trump is a strong advocate of trade protectionism. Chances are high that Washington may place some restrictions on a number of countries with high trade surplus against it, including China and Korea, so we must make a preemptive move. Meanwhile, Beijing continues to ratchet up its trade retaliation against Seoul over the THAAD issue. In a nutshell, we’re in need of trade diversification because of the troubles we’re having with the U.S. and China.
After a meeting aimed at promoting trade and investment held on February 27, the government unveiled a set of measures to spur South Korea's export growth. At its core was the diversification of export markets. The plan is to promote trades with the emerging markets, in case trades with the U.S. and China, together which make up 38.5% of Korea’s exports, face more difficulties. First, Korea is turning its eyes to India.
What we consider the most important in an export market is the PPP, or the purchasing power parity, which measures the purchasing power of a country. Currently, India ranks third in the world, beating Japan. One of our major export items is the smartphone, and India’s smartphone market is enormous. According to a report by Morgan Stanley, India’s smartphone market is expected to grow about 23% each year for the next 4 to 5 years or more. Another factor that makes India a good trading partner for us is the Modi government’s “Make in India” policy. The policy encourages other countries to manufacture any goods in India. We should take advantage of this.
India is the next generation’s economic power. The country’s economy grew 7.5% in the fourth quarter of 2016. India’s population currently stands at about 1.25 billion, but by 2030, it is expected to exceed that of China, which is currently the largest. Economic growth and population growth together result in an explosive growth of the consumer market. India’s purchasing power is the third strongest in the world, falling behind only China and the United States. In such a market, Korea’s LG Electronics and Samsung Electronics are leading the home appliances sector, while Hyundai Motors’ small to medium sized cars are enjoying great popularity. Numerous Korean builders are also playing big parts in India’s infrastructure scene, constructing power plants, roads and more. Up until now, it was mostly the large conglomerates heading into the Indian market. But the government is now seeking to expand the presence of Korean SMEs there. A trade mission is expected to be deployed in India sometime in March.
The second emerging market Korea has its eyes on is the ASEAN, or the Association of Southeast Asian Nations.
The 10 ASEAN nations include the Philippines, Malaysia, Singapore, Indonesia, Thailand, Vietnam, Laos, Myanmar and Cambodia. While Vietnam is already on a path toward growth, countries like Cambodia are only now opening their eyes toward the market economy, finally freed from the long political oppressions such as a dictatorship. All 10 ASEAN nations boast of overwhelmingly large growth rates, but the fact is their urbanization levels are extremely low. And such low urbanization level means there are many things Korea can do for them. Early on, we can start out by building roads, bridges and buildings for them. Once the money gets rolling, their quality of living will improve and they’ll need new daily necessities. They’ll need to buy TVs, smartphones, cars and so on. So when drawing up a long term export strategy looking at the next 10 and 15 years, it is said that there would be no better market than the ASEAN market.
The population of the ASEAN nations put together takes up 8% of the entire global population, but their economy still accounts for only 3.3%. However, with an average annual economic growth rate of 5%, and their young population with over 60% of the whole under the age of 35, ASEAN is the leading Post-China market. In order to get an inroad into the rapidly growing ASEAN market, Korea plans to actively utilize the ASEAN Economic Community, or AEC, which was launched in 2015, and expand large project orders. Meanwhile, the Middle East, where Korean construction companies made the so-called “oil money” back in the 1970s, has newly emerged as a new export market for Korean cosmetics.
Many reports point to the Middle East as the new big cosmetics market. According to survey results announced by the global market intelligence publisher Euromonitor, the cosmetics market of the Middle East was valued at about 18 billion US dollars in 2015, and it is expected to be more than doubled by 2020. There are no other markets that could double up in size in just 5 years. And the cosmetics industry just happens to be Korea’s strong suit. Also importantly, China’s trade retaliation is looking quite serious, and it seems unlikely that they would relax their stance easily. So what do we do with all the expanded infra and supplies of cosmetics with the Chinese market in mind? That’s where the Middle East comes in.
The Middle Eastern cosmetics market is projected to grow by an average of 15% per year and reach 36 billion dollars by 2020. To secure its foothold in this new blue ocean, K-beauty leader Amorepacific will open a cosmetics store in Dubai in the latter half of this year. As China, who accounts for 37.5% of Korea’s total cosmetics exports, continues to build up its trade barriers, the company is expanding its efforts to make its way into new markets. Such diversification of export markets is exactly what the Korean economy needs.
Korea’s export diversification strategy has to be successful. We’re actually in a dire situation. The Korean economy is heavily dependent on exports. We rely on exports to rev up the engine, which in turn churns the domestic consumption. Such a structure cannot be changed overnight. So we need such strategies as a kind of insurance that will allow us to react confidently to external changes.
The government has come up with various measures to fuel the recent upbeat trend of exports. Expanding new export markets, introducing new export methods such as cultural convergence marketing, and allocating more than 60% of its 2017 budget for overseas marketing in the first half of the year are just some of these measures. Time will tell what kind of fruits today’s efforts will bear tomorrow.