South Korea remains gloomy<\/p>\n
Robert J. Fouser, Kagoshima University, Japan;
\nThe Korea Herald, Asia News Network, Seoul<\/p>\n
What's with the Korean stock market? Over the past few weeks
\nthe KOSPI has risen from the mid-500s where is has languished for
\nmost of the year to the high-600s. If the trend continues, the
\nmarket could soon jump into the 700s, thus ending the year on a
\nupbeat note.<\/p>\n
The robust stock market reflects a simple fact about the
\nKorean economy today: It is one of the few major economies that
\nis growing. The United States has been in recession since March
\n2001, and the Japanese economy is entering its second recession
\nsince 1997. Growth in Europe is flat, but Germany, the region's
\nlargest economy, is on the verge of recession. Many of the
\nimportant economies in Asia have reported sharply negative growth
\nfor the third quarter of 2001. Of the major economies, only China
\nand Russia are experiencing solid growth.<\/p>\n
As an export-sensitive economy, Korea reacts sensitively to
\nchanges in the world economy. Two figures underscore the
\nimportance of foreign trade: in 2000, the value of merchandise
\nexports was 38 percent of the GDP, and total foreign trade was 73
\npercent of GDP.<\/p>\n
Traditionally, simultaneous recession in North America, Europe
\nand Japan cause the Korean economy to catch cold. The last
\nsimultaneous recession occurred late 1970s and early 1990s,
\ncaused the economy to enter a deep recession. The political
\nturmoil of 1979-1981 exacerbated an economic crisis that saw GDP
\ncontract by 5 percent in 1980.<\/p>\n
Things are different now. Over the past 20 years, the Korean
\neconomy has moved from a cheap producer of export commodities to
\na diversified economy that exports goods, technology and services
\nto all corners of the globe.<\/p>\n
The biggest change in the economic picture is without a doubt
\nthe growing presence of China in the Korean economy. Twenty years
\nago, Korea had diplomatic relations with Taiwan and hardly any
\ntrade with China; now China is Korea's third largest trading
\npartner. If current trends hold, China will soon replace Japan as
\nKorea's second largest export market after the United States. A
\ncloser look at export markets shows that Greater China (China,
\nTaiwan, Hong Kong and Singapore) is now the largest export market
\nfor Korea. Together, they absorb 21 percent of all exports.<\/p>\n
The diversification of export markets over the last 20 years
\nhas helped Korea escape the worst of a simultaneous recession in
\nNorth America, Europe and Japan. Beyond Greater China, Korea has
\nalso developed export markets in parts of the developing world
\nwhere growth remains strong.<\/p>\n
The key, however, is China. Despite the simultaneous
\nrecession, the Chinese economy is expected to grow about 7
\npercent this year. This resilience follows similar resilience
\nduring the Asian economic crisis of 1997-1998. At some point, the
\nChinese economy will have to take a rest, but its strength during
\ntimes of broader economic weakness is one of the most overlooked
\neconomic stories of recent times.<\/p>\n
The strength of the economic boom and its consequences for
\nKorea are discussed in detail in China Shock, a recent surprise
\nbestseller published by the Maeil Business Newspaper. Published a
\nmonth before the Sept. 11 attacks, the book raised public
\ninterest in the Chinese economy and the future relations between
\nKorea and China. China's entrance into the WTO and the recent
\nexecution of a Korean citizen on drug charges have renewed
\ndiscussion of these questions.<\/p>\n
Korean views of China are a complex mix of optimism and fear.
\nThe economic benefits of dealing with China are obvious, as the
\nexport figures confirm. To ignore such a large market in one's
\nneighborhood would be economic suicide. China needs capital,
\ntechnology and material goods to feed its economic boom, and
\nKorea is reliable and economic source for these necessities.
\nKorean companies have been quick to use China as a source of
\ncheap labor to produce goods at a lower cost than in Korea, thus
\nmaintaining their competitiveness in world markets.<\/p>\n
Though most of China's appeal has been economic, some have
\nargued that closer relations with China will encourage North
\nKorea to be receptive to overtures from South Korea. If anything,
\ncloser relations with China will make it more difficult for China
\nto take North Korea's side in any dispute, thus depriving it of
\nbig-power support.<\/p>\n
Until recently, the optimists have held the upper hand in the
\ndebate. The strength of the Chinese economy amid weakness in the
\nKorean economy this year has caused many to worry that China
\nmight undercut Korean companies and drive them out of key
\nmarkets. The presence of many inexpensive Chinese imports in the
\ndomestic market also feeds fears that a flood of Chinese imports
\nwill drive Korean companies out of business even in their home
\nmarket.<\/p>\n
The recent execution of a Korean citizen on drug charges,
\nhowever, has put the optimists on the defensive for the first
\ntime since relations began to improve in the early 1990s. The
\nevent and the Korean government's weak response have cast China
\nin role of big-power bully with Korea as a victim. It has created
\na climate of fear in dealing with China that colors relations
\nbetween China and many other countries.<\/p>\n
In the end, however, fear makes for weak economic and foreign
\npolicy. Korea has much to gain from economic engagement with
\nChina, as the accomplishments of the past 10 years have shown. At
\nthe same time, it must remember that China is the most
\nundemocratic and arbitrary of the world's major powers.<\/p>",
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