[Economic Column] Measures Against Fast Growing Chinese Economy Needed

The government has established the plan for strengthening the industrial competitiveness in order to leap to the first-class country. The plan will be reported in the meeting for strengthening the industrial competitiveness led by the government, and will be actively pursued. It is desirable in the sense that the importance of industrial competitiveness, which has been excluded in the process of restructuring, gained the recognition.

The weakening of the domestic industries` competitiveness derived from the rise of the Chinese economy. Therefore, the changes of the Chinese economy should be sufficiently considered for strengthening the industrial competitiveness.

We have regarded the China as development challenged country. We have not thought of the Chinese economy as a huddle disturbing the Korea`s economic mobility, considering that the attacks of the Chinese industries in the major export markets have been mainly through the success of the low-price products. But the Chinese economy has threatened our economy like huge wave.

Let us look at the simple index. While Korea`s market share has dropped from 3.7 percent to 2.6 percent in the U.S. market during 1990-1998, China`s market share has increased four times from 2.1 percent to 8 percent. During the same period, Korea`s market share fell to 4.3 percent from 5 percent in the Japanese market, but China has more than doubled its market share from 5.1 percent to 13.2 percent.

Among the 4200 exporting goods, Korea showed the superiority over China in the 1300 items (30.6 percent) in 1994, but the number declined to 1185 items (28.7 percent). The number of Korea`s exporting items that ranked first place in the market share has dropped from 86 to 76, but the number of China`s rose from 383 to 460. There is six times the difference between the two countries in the competitive items.

China is the very important export market of Korea. Korea has secured the fourth largest market share following Japan, Taiwan and the U.S.. According to the statistics released from the Chinese, Korea recorded a surplus of $9.4 billion in the trade balance in 1999, but other countries did not gained such a surplus. Korea`s surplus was acquired from petroleum, ethylene, propylene, styrene, semi-conductor, and steel. However, the Chinese government has pursued the plan to newly establish and expand these industries.

More surprisingly, most items, which have been competitive in the Chinese market, have been overestimated than the actual competitiveness in the international market.

China is going ahead of Korea in the exporting goods related to information technology in the international market. Korea maintains the superiority over China only in 16 items among 60 items. In some information technology items, China has already marked the surplus against Korea.

China began to possess the international competitive edge even in the information technology by introducing the second largest foreign capital following the U.S..

How should our industrial policy respond to such changes of the Chinese economy?

First of all, we should prepare for the reduction of the surplus in the Chinese market. In the petrochemical, semi-conductor, and steel industries which have been our major sources of surplus against China, if China newly establishes or expands the plants, the rapid reduction of exports will be inevitable. The rapid drop of surplus will have tremendous impacts on the domestic economy. This is a crucial matter to urgently deal with for the future of the domestic economy.

Second, the traditional industries should be born again as the high value-adding industries in order to maintain the industries that can enhance the employment. If the top-5 major industries fall into a slump, the employment issue will be serious. The industries that can guarantee a living wage for the hundreds of thousands workers in spite of low profitability, are also necessary for the domestic economy.

Third, the government should nurture the new industries. But it should not have a romanticized vision. Recently, many people have misunderstood that the new industries, such as biotechnology, environmental, and Nanotechnology industries, will be the future of the domestic economy with the information technology. Of course, these industries will be the major industries in the future. However, these industries have too weak technological and capital bases to be a perfect alternative to revive the Korean economy. It needs to nurture selectively and intensively. Therefore, there will be some limitation to create a mass number of employment.

Finally, the government should attract the foreign capital by the decisive deregulation and the stability of labor and management. The excessive regulation and the unstable relationship between labor and management will render not only the foreign companies but also for the domestic companies to transfer to other countries. Now is the time to learn from China who captured the competitiveness even in the information technology by the active introduction of foreign capital. If a certain industry cannot be nurtured by the self-sustainability, it should prepare for the brighter future by the foreign capital.

Park Seung-Rok (the head of the Industrial Studies Office of the Korea Economic Research Institute)