What Is Happening to Korea’s Usually Strong IT Exports?

Information Technology product exports takes up 30 percent of the entire exports of this country. However, IT sector exports have shown worrying signs lately, recording declines in the amount of exports for two consecutive months. In addition, the fall in exports is growing.

Two sectors considered to be equipped with global competitiveness, semi-conductors and cell phones, are recording shaky exports, too, indicating a red light for the exports in the second half of this year from July to December.

Analysts point out, “On top of the recession in the IT sector around the world, there are many variables such as high oil prices that can put a strain on the global economy. These circumstances suggest a burden on the Korean economy, which is highly dependent on exports.”

IT Exports Shrink for Two Consecutive Months-

The Ministry of Commerce, Industry, and Energy (MOCIE) announced on Sunday that the IT sector exports grew by –0.4 percent in April year-on-year, recording the first below-zero growth rate in 38 months. The figure was –2.9 percent for May, showing that the degree of the fall in exports has grown. This month’s figure is equally grim at –2.7 percent as of June 20, showing no signs of improvement.

Item by item, all IT product exports last month, except those of semi-conductors, have fallen compared to last year. Computers and home appliances recorded negative growths in exports for 10 consecutive months since last August and four consecutive months since February this year, respectively.

Wireless communications appliances such as cell phone exports grew by –3.1 percent last month, recording a year-on-year decline in the amount of exports for the first time this year.

Semi-conductors, the only sector continuing growth in exports, offer little comfort. Its exports grew by a single digit since April’s six percent, indicating a huge fall in the rate of growth.

As such dire conditions continue, MOCIE called up the Grade-5 officials of all products late last week for a review meeting.

Kim Pil-gu, MOCIE chief of the export-import section, explained, “We recently had a meeting with projected data for IT related sectors since IT exports have shown less than satisfactory figures recently. IT sector is particularly sensitive to the changes in the global economy, so when the global IT economy regains vitality in the latter half of this year, things will turn for the better.”

Fall in Export Prices a Variable in the Latter Half of This Year-

The fall in IT exports is attributable to a couple of factors. First, after the competitiveness of computers, home appliances, and other IT products fell dramatically, related industries moved their factories overseas to China, Mexico and other nations. Another reason is that the export prices of semiconductors, wireless communications appliances, and other products are falling.

The biggest problem is that Korea’s major exporting sectors, such as semiconductors and wireless communications appliances that account for 70 percent of the entire exports are shaky.

Double Data Rate (DDR) DRAM, the key among memory semiconductors, cost $4.43 on average last year, but the price halved to $2.40 this April.

IT sector export prices as a whole in terms of the Korean won fell year-on-year to -4.5 percent in March, -4.4 percent in April, and -10.2 percent in May. Export prices are closely linked to fluctuations in foreign currency exchanges, but given that the foreign currency exchanges have stabilized recently, export prices have literally plummeted. A decline in export prices is not a problem confined to Korean products.

IT product prices have fallen globally in the recent two to three years with a huge increase in supply, fueled by overheated investment, and a leveling-off of demand.

Chang Jae-chul, a senior economist at the Samsung Economic Research Institute, explained, “Excessive supply following excessive capital expenditures has materialized since the second half of last year, keeping prices on a steady decline.”

Shin Hyun-soo, a researcher at the Korea Institute for Industrial Economics and Trade, said, “Korea seems to have maintained its IT competitiveness, taking into account that the market shares of Korea’s major IT products in other nations have stayed at the similar level compared to previous years. The IT sector economy is projected to be revitalized starting late this year, but high oil prices could block global economic recovery once again.”

Chang-Won Kim changkim@donga.com