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[Editorial] Korea 64, China 774

Posted November. 04, 2005 07:13,   


According to the Korea Institute for International Economic Policy, the number of Korean products at the number one spot in the global market last year fell to 64 from 96 in 1993. Meanwhile China recorded 774 top-ranked products, a great increase from 322 in 1993. More Chinese products are expected to join the group as they enjoy competitive advantages thanks to the country’s low labor costs.

Although Japan saw a decrease in their number from 506 to 296, it is determined to raise the qualitative competitiveness of its export products with source technologies and state-of-the-art technologies.

Against this backdrop, Korea is facing a serious threat from both late-starters like China, which are rapidly catching up, even in Korea’s key products, and advanced countries which produce high-tech products. China already dominates in labor-intensive product field, such as textiles and toys, and it is now fast taking over its competitors even in capital-intensive and technology-intensive products such as electronics and steel and metal goods.

While the number of Korean electronic products at the world’s number one spot fell from eight in 2000 to six last year, the number of world’s top Chinese electronic goods increased from 22 to 66.

If Korea wants to reverse this trend, it needs more viable investments. However, the prospects for that are not bright. The Korea Chamber of Commerce and Industries explains that Korea’s production capabilities and competitiveness are gradually falling because companies and even exporters are reluctant to make investments at home.

Between 2000 and 2004, Korean corporate facility investment increased by a mere 0.3 percent. Reflecting the worsening situation, Korea recorded negative growth in facility investment consecutively in August and September of this year. Meanwhile, fixed-asset investment in China rose by 25 percent in the first half of this year. Japan also saw growth in its manufacturing sector facility investment, recording a 19.8 percent increase in the second quarter of this year.

All of these developments are making it harder for Korea even to keep its remaining products in the number one spot.

Although Korea’s exports reportedly recorded two-digit growth three years in a row thanks to the boom in the world economy, export profitability is getting worse. This is because of reduced investment coupled with unfavorable trade conditions. More than 70 percent of Korea’s economic growth comes from exports, and thus if the current situation continues, the country’s future will be in doubt.

Already, Korean households’ real income fell by 0.2 percent in the third quarter year-on-year. However this was somewhat expected as the country continued low growth while its people’s non-living expenditures, which includes taxes, national pension payments and social insurance fees, increased by more than 10 percent. Most noticeably, Koreans now have to pay 28.2 percent more taxes.

How many more times will the need for deregulation and other stronger measures to attract investment, especially in exporting sectors which have large investment capacities, be stressed?