Cri­sis an op­por­tu­nity for ROK’s eco­nomic re­cov­ery

The cri­sis, how­ever, can be turned into an op­por­tu­nity for fu­ture in­dus­trial up­grade that could put the coun­try in a bet­ter po­si­tion to deal with eco­nomic tur­bu­lence.

China Daily (USA) - - VIEWS -

The Repub­lic of Korea has been tak­ing heavy eco­nomic blows fol­low­ing the dra­matic col­lapse of its largest ship­ping com­pany, Han­jin Ship­ping Co, and Sam­sung Elec­tron­ics Co’s de­ci­sion to stop the pro­duc­tion, sales and re­place­ment of its fire-prone GalaxyNote 7 smart­phones.

Han­jin, the world’s sev­enth-largest con­tainer ship­per, had a debt of more than $5.9 bil­lion when it filed for bank­ruptcy pro­tec­tion at the end of Au­gust. Shares of Sam­sung, which ac­counts for nearly 17 per­cent of the coun­try’s GDP, plunged af­ter it stopped the sales ofNote 7, which cut $17 bil­lion from its mar­ket value. And re­cent strikes atHyundaiMo­tor Co, the coun­try’s largest au­tomaker, might deal an­other blow to the al­ready strug­gling ROK econ­omy.

On Oct 13, the ROK’s cen­tral bank re­vised down next year’s growth fore­cast from 2.9 per­cent to 2.8 per­cent. Its un­em­ploy­ment rate rose year-on-year to 3.6 per­cent in Septem­ber be­cause of a slow­down in man­u­fac­tur­ing and ex­port. Fac­tory out­put in Au­gust, too, fell 2.4 per­cent from July, the fastest de­cline in 19 months.

The cri­sis haunt­ing the ROK’s lead­ing en­ter­prises, how­ever, did not break out overnight. It was ev­i­dent in the eco­nomic growth tra­jec­tory of the coun­try, which has been strug­gling to pick up speed since 2012.

Ex­ports, which make up more than half of the coun­try’s GDP, re­port­edly fell 5.9 per­cent year-onyear to $40.9 bil­lion in Septem­ber. The slow eco­nomic re­cov­ery in the West and China’s slow­ing growth have prompted some ROK en­ter­prises to put ex­tra ef­forts into main­tain­ing their global pres­ence, but Sam­sung went a lit­tle too far and has learned a les­son in qual­ity con­trol.

The hur­dles also in­clude a govern­ment-led re­struc­tur­ing of en­ter­prises and an anti-cor­rup­tion lawthat some ar­gue will hurt re­tail­ers and food pro­duc­ers. While seek­ing newe­co­nomic driv­ers amid global eco­nomic woes, Seoul has taken mea­sures to re­group en­ter­prises at home to avoid more fi­nan­cial shocks. Get­ting rid of heav­ily in­debted en­ter­prises, which ac­counted for over 10 per­cent of the coun­try’s en­ter­prises in 2014, is a step that has to be taken.

More­over, plu­to­crats like Lotte Group con­glom­er­ate, whose chair­man Shin Dong-bin was ques­tioned by prose­cu­tors on sus­pi­cion of em­bez­zle­ment and breach of trust, are un­der stricter re­stric­tions, as theROK­gov­ern­ment has dou­bled its ef­forts to fight cor­rup­tion. Plu­to­crats’ to­tal wealth made up about 84 per­cent of the ROK’sGDP in 2012; the fig­ure was just over 48 per­cent in 2003.

Worse, top po­si­tions in th­ese “too-big-to-fall” gi­ants are hered­i­tary, which could lead to cor­rup­tion, rigged com­pe­ti­tion and ex­ces­sive ex­pan­sion. The power and longevity en­joyed by in­dus­trial ty­coons have greatly marginal­ized small and medium-sized en­ter­prises, trig­ger­ing in­creas­ingly bit­ter com­plaints against the plu­to­cratic econ­omy. The ROK govern­ment has thus rightly taken steps to change the sit­u­a­tion, even though the mag­nates have made siz­able con­tri­bu­tions to the coun­try’s growth. Li­uHuawen is ex­ec­u­tive di­rec­tor ofHu­manRights Cen­ter of the Chi­nese Acade­myof So­cial Sci­ences.

The cri­sis, how­ever, can be turned into an op­por­tu­nity for fu­ture in­dus­trial up­grade that could put the coun­try in a bet­ter po­si­tion to deal with eco­nomic tur­bu­lence. To be­gin with, the cri­sis should serve as a wake-up call for the ROK that ad­dress­ing do­mes­tic eco­nomic prob­lems is more im­por­tant than de­ploy­ing the United States’ Ter­mi­nal High Al­ti­tude Area De­fense anti-mis­sile sys­tem on the coun­try’s soil.

Also, deep­en­ing eco­nomic ties with Bei­jing is more than nec­es­sary for Seoul, es­pe­cially be­cause the ROK econ­omy is highly linked with the Chi­nese mar­ket. So it is wrong for some ROK politi­cians to over­state China’s slow­ing growth and un­der­es­ti­mate the sig­nif­i­cance of the bi­lat­eral eco­nomic part­ner­ship. The au­thor is a re­searcher at the Northeast Asia Stud­ies In­sti­tute at Jilin Academy of So­cial Sci­ences.


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