Article IHT Print Page Copyright 2003 The International Herald Tribune | www.iht.com In China, Koreans see market and monster James Brooke NYT Wednesday, February 11, 2004
SEOUL After a century of looking east, first to Japan and then to the United States, South Korean business leaders are now gazing west, to China. But it is a fascination tinged with fear. Last year, nearly half of South Korea's foreign investment went to China and its exports to China jumped 50 percent. Winging west over the Yellow Sea, China-bound flights are filled with business executives bearing deals intended to ensure that China replaces the United States as South Korea's major economic partner. Samsung Electronics has announced that it will make China the main base for production of its personal computers and flat screens. Hyundai Motor, South Korea's biggest carmaker, and Kia Motors, a subsidiary, have announced plans to make a million cars a year in China by 2007. But as South Korea's blue-chip companies funnel new investment into China, economists here worry that South Korea's economic sparkle "the miracle on the Han River" - will lose its luster. With Northeast Asia's foreign investment river diverted to China, economic growth here fell by half in 2003, to 3 percent. As China's low-wage workers churn out millions of cars, computers and cellphones, its exports seem destined to look like South Korea's. As South Korean companies move research and development units to China, surveys indicate that China's technological lag behind South Korea, now three to five years, is shrinking. "China's rapid ascension to the global economic stage has forced Korea to accept the painful yet glaring truth that its competitive edge is steadily slipping away," Kim Wan Soon, the South Korean government's investment ombudsman, wrote in a recent newspaper essay. "An increasing number of capital-intensive Korean firms are positioning themselves to assemble high-tech components in China." In South Korea's world-renowned heavy industries, notably steel and shipbuilding, planned investment in China will one day make for head-to-head competition between the two nations. "China is challenging Korea in heavy industries more than ever," Andy Xie, Asia economist for Morgan Stanley, wrote in a recent report. "China is repeating Korea's model of 'low price but high volume' on a vast scale. Korea is likely to suffer ever more losses in its heavy industries." In the short term, South Korea's heavy industries are booming, riding the tide of China's rise. China, the world's largest steel importer, lies one day by ship from South Korea, the world's No. 5 steel-making nation. Last year, South Korea's steel exports to China jumped 60 percent, while to the United States they fell 27 percent. South Korea exported to China
more than four times the steel it sent to the United States. Posco, a unit of Pohang Iron Steel and South Korea's largest steel maker, is investing $800 million in China. For now, China's growth is causing all boats to rise in South Korea's shipbuilding industry, the world's largest. Last year, China's oil imports grew about 30 percent, and container traffic at China's seven largest ports grew 40 percent. This increase contributed to a doubling of ship orders last placed year with South Korea's shipbuilders. Of 470 orders, 43 percent were for container ships and 22 percent were for tankers. But Hyundai Heavy Industries may lose its title as owner of the world's largest shipyard. China State Shipbuilding recently broke ground on what it said would be the largest. South Korean business executives take China's continued rise as an article of faith. With economists forecasting 5 percent growth for South Korea's economy in 2004, the reason most often cited is expanding exports to China. Last year, South Korean businesses invested $2.5 billion in China, compared with only $50 million in Japan. Feeding their interest, South Korean business newspapers maintain regular economic pages devoted solely to Chinese news. With South Korean companies signing deals in China last year at the rate of 12 a day, 22,000 of them now have investments in China, employing about one million Chinese workers, according to the Korea International Trade Association. Investments range from workshops in Northeast China's ethnic Korean enclave to a project by Korea Electric Power, the nation's largest power company, to build two coal-fired plants in Henan Province. Bilateral trade is expected to double in five years, to $100 billion. In 1992, it was $6.2 billion. Determined to win market share, Samsung and LG Electronics, South Korea's largest consumer electronics companies, have each set goals of selling $10 billion worth of products in China by 2005. To compete with China in the long run, economists say, South Korea must either extend its low-wage, high-volume manufacturing model to North Korea or open its economy. China's monthly average industrial wage is $111, compared with $1,524 in South Korea. Factory land costs far less in China than in South Korea. Not surprisingly, manufacturing accounted for 91 percent of Korean investment in China last year. One way out would be to join South Korea's capital and technological expertise with North ...