Both bad news and good news came Monday regarding Korean exports: The nation’s outbound shipments suffered their biggest fall in almost six years in May, but Korea and China officially signed their bilateral free trade agreement.
The news about the dwindling exports, while largely anticipated, is very bad: Exports in May came to $42.39 billion, down 10.9 percent from the same month last year. It was the largest on-year decline since a 20.9 percent plunge in August 2009 when the global economy suffered a financial meltdown. It also was the first two-digit reduction in six years. Simply put, the prime engine for the Korean economy is sputtering.
There are some understandable reasons for the fall in exports: Global trade is down due to slowdown in the world economy ― on fact, all major global exporters but China are struggling; lower oil prices are bringing down the prices of major Korean export items; the weak yen is eroding competitiveness of Korean exports; Chinese firms are fast catching up with Korean exporters.
All these threats come while the Korean economy is suffering from sluggish domestic consumption and investment.
Officials may well have a sense of crisis, and they said that the government would announce export-boosting measures soon, which could include deregulation, tax cuts and support for export financing and marketing.
These short-term measures are not sufficient for preserving exports as the locomotive of the Korean economy. We need more than that. We need a longer-term, structural shift.
The Korea-China FTA should provide the momentum for such endeavors as it would open up opportunities for Korean businesses to diversify their exports in the market, which make up about 45 percent of Korean shipments.
Korean exports to China had been focused on petrochemicals, steel, shipbuilding and heavy industrial plant, in the form of intermediary and capital goods. But Chinese firms have already developed enough to pose serious challenges to Korean businesses in these areas.
What’s good about the FTA is that it opens up the huge Chinese markets not only for manufactured products but also for services sectors like cultural content, finance, communication, environment and even e-commerce. Cosmetics and foods are also promising items in the huge Chinese market.
Both government and businesses should redirect their export strategies toward China in a way to take full advantage of the free trade agreement.
It goes without saying that the same structural shift in Korean exports should be pursued toward other major overseas markets. Also important is to accelerate negotiations for ongoing talks on multilateral and bilateral free trade deals.
