The Impact of the 1997 Financial Crisis and the 28 Financial Crisis on South Korea

Analysis of the current situation, problems and countermeasures of Sino-Korean trade

I. A brief review of the development of Sino-Korean trade

China and South Korea are friendly neighbors with a long history of exchanges and extremely similar cultural backgrounds, which provide good conditions for the development of Sino-Korean trade. Moreover, at present, the economies of the two countries are at different stages of development, with complementary structures and respective needs, which also provides the necessity and reality for economic and trade cooperation between the two countries. Since the formal establishment of diplomatic relations between China and South Korea in August 1992, the form of trade has changed from indirect trade to direct trade, and the trade volume has increased rapidly. China has become the third largest trading partner of South Korea after Japan and the United States, while South Korea has maintained its position as the fourth largest trading partner of China after Japan, Hong Kong and the United States. Accompanied by this, the cooperation between the two sides in the investment field has also made amazing progress, especially the investment of Korean enterprises in China, which has been blossoming everywhere since it was officially started in 1992, accounting for more than 2% of their total overseas investment. During the seven years from 1992 to 1998, China actually utilized 7.57 billion US dollars of South Korea's direct investment, becoming the largest investment target country of South Korea, and South Korea also occupied the seventh largest investment source country among all countries that made direct investment in China. The cooperation between the two sides in the investment field has promoted the import and export of a large number of raw materials, technical equipment and finished products, thus greatly promoting the development of bilateral trade.

second, the problems and causes of China-Korea trade

the development of China-Korea trade is a rapid development process from scratch, from small to large, and these achievements are certainly commendable, but they are also normal. As the trade base between China and South Korea is getting bigger and bigger, the development is becoming more and more mature, and more and more problems are exposed. Therefore, it is necessary to find out the problems and analyze the reasons, so as to take targeted countermeasures on this basis.

(I) Problems in the development of Sino-Korean trade

There are relatively intuitive problems in the macro-level of Sino-Korean bilateral trade:

1. The trade growth is weak until it is negative

In the four years after the two countries formally established diplomatic relations in p>1992, the trade between the two sides has made great strides, with an annual trade growth rate of over 4%. However, by 1996, due to the introduction of a series of foreign trade policies and regulations in China and the impact of rising raw material prices in the international market, the export enthusiasm of Chinese enterprises declined. As China's fourth largest export market, South Korea's exports are bound to be affected. At the same time, South Korean-funded processing trade enterprises, which play an important role in bilateral trade, have been affected by the decline in export profits, thus slowing down China's import trade from South Korea, resulting in the growth rate of bilateral trade dropping from 44.8% in 1995 to 17.7% in 1996. In 1997, the situation improved, and bilateral trade resumed growth, with an increase of 2.3%, but it was far from the growth momentum before 1996. In 1998, bilateral trade was increasingly affected by the Asian financial crisis, especially when South Korea was one of the countries concerned, so the growth pace of Sino-Korean trade came to an abrupt end. According to the statistics at the end of 1998, there was an unprecedented negative growth in bilateral trade, with a drop of 11.6%. In the first half of 1999, although bilateral trade resumed, the growth rate was not fast.

2. The trend of trade imbalance is getting bigger and bigger

As can be seen from the above table, China's bilateral trade deficit is getting bigger and bigger, reaching US$ 5.81 billion in 1997, accounting for 38.9% of the total value of goods imported from South Korea. Especially since the financial crisis in South Korea in the second half of 1997, China's exports to South Korea have fallen sharply, and some commodities, such as fiber products, agricultural and mineral products, and electronic components, have fallen even more. In 1998, China's exports to South Korea were only 6.17 billion US dollars, down 31.3% from the previous year. At the same time, South Korea's exports to China are not as good as expected. The exports of industrial products such as semiconductors, automobiles, machine tools, ships, communication equipment and general consumer goods such as household appliances to China increased substantially in the first half of the year, and gradually shrank in the second half. By the end of the year, the total exports to China reached 14.99 billion US dollars, an increase of only .4%. In 1998, China's bilateral trade deficit reached $8.72 billion. Set a new record high. In the first half of 1999, China's trade deficit was still expanding, reaching $4.46 billion. The author believes that the existence of trade imbalance between the two countries is inevitable and understandable, but if this imbalance persists and expands blindly, it will eventually affect the healthy development of bilateral trade.

3. South Korea's investment in China has shrunk

Before p>1997, the overall scale of South Korea's investment in China was expanding every year. Just as China and South Korea are striving to promote the economic cooperation between the two sides to a higher level, the outbreak of the financial crisis has frozen this evolution rapidly. In 1998, there were only 1,39 direct investment projects by Korean enterprises in China, with the actual investment of US$ 1.83 billion, which decreased by 25.3% and 15.9% respectively compared with the previous year. In particular, some large-scale projects with long payback period were faced with investment compression, delayed investment or divestment. In addition, a large number of branches and trading companies of Korean enterprises in China have been evacuated. Since a considerable part of the bilateral trade between China and South Korea is undertaken by Korean-funded enterprises in China, the large-scale "shrinking" of investment will inevitably affect the development of bilateral trade at present and in the future.

(II) Analysis of the causes of the existing problems

The above-mentioned intuitive and figurative problems must have their causes, which can be summarized as follows:

1. The Asian financial crisis is the chief culprit of the current predicament

In August p>1997, a financial crisis characterized by the accelerated depreciation of the won and the deep decline of the stock index began to sweep across South Korea, making the domestic economy of South Korea a piece. Difficulties in capital turnover; The number of unemployed people has soared; The bank refused to open an import letter of credit. In this situation, Korean companies can't import in normal time. However, in this Asian financial crisis, China insisted on not devaluing the RMB, which increased the export cost relatively. South Korean companies have significantly reduced their orders to China, and turned to import from Southeast Asian countries, thus causing a sharp drop in China's exports to South Korea. On the other hand, in order to increase foreign exchange reserves, the Korean government took advantage of the depreciation of the won to increase exports, and the trade surplus changed from negative to zero, increasing. As the largest export market of South Korea, China is bound to be impacted by South Korea's imported products, which makes the imbalance of bilateral trade more severe. It is worth mentioning that, although in theory, South Korea's exports to China should maintain a strong growth momentum, because a considerable number of enterprises undertaking bilateral trade are Korean-funded enterprises engaged in import and export processing trade in China, their import enthusiasm has also decreased in the case of blocked exports, and the increase in imports is less than the decrease in exports; Coupled with the shrinking domestic demand in China, the import demand has weakened, so that South Korea's exports to China have not risen sharply, so the bilateral trade volume has generally declined.

For the same reason mentioned above, the cost of Korean enterprises investing in China has increased, and most Korean-funded enterprises take "cost reduction" as their first choice for investing in China, so that Korean investment in China will inevitably be greatly reduced. Moreover, faced with the domestic economic depression, Korean enterprises lack the source of funds and have no time to invest overseas, thus causing the phenomenon of "shrinking" investment in China.

2. The difference in the structure of import and export commodities is one of the important reasons for the trade imbalance

Because the economies of the two countries are at different stages of development, according to the principle of comparative advantage in international trade, the traditional trade between China and South China really conforms to the essence of this theory at the macro level, that is, exports primary products or labor-intensive industrial finished products with low technology content and low added value to South Korea, such as raw materials, agricultural and mineral products, textiles and garments, leather, etc. South Korea, on the other hand, exports technology-intensive and capital-intensive manufactured goods to China, such as chemical products, electronic communication equipment, mechanical and electrical products, etc. Even if China exports some electronic products to South Korea, most of them are spare parts. It is this kind of commodity structure based on the difference of technical level that makes the bilateral trade between China and South Korea have unbalanced factors. Furthermore, on the whole, the price elasticity of goods exported by China to South Korea is relatively high compared with those exported from South Korea. When the international market fluctuates, the former is more vulnerable to impact or influence. After the Asian financial crisis, a large number of cheap goods flooded the international market, and the relative increase in the price of China's export commodities will inevitably lose a large share of the market. In other words, even if South Korea is not one of the countries involved in the crisis, this difference in trade structure will widen the trade balance and make the unbalanced situation more severe. In a word, this structure of import and export commodities characterized by vertical division of labor is one of the important reasons for the growing imbalance of bilateral trade.

3. The characteristic factors of South Korea's investment in China are also one of the reasons for the decline of bilateral trade.

As one of the "four little dragons" in Asia, South Korea's rapid development in the 197s and 198s was obvious to all. With the development of domestic economy, the domestic wage cost has also risen rapidly, the international competitiveness of some general manufacturing industries has gradually weakened, and some labor-intensive industries and some heavy chemical industries (such as cement) have gradually been classified as sunset industries. In order to encourage the development of emerging industries, such as electronics, bioengineering and aviation, and accelerate the upgrading of industrial structure, the Korean government has actively taken measures to promote the transfer of labor-intensive industries overseas. However, China and South Korea are geographically close, with relatively backward economic development, low labor cost and rich agricultural and mineral resources, which naturally become the first choice for South Korea to invest in such industries. According to statistics, more than 6% of South Korea's investment in China is concentrated in textile and garment industry, electrical appliance assembly industry, wood furniture, footwear, leather and other labor-intensive manufacturing industries. This is the industrial feature of Korean investment in China.

In terms of the scale of individual investment, most of South Korea's investment projects in China are small and medium-sized projects, and about 7% of them have an investment of less than US$ 1 million. In 1998, the average scale of 1,39 South Korean direct investments attracted was only $1.378 million, which was not only lower than the average scale of South Korean overseas investments, but also lower than the average scale of all investments in China ($2.296 million).

As a considerable part of Sino-Korean trade is undertaken by Korean-funded enterprises in China, the existence of the above two characteristics leads to the obvious lack of stamina for the growth of bilateral trade and the poor ability of Korean-funded enterprises in China to resist risks. At present, the competition for labor-intensive products in the international market is becoming more and more fierce, and most small and medium-sized Korean-funded enterprises are hard to bear and generally face operational difficulties. Because of the fragility of Korean-funded enterprises in China, the import and export of raw materials, production equipment and finished products driven by investment have been greatly affected. In addition, due to the characteristics of the industry and scale of South Korea's investment in China, many Korean-funded enterprises will inevitably emphasize cost reduction in management, which will lead to the intensification of contradictions between employers and employees, which will also affect the development of trade and investment between the two sides.

Third, make progress despite difficulties and actively respond

In the long run, there is still a lot of room for the development of Sino-Korean trade. Although the trade between the two countries has been hit hard, the basis of its development, such as cultural similarity, geographical proximity and economic complementarity, still exists. South Korea's economy, in particular, is suffering from temporary difficulties, but many factors that have created economic miracles, such as sound infrastructure, high-quality labor force, strong enterprising spirit and open trade system, have not been lost, and will play a positive role in getting South Korea out of the crisis. Therefore, we must not ignore or give up this important market of South Korea. Moreover, the position established by the two countries in each other's foreign trade is the result of long-term efforts of both sides, so we should take a positive attitude, advance despite difficulties and take corresponding measures to reverse the current passive situation. Of course, the key to the long-term and stable development of Sino-Korean trade is to expand China's export market to South Korea. To this end, the following work should be done:

(1) Accelerating the adjustment of the import and export commodity structure of both sides

Most of the traditional products exported by China to South Korea are resource-intensive or labor-intensive. Under the current international environment, such products are the most competitive and hardest hit, so it is not only inevitable to speed up the structural adjustment of China's export commodities to South Korea. Although the structure of export commodities to South Korea has improved in recent two years, the labor-intensive characteristics of low added value and low technology content are still obvious. To this end, first, we should broaden the scope of trade and realize the diversification of export commodities. With the development of China's economy, China's products with high technology content and high added value are increasingly favored by the international market, so we can increase the export of such products to South Korea, such as mechanical and electrical parts and finished products (televisions, telephones, etc.). Second, we should improve the quality of export commodities, and change from "winning by cheap" and "winning by quantity" to "winning by quality" as soon as possible. Only in this way can we adapt to the changes in the international situation, maintain and even expand market share in the competition, and make export products truly become products with high foreign exchange earnings. Tongcai also hopes that South Korea will export more raw materials, petrochemical products and complete sets of equipment to China in combination with the needs of China's industrialization and industrial structure upgrading. In short, both sides should pay attention to both immediate interests and long-term interests to promote the healthy development of bilateral trade.

(2) Vigorously develop technology trade between China and South Korea

In the 197s, South Korea focused on developing capital-intensive industries such as heavy chemicals and automobiles, so its application technology in many fields has reached a considerable level. If this kind of technology can be introduced from South Korea, it will be quite beneficial to China's infrastructure construction and technological transformation. China has its own advantages in the research and development of advanced technologies such as aerospace, microelectronics and bioengineering. Therefore, there is great potential for the development of technical cooperation between the two sides. The two sides can strengthen cooperation in the technical field and jointly develop new products to improve the competitiveness of their products, thus promoting the development of commodity trade between the two sides.

(III) Promoting the cooperation between the two countries in the investment field to a higher level

In terms of South Korea's investment in China, first, we should pay attention to adjusting the investment direction of Korean enterprises, so that Korean enterprises can increase their investment in high-tech industries, energy, transportation, agricultural development and other fields according to the Catalogue of Industries for Foreign Investment; The second is to improve the scale structure of Korean-funded enterprises and increase the enthusiasm of large enterprise groups to invest in China, which requires China to make more efforts in improving the investment environment, especially in improving government services. In this way, Korean large enterprise groups will seriously study the investment value of China market from a long-term and global perspective, and continue to accelerate the pace of investment in China. In addition, China and South Korea should also pay attention to strengthening cooperation in the central and western regions of China, so as to make South Korea's investment in China present an all-round and multi-level development pattern. In addition, China should also accelerate the pace of investment in South Korea. At present, the capital flow between the two sides is more one-way flow from South Korea to China, which is not conducive to the lasting and stable development of bilateral cooperation. With the formation of China's multi-level, multi-directional and multi-form opening-up pattern, it will be an inevitable choice for China enterprises to go abroad to invest and set up factories overseas. As a friendly country with similar geographical location and cultural background in China, South Korea will also become one of the first choice areas for China to invest overseas. Therefore, China enterprises should change the practice of setting up trade offices only in South Korea as soon as possible, and increase productive investment in South Korea. This will not only make the cooperation between the two sides more in-depth and balanced, but also promote exports to South Korea, reduce China's deficit, and thus promote the balanced development of trade. At present, the Korean government is actively pressing the international monetary base.