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South Korean economy taking hits from China on technological edge and Japan on price advantage

With South Korea losing its advantage over its trading rivals - China in the area of technological edge and Japan in the area of price competitiveness - there is increasing fear that the country is being reduced to a punching bag that is taking hits from both sides.

On Dec. 6, the Federation of Korean Industries (FKI) released the results of a survey of 30 organizations and associations in leading domestic industries - including semiconductors, automobiles, machinery, steel, and petroleum - that compared the competitiveness of South Korea, China, and Japan.

The survey showed that, in regard to the technological gap with China, seven out of 24 organizations said that South Korea had already been overtaken by China. The other organizations said that, while South Korea remains in the lead, it will soon lose its technological advantage over China, with five organizations predicting this will happen within five years and 12 within three years.

In regard to price competitiveness with China, 21 organizations, or 87.5%, said that they were falling behind. Only one said it was on par with China, and only two said they retained an advantage.

In regard to Japan, only six out of the 20 organizations that responded, or 30%, said that South Korea was more competitive than Japan in terms of prices. 13 others responded that South Korea no longer had an advantage in this area, with nine reporting that prices were on a level and five that South Korea was more expensive.

Perspectives on tech competitiveness gap between S. Korea and China and perspectives on price competitiveness gap between S. Korea and Japan

When asked about technology, the most common response - given by 13 organizations - was that they were behind Japan, while only five said that they were on par with Japan and only two said that they had an advantage.

Looking ahead, 22 out of 24 organizations that responded had a gloomy forecast about future competition with China, and 13 out of 20 predicted that their competitiveness vis-a-vis Japan would decrease.

“The old formula that South Korea has better technology than China and cheaper prices than Japan no longer applies. Trapped between China‘s price competitiveness and Japan’s technological strength, South Korea is becoming a punching bag that is losing both its technological and price competitiveness,” said Yu Hwan-ik, head of FKI‘s industrial office.

20 of the 30 organizations, or 67%, described the current economic situation as “very severe” and predicted that it will continue for a long time. Only 23% of organizations had a more positive view, with seven saying that the situation is “somewhat severe” but recovery is possible in the short term and three saying that this is not a crisis but just a temporary recession.

In terms of economic sentiment today compared to during the financial crisis in 2008, 15 organizations said that it was similar, while an equal number of organizations described it as “worse” or “better,” with seven choosing each response. Only one organization said that the situation is not at a crisis level.

In regard to what is most urgent for the government to do to help South Korea maintain its economic superiority over China and Japan, organizations generally suggested relaxing regulations on corporations, decreasing the corporate tax rate, increasing tax deductions, and supporting research and development.

By Kwak Jung-soo, business correspondent

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