Korea Sandwiched Between China, Japan

By Kim Jae-won

Staff Reporter

The Korean economy is being increasingly sandwiched between its two neighboring countries, China and Japan, a local research center said.

In a report titled "Implications on Change of Trade in North East Asia," Ju Won, chief economist at Hyundai Research Institute, said that the emergence of the Chinese economy has changed the landscape for trade in Northeast Asia.

He pointed out that the rise of the Chinese economy has reduced Korea's trade surplus with the emerging power, while widening the trade deficit with Japan.

According to the report, Korea's trade surplus with China decreased from $23.3 billion in 2005 to $14.5 billion in 2008. On the other hand, the nation's trade deficit with Japan increased about three times from $11.4 billion in 2000 to $32.7 billion in 2008.

Ju said the booming Chinese economy was the main reason.

"China is growing so fast on the back of government's strategy to boost its key industries. Especially, in the steel, petrochemical and construction industries, China is chasing Korea so close."

The problem is that while China is rapidly catching up with Korea, the technology gap between Korea and Japan is still wide.

"We are still left behind in high-technology compared to advanced countries, including Japan. That's why we are stuck between the two countries."

Ju suggested that Korea should beef up marketing in China.

"Korea should increase its market share in China with new marketing strategies. The Korean government and companies need to cooperate to better understand the Chinese market," the chief economist said.

Andy Xie, a former Morgan Stanley chief economist, also pointed out in a recent conference in Seoul that Korean companies need to learn from Samsung's marketing strategy, since it's the only company to perform well in China.

Ju also said Korea should localize the production of key parts and materials needed for its manufacturing goods.

"Korea should have independent technology on parts and materials. The nation needs to increase investment in R&D in cooperation with the government and universities."

shosta@koreatimes.co.kr