I remember it as a year between the IMF financial crisis and the new millennium, that is, around 1999.
At the time, I was a field reporter at the Ministry of Economy.
He went to China and went to a mid-sized company to build factories and penetrate export routes.
After he finished filming, he had a cup of tea with the representative of his seventies.
he asked
"Jaanban, did you go to China and get a foot massage?"
When he said he had not been to China yet, he said:
"Go quickly. It's a place that changes every day. And, get as many foot massages when you can. When in our history was there ever a time in our history that Chinese people could be treated so cheaply? In 20 years, our young people will You might have to make a living by getting foot massages from Chinese people."
twenty years after that.
China has changed tremendously.
China, which Napoleon said 'a sleeping lion that should not be awakened', is competing with the United States for the position of the world's most powerful economy.
We, who are close by, have experienced both the Ming and Cancer of China's rapid growth.
This year marks the 30th anniversary of the establishment of diplomatic ties between Korea and China.
Miuna Gouna China has become our largest trading partner.
The content is gradually changing.
At one time, it was seen as a production base where Korean companies could utilize low-wage manpower and a huge domestic market where they could enter relatively easily, but that is a thing of the past.
The Chinese government, which acted as if it would drain the gallbladder to attract foreign investment, has long since abandoned that attitude.
As China's corporate competitiveness and consumer's eye are rapidly improving, Korean companies are facing fierce competition.
Trade with China turned to a deficit.
In the midst of this, at the end of June, the Blue House chief of economics made a remark.
"China's growth is slowing down and the strategy is shifting to a domestic demand-oriented strategy. The booming export through China that we enjoyed over the past 20 years is coming to an end," he said.
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These remarks were made during the process of explaining to reporters the 'importance of the European market' by Choi Sang-mok, chief economic officer, who attended the NATO summit of President Yoon Seok-yeol, and was in line with the government's foreign and security policy, to declare a 'post-China declaration'. ' A lot of people accepted it.
A typical reaction is that former NIS director Park Ji-won used harsh expressions such as 'stupid' and launched an onslaught, "How are you suddenly going to leave China right now?"
However, a person who is close to the Blue House economic chief understands that China is the largest trading partner, accounting for 25% of Korea’s exports and 23% of imports, and in particular, close to 2,000 products are highly dependent on China for more than 80% of its products. I didn't know that, so I never said something like that.
If you look at the circumstances of companies that have done business with China, international trends, and international political changes, the fact that the Chinese market cannot be expected as it was before is a cataclysmic change that has been going on for several years.
It is not a matter of whether or not we have decided to 'break up' with China, we just have to adapt to change and find a way to survive.
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Table of Contents
▷ Trade balance with China getting worse
▷ Why is it getting worse?
▷ Reasons why it is difficult to make money in China
(1) Non-tariff barriers such as subsidies
(2) Patriotic consumption 'Guo chao'
(3) As we caught up with Japan, China is chasing us
▷ China's advanced industry. ..Korea's
exports increasingly dependent on it
▷Batteries, semiconductors...China threatens Korea in new growth industries
▷Political risks and growing business environment in China ...Multinational companies trembling with anxiety
▷China is indeed a step away from the middle-income trap Can you do it?
▷ How to deal with it?
China's trade balance is getting worse
The trade balance with China has been steadily deteriorating in recent years.
From a surplus of $55.6 billion in 2018, it turned to a loss in the second quarter of this year.
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This year, things are even worse.
Last month, it already recorded a deficit for three months in a row for the first time in 30 years since the establishment of diplomatic ties between Korea and China in 1992.
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Conversely, China is increasing its market share in Korea from intermediate goods that have led Korea's export growth to China.
The proportion of imported parts with high technology content from China rose from 2.9% in 1996 to 39.7% last year.
It is not unreasonable to hear the saying 'nothing can be made without Chinese parts and materials' in the manufacturing industry.
This is in contrast to trade with the United States.
In the first half of this year, Korea's trade surplus with the United States amounted to $21.671 billion (about 29 trillion won), an increase of 87% from the same period last year.
This is a very large surplus compared to the 24% increase in the amount of trade surpluses with the United States around the world during this period.
Why is China's trade balance deteriorating?
The reason for the continued trade deficit with China for the fourth month this year is largely due to the poor economic situation in China.
In China this year, factories stopped in many cases due to blockades and logistical disruptions in the Shenzhen and Shanghai export industrial zones due to COVID-19.
Some say that consumption is much worse than the figures announced by Gyeonggi Province authorities due to the debt crisis in the real estate and construction industries.
As for whether Korean companies had a great boom in China before COVID-19, this is not the case.
The share of Korean companies in the Chinese market has been on a downward trend even before COVID-19.
Samsung's smartphones, which once enjoyed a similar status to the iPhone as an enviable object in China, have now fallen to less than 1% of market share as they have been overtaken by products from Chinese companies.
A similar phenomenon occurs in high-end large TVs and cars.
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This is a sharp drop in market share that cannot be seen in other markets such as North America, South America, Southeast Asia, Europe and the Middle East, where Korean companies compete with Chinese products.
Reasons why it is difficult to make money in China (1) Non-tariff barriers such as subsidies
China, which had been focusing on export manufacturing using low wages, started full-fledged industrial policy to nurture the domestic market and domestic companies from around 2010.
The policy adopted at that time was to provide subsidies to domestic companies.
Subsidies were provided only to products made by Chinese companies when purchasing home appliances outside of large cities or replacing second-hand home appliances with new ones.
The same goes for cars.
China has been subsidizing electric vehicle manufacturers since 2010.
According to the Ministry of Industry and Information Technology of China, the amount of subsidies received by Chinese electric vehicle companies such as BYD and Dongfeng from 2016 to 2020 amounted to 32.946 billion yuan (about 6.4 trillion won).
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Building non-tariff barriers to foreign companies in order to develop domestic industries and providing subsidies in various forms to domestic companies is a policy that Korea has also been doing.
However, unlike us, who always had to keep an eye out for the possibility of being caught up in a trade war with more powerful countries and being sanctioned, China does not care about anything from the outside.
Businesses are also hit directly for political reasons.
Hyundai Motor sold 1.14 million units in China in 2016, the highest ever.
Assuming that the Chinese market will grow bigger, in 2017, we invested about 1.6 trillion won to build a Chongqing plant with an annual capacity of 300,000 units.
However, after the THAAD retaliation and the Korean-Korean law crisis, anti-Korean sentiment among Chinese people grew, and sales plummeted below 800,000 units in 2017.
In 2021, it was halved again to only about 380,000 units.
It already stopped operating the first factory it had built in China in 2019, and at least passed it over to a Chinese company last year.
Earlier this year, the Chongqing plant was shut down.
Kia's sales peaked in 2016 (650,000 units), then halved in 2017 and halved there again in 2021.
Other than that, Korean companies suffer in a variety of ways.
Although there are many cases where they are subjected to the same conditions as Chinese companies, it is not uncommon for them to suffer worse than Chinese companies.
In the International Trade Research Institute of the Korea International Trade Association, <Survey on the Return to Korea of Korean Companies Entering China (2019)>, companies found 'frequent investigations by the Chinese authorities with the authority to stop production', 'Cannot deliver to large retail stores due to competitor checks', 'Difficult to adapt to the Chinese government's environmental and firefighting regulations'
Why it is difficult to make money in China (2) Patriotic consumption 'Guo Chao'
'Guo chao' is a new word combining 'guo', meaning Chinese style or traditional Chinese, and 'chao', meaning trend.
It refers to 'patriotic consumption', where people find and consume products with Chinese characteristics based on Chinese culture and Chinese technology.
It can be said that President Xi Jinping's China-first policy and confrontation with the West were expressed in consumption.
The MZ generation, who was born in a prosperous China and grew up watching the US-China conflict, is dissatisfied with the question, 'Why does the world not respect the great China?'
In last year's 'Guoqiao' survey jointly conducted by Baidu and People's Network, 75% of respondents said that they pay more attention to local brands.
This is a significant increase from 55% at the time of the survey five years ago.
The Guoqiao craze extends beyond various industrial products to various fields such as culture and daily life contents.
As a result, there are some products that are 'very Chinese', and others that don't look very Chinese.
'Sandunban (三頓半)', which caused a sensation in the Chinese coffee market, is a representative Chinese local brand that has grown along with the Guoqiao wind.
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Sandunban means '3.5 meals' and refers to the lifestyle of young people in China, with coffee serving 0.5 meals plus three meals a day.
Pursuing a sophisticated design and advocating 'premiumization of mixed coffee', the company allows consumers to drink instant coffee in small, cute plastic bottles of various colors with water or milk of their choice.
The number and color are different depending on the degree of roasting, taste and aroma.
In the 2019 Gwanggun Festival Shopping Festival, it overtook Nestlé to take first place in the coffee industry.
Huaxizi (华西子), which drew the attention of Chinese consumers with its traditional beauty design, is also frequently mentioned as an example of Guoqiao consumption.
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Li-Ning, a sports brand that uses red and Chinese characters, and ANTA, another sports brand, are also leading the market by threatening Nike and Adidas.
These days, it is difficult to be selected by consumers unless it becomes a product that Chinese people can envy or does not fall behind in cost-effectiveness competition with Chinese products.
It is not only because of the COVID-19 lockdown that Korean cosmetic companies such as Amorepacific and LG Household & Health Care are experiencing sluggish sales in China.
Reasons why it is difficult to make money in China (3) Just as we caught up with Japan, China… ?
No matter how China is, people do not buy domestic products just because they push for patriotism.
In the end, it should be supported by product power.
That's what we've been through growing up.
Chinese companies have launched products that better suit the tastes of Chinese consumers through fierce internal competition while the government has held back foreign companies with various barriers.
Taking smartphones as an example, the reason that Chinese consumers no longer look for Korean products is not simply because of the emotional reasons that follow the THAAD retaliation and the Korean War.
Chinese consumers now buy iPhones or buy Chinese products.
Huawei, Oppo and Xiaomi smartphones are no problem for use in China.
In Korea, too, at first, they made cheap and low-quality products, but gradually they made high-quality products.
Up until the 1980s, the Japanese-made 'Elephant Rice Cooker' and the US-made 'Maxwell Coffee' were the number one souvenirs for overseas business travelers and Koreans returning home.
At Gimpo Airport's international arrival hall, it was common to see the whole family come out and greet the returnees who came in with a mountain of these 'foreign' daily necessities.
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In almost all household items, Japanese colonial rule was the object of envy.
Even after the 2000s, demand for Japanese-made notebook computers and mobile phones was considerable.
However, for most items, domestic products dominate the market share of 'made in Japan'.
The same is true for export markets.
In the late 1980s, when Korean cars, color TVs, and VCRs were first exported to the US market, they were treated as synonymous with low-end products that were easily broken.
After a lot of blood and tears, Korean products are now recognized in the world market as premium, but there was a time like that.
The problem is that China is also writing such a history.
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The problem is more serious when it comes to high-tech products such as electric vehicles, batteries, and semiconductors as well as consumer goods.
At a time when the industry was changing from analog to digital, we were able to lead Japan by focusing our energy on digital.
A similar situation is now taking place between Korea and China.
China's sophistication of industry... Korea's exports increasingly dependent on it
In celebration of the 30th anniversary of the establishment of diplomatic relations between Korea and China, the Industrial Policy Office of the Korea Chamber of Commerce and Industry analyzed the trend of changes in items with a high proportion of exports to China.
For each item, it was investigated how much of the total export volume was exported to China.
(This includes both domestic consumption and raw and subsidiary materials for use by Korean companies that have entered China.)
In 2000, the proportion of exports to China was high in items such as wood, leather, and shoes, such as plywood.
On the other hand, these industries disappeared from the list for 2021, and precision equipment, fine chemicals, and semiconductors entered the list.
39.7% of semiconductor exports in 2021 went to China.
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In 2000, the share of exports to China was 3.2%, but in 2021, it increased 13 times to 39.7%.
Precision instruments, fine chemicals, and semiconductors exported to China are also widely used by Chinese companies to make other high value-added products.
The Korea Chamber of Commerce and Industry saw that China's industrial structure had advanced that much over the past 20 years.
He analyzed, "While the dependence on exports of consumer goods to China has relatively decreased, exports of technology-intensive industries to China have greatly increased," he said.
However, the high dependence on China for exports of semiconductors, fine chemicals, and precision instruments is as great a risk as being completely dependent on China for urea and rare earths.
“In other words, the increase in the dependence of domestic high value-added industries on China means that it is highly likely to be hit when the technology gap with China is narrowed,” he said.
The Korea Chamber of Commerce and Industry (KCCI) said in the report, "High-level technology industries directly related to economic security are much more sensitive to external risks."
China Threatens Korea in New Growth Industry
BYD, China's largest electric vehicle maker, announced that it would launch an electric SUV in the Japanese passenger car market in January next year.
It is to compete with the Japanese automobile industry in the headquarters of Toyota and Honda.
BYD is said to have completed trademark registration in Korea with a plan to enter Korea next year.
Prior to BYD, small and medium-sized electric vehicle makers in China are already encroaching on the domestic business electric vehicle, electric motorcycle and bicycle market with cost-effectiveness.
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China's momentum in supplying batteries to global electric vehicle makers is also scary.
China's CATL is the world's largest battery maker.
In recognition of its technological prowess as well as price, it is expanding its supply to Tesla, Benz Ford and others.
The Korea Institute for Industrial Economics and Trade (KIET) evaluated China as the world's No.
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In another report in the same month (“Chinese Secondary Battery Technology Development Trends and Prospects” 22.6.30), the Korea Institute for Industrial Economics and Trade said, “Korea’s import dependence on China for lithium-ion batteries is 93%, which is too high, and by the end of 2021, The biggest issue is to reduce dependence on China through import diversification, taking the lessons from the 'urea water crisis'," he said.
What about semiconductors?
The US government is trying to stifle China's semiconductor industry, but cracks are popping up in the wrong place.
Apple has decided to install 128-layer NAND flash memory from China YMTC in the upcoming iPhone 14.
This company is not only using the company's products, but it has been selected as the third supplier after Korea's SK Hynix and Japan's Gioxia, but China has provided an opportunity for a leap forward in an area where the technology gap between Korea and China has been narrowed within two years.
Although China will be behind Taiwan and Korea for many years in the field of high-end and expensive chips, it will gradually raise its competitiveness by filling the demand for low- and mid-range chips required by domestic manufacturing companies with domestic semiconductors.
China's business environment with growing political risks... Multinational corporations panicking
Willis Towers Watson, a multinational insurance advisory and brokerage firm based in the UK, annually surveys the political risks facing businesses.
In this year's survey, 95% of multinational companies said they were concerned about the risks of doing business in the Indo-Pacific.
The Indo-Pacific region referred to here is China after all, and '95%' is much higher than the answer two years ago (62%).
The overwhelming majority of respondents said they are concerned that strategic competition and economic decoupling between the West and China will intensify in the future, and that individual companies may become targets of retaliation in the process.
"Every company I've talked to is re-examining their supply chains that are focused on China," Tony Danker, secretary-general of the British Industry Federation, an organization representing more than 190,000 British companies, told the Financial Times in late July.
This is because the supply chain separation between China and the West will accelerate.
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China has a lower dependence on China for trade than Korea, so if you say that, it is not.
China is the UK's largest import destination, and China is also the 6th largest importer of UK exports.
According to a June survey by the European Union Chamber of Commerce in China, 23% of companies said they were considering moving their business organizations out of China.
Fifty percent of respondents said that the business environment in China after 2021 will be more swayed by political influences than before.
This is very different from the same survey in 2019.
At that time, many of the responding companies answered, "I am becoming more and more confident about the vitality and maturity of the Chinese market."
"The only predictable thing in China today is that it is unpredictable, and that's the end of the business environment," Bettina Shawn-Be Hanjin, vice president of the European Commission for the Week, said in a statement accompanying her survey.
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When it comes to zero corona, corporate activities are often suspended, boycotting campaigns claiming to have touched the patriotism of Chinese people, and even if the reason is not clear, restrictions on business activities for reasons not known as to what retaliation or what laws are based on. It is not uncommon, and it is not known when the sparks of the new Cold War will erupt because it is on the same side with Russia, so doing business is getting worse.
Foreign Policy, an international affairs magazine, reported on this situation and introduced the THAAD retaliation suffered by Lotte, saying, "It is something that Japanese and Korean companies have already suffered from before."
In spite of all these circumstances, if the Chinese economy acts as a powerful locomotive for global growth, as it did before, companies will not be squeamish.
However, doubts are growing as to whether China will be able to do that in the future.
Hershey Chocolate's China branch, Apple's AirPods Pro 2 production line, the world's largest toy company Hasbro, which makes Avengers character toys, and Jeep car factories have all been shut down this year, moved to a third country, or out of China. is under review
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Will China be able to step out of the middle-income trap?
Those who say that China, which has shown unbeaten rapid growth, has structurally reached the limit of growth, pay attention to the rapid aging of the Chinese population and the declining fertility rate.
In 2021, China's birth rate (the number of births per 1,000 people) was 7.18, which was less than 10 for the second year in a row.
This is the lowest level since the founding of the new socialist country.
The birth population was 10.62 million, the lowest in 60 years since 1961, and a decrease of 43% compared to 2016.
In 2021, the number of people aged 65 and over in China will reach 205.6 million, accounting for 14.2% of the total.
By international standards, we have entered an 'aging society'.
This suggests that the potential growth rate and social vitality of China's economy could slow down that much.
This contrasts with the United States, where the young population is being called out due to the continuous influx of overseas immigrants and the birth of newborns.
The risk of falling into the so-called 'middle-income trap' in which growth is stagnant and income does not increase increases that much.
If the quantity of labor is reduced, it should be possible to upgrade the quality to the same extent.
However, according to a 2015 survey, only 30% of the Chinese workforce had an education above high school.
It is said that this happened due to a combination of problems such as difficulties in obtaining higher education for people with resident registration in rural areas, and the remnants of anti-intellectualism and educational destruction in the era of the Cultural Revolution.
(“The Invisible China: What Is Preventing China’s Sustainable Growth” by Scott Roselle and Natalie Hell)
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There is also a lot of skepticism about whether it will be possible to escape the middle-income trap with a rigid system that suppresses challenges to freedom, creativity, and vested interests.
Daron Acemoglu, professor of economics at MIT, author of Why States Fail, answered the question 'How can we build an inclusive system that moves the country on the path to prosperity?' He preaches that we must enter the 'narrow corridor' where the power of
The state should not have excessive power, and conversely, if the power of the state is too weak, it cannot become a prosperous state. It is important to create a prosperous state to balance the capacity of the state with the power of society to monitor and control it. intend to do
According to this logic, it is not easy for China to step out of the middle-income trap and take a leap forward.
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Nobel Prize winner Paul Krugman, in a New York Times column on August 22, pointed out that China's economy under the current dictatorship system is bound to face its limits.
According to him, too little of China's huge trade surplus went to the general public, so China's private consumption has been weak compared to its growth.
Instead, government-led inefficient construction investments were over-exploited, and the housing and construction sectors were bloated based on debt.
China has been dragging on this unsustainable game for a surprisingly long time, but now problems are popping up.
Moreover, the zero-corona policy has greatly worsened the situation in China, and it all happened because, in the end, no one could say 'wrong' to the absolute ruler Xi Jinping.
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[How to deal with it?] Let's not give our leash to China
What kind of relationship should Korea have with the Chinese economy?
Only by properly reading the changes in world history in the present era will we be able to set the direction.
The new Cold War and supply chain separation between the United States and China-Russia are following a huge trend in which the 'globalization by capital' that has been going on for 30 years after the end of the Cold War has come to an end and is shifting to de-globalization.
If you think it's going to be something like this, you're making an easy decision.
▲ Reference article: Globalization and de-globalization, how it originated
If you narrow your perspective to Northeast Asia, comparing the present to the 17th century when the sick and sick broke out, it is Joseon that abandons the United States (the falling Ming Dynasty) and attaches itself to China (the rising Qing Dynasty). No, there are quite a few people who claim that Korea is the way to live.
I devoted much of the second half of the article to explaining that this is not the case, but I still think it is an issue that needs a lot of discussion in our society.
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If our public approach is one of courtship, such as "China is a high mountain," and "Chinese dream is a dream shared by all mankind," Korea will be sucked into the black hole of China.
They don't buy our stuff just because we shrug it off.
If Chinese companies maintain an unmatched technological gap and create a brand value that even Westerners envy, they will rather buy our products.
Riding on hateful sentiment and talking about 'stop losing China' is not an alternative.
China is still a huge market with a population of 1.4 billion right next to us, and it is inextricably linked with our industry.
China's labor cost is high, so it is said to be 5-6 times that of India, but the cluster of various parts and materials companies, high manufacturing capacity, and infrastructure such as roads and electric ports still make China a 'world's factory'. to be.
One thing is clear, 'the foolishness of putting your eggs in one basket' should not be committed.
As we can see from the urea water crisis we experienced and the Russian natural gas supply cutoff that Germany is experiencing, overreliance on a country just because it is convenient right now is as dangerous as handing over our leash to that country.
In other words, 'diversification' is the way to live in both exports and imports.
The phrase “the era of booming exports through China that we have enjoyed for the past 20 years is coming to an end” is not a ‘decision to break up’ that we want to leave China right away, but rather a diagnosis of the changing reality and the necessity of survival strategies. It is correct to read with caution.
As if I was standing still and the scenery changed as time passed, I need a posture that carefully and consistently adjusts the center of gravity.
Companies that remain competitive, like Samsung Electronics, which moved its smartphone factories from China to Vietnam, have been quietly doing it for a long time.
(Composition/Editing: Lee Hyun-sik, D Contents Producer / Content Design: Park Soo-min)