This is the sixth in a series of interviews with economic experts to analyze the state of the Korean economy and make policy suggestions. ― ED.
Tourism, smart cities could be new growth areas
By Park Hyong-ki
A window of opportunity is narrowing for Korea to restructure and change its economy amid the country's declining output due to an aged society.
Asia's fourth largest economy needs to "act fast" for market reforms before it is too late, or it will end up just like Japan's lost decade, said Rajiv Biswas, chief economist at IHS Markit Asia based in Singapore.
"Korea is racing against time. It will be very important for Korea to change its economy. We were talking about this issue regarding market reform about ten years ago. But nothing has changed. Korea is still the same manufacturing driven economy," Biswas said in an interview while in Seoul for his client meeting.
"Korea cannot really do anything about the U.S.-China trade war and emerging market contagion spread from the Turkey crisis. Internally, changing the market is something it can do. But the government has to act quickly and fast."
The economist said he understands the "good intentions" of the government's income-led growth policy, which aims to increase workers' incomes in the face of jobless growth.
Other developed countries such as the United States, Japan and United Kingdom are also trying to do the same.
"This is quite widespread especially in developed economies. It is well-intended. But can increasing the minimum wage solve jobless growth? It increases barriers to hiring young people," he said.
Korea needs to prioritize changing its industrial structure as more production will be relocating to overseas markets such as Vietnam.
Thus, it cannot rely only on manufacturing, but needs to find and develop new opportunities and markets where the country can actually create jobs.
Possible solutions
Biswas suggested two areas where Korea can further develop a new industrial ecosystem and create jobs for the young ― tourism and smart cities.
"There was some progress in tourism. It only concentrated on promoting tourism for Chinese, and it faced a problem last year with a political situation over the anti-missile system," he said.
"Diversifying tourism to attract others in Asia's new and growth markets will be important. There are fast-growing Asian economies such as India. The ASEAN is one of them."
He added tourism can create a wider type of employment, and it does not need highly skilled workers such as engineers.
"Therefore, tourism can create more opportunities across the workforce."
Korea is one of the world's leaders in technology development and applications, and it needs to take advantage of that to develop smart cities not only here and in Asia but also in other parts of the world. The country already has experience in developing a smart city, he noted, pointing to Songdo, Incheon.
"The government can encourage young people in creating smart city ecosystems in Asia and the world. When you create smart cities, you create a lot of areas of development opportunities integrating with technologies like internet of things to manage lighting, waste, traffic and so on. They need highly skilled people here."
Trade frictions
Developing new areas of growth is especially crucial at this period of time when Korea is facing growing uncertainties over the U.S.-China trade dispute, while starting to lose competitiveness to China.
"Korean manufacturers are facing problems such as the Chinese yuan depreciation. In China, a key export market for Korea, Chinese products such as mobile phones and cars are directly competing with Korea. Chinese products are less expensive abroad, as the won has not fallen much against the dollar," he said.
"It would be difficult for the U.S. and China to reach a trade deal by the end of 2018 given that the talks have not really begun yet, and we only have three months left this year. They had mid-level talks last month, but they did not make any progress."
When the U.S. further increases tariffs on Chinese goods, it will "trim and dent" Chinese growth.
"That will be the risk to Korea, and it is already affecting Korea as it is an important supplier of intermediate goods such as semiconductors. If Chinese exports of electronic goods to the U.S. fall, then it will affect Korean exports to China," he said.
Should South Korea and North Korea somehow reach a peace accord, which could lead to economic cooperation between the two, it would help the economy here.
This would enable South Korean companies to tap new opportunities in the North market such as construction projects.
"That would be a game changer, a miracle. But right now, it is too early to tell. You really cannot count on that, waiting and hoping such an outcome will happen soon," Biswas said.
Tourism, smart cities could be new growth areas
By Park Hyong-ki
 |
| Rajiv Biswas, IHS Markit Asia chief economist |
Asia's fourth largest economy needs to "act fast" for market reforms before it is too late, or it will end up just like Japan's lost decade, said Rajiv Biswas, chief economist at IHS Markit Asia based in Singapore.
"Korea is racing against time. It will be very important for Korea to change its economy. We were talking about this issue regarding market reform about ten years ago. But nothing has changed. Korea is still the same manufacturing driven economy," Biswas said in an interview while in Seoul for his client meeting.
"Korea cannot really do anything about the U.S.-China trade war and emerging market contagion spread from the Turkey crisis. Internally, changing the market is something it can do. But the government has to act quickly and fast."
The economist said he understands the "good intentions" of the government's income-led growth policy, which aims to increase workers' incomes in the face of jobless growth.
Other developed countries such as the United States, Japan and United Kingdom are also trying to do the same.
"This is quite widespread especially in developed economies. It is well-intended. But can increasing the minimum wage solve jobless growth? It increases barriers to hiring young people," he said.
Korea needs to prioritize changing its industrial structure as more production will be relocating to overseas markets such as Vietnam.
Thus, it cannot rely only on manufacturing, but needs to find and develop new opportunities and markets where the country can actually create jobs.
Possible solutions
Biswas suggested two areas where Korea can further develop a new industrial ecosystem and create jobs for the young ― tourism and smart cities.
"There was some progress in tourism. It only concentrated on promoting tourism for Chinese, and it faced a problem last year with a political situation over the anti-missile system," he said.
"Diversifying tourism to attract others in Asia's new and growth markets will be important. There are fast-growing Asian economies such as India. The ASEAN is one of them."
He added tourism can create a wider type of employment, and it does not need highly skilled workers such as engineers.
"Therefore, tourism can create more opportunities across the workforce."
Korea is one of the world's leaders in technology development and applications, and it needs to take advantage of that to develop smart cities not only here and in Asia but also in other parts of the world. The country already has experience in developing a smart city, he noted, pointing to Songdo, Incheon.
"The government can encourage young people in creating smart city ecosystems in Asia and the world. When you create smart cities, you create a lot of areas of development opportunities integrating with technologies like internet of things to manage lighting, waste, traffic and so on. They need highly skilled people here."
 |
Trade frictions
Developing new areas of growth is especially crucial at this period of time when Korea is facing growing uncertainties over the U.S.-China trade dispute, while starting to lose competitiveness to China.
"Korean manufacturers are facing problems such as the Chinese yuan depreciation. In China, a key export market for Korea, Chinese products such as mobile phones and cars are directly competing with Korea. Chinese products are less expensive abroad, as the won has not fallen much against the dollar," he said.
"It would be difficult for the U.S. and China to reach a trade deal by the end of 2018 given that the talks have not really begun yet, and we only have three months left this year. They had mid-level talks last month, but they did not make any progress."
When the U.S. further increases tariffs on Chinese goods, it will "trim and dent" Chinese growth.
"That will be the risk to Korea, and it is already affecting Korea as it is an important supplier of intermediate goods such as semiconductors. If Chinese exports of electronic goods to the U.S. fall, then it will affect Korean exports to China," he said.
Should South Korea and North Korea somehow reach a peace accord, which could lead to economic cooperation between the two, it would help the economy here.
This would enable South Korean companies to tap new opportunities in the North market such as construction projects.
"That would be a game changer, a miracle. But right now, it is too early to tell. You really cannot count on that, waiting and hoping such an outcome will happen soon," Biswas said.
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