Gov't to unveil export-boosting steps

By Choi Kyong-ae

The government will take steps to boost exports because the heavily export-reliant country is losing its competitive edge due to a weaker yen and declining demand from China, officials said Sunday.

“We will join hands with the trade ministry and state-run research centers such as the Korea Development Institute (KDI) and the Korea Institute for Industrial Economics & Trade to make a comprehensive analysis of exports and announce measures by June to revive exports,” said Lee Kang-ho, a spokesman for the Ministry of Strategy and Finance.

Finance Minister Choi Kyung-hwan told economic ministers on May 7 that the government will take a closer look at declining exports to see if this is due to decreases in global trade or “structural problems of the country’s export industries.”

Among possible measures, the government is considering providing additional tax benefits and cheap loans to companies which import parts using the weak yen to expand investments in plants.

It is also considering taking steps to encourage carmakers, mobile phone makers and other manufacturers to increase their domestic production to support ailing exports as part the“re-shoring” initiatives, according to the spokesman.

If companies relocate their plants back in Korea, they reverse a decade-long trend in which manufacturers such as Samsung Electronics and Hyundai Motor have increasingly moved their production facilities overseas to cut costs.

The government’s approach comes after exports fell 8.1 percent in April from a year earlier to $46.2 billion, the biggest decline in more than two years. The weakening of the yen and the euro hurt Korean exporters from carmakers to machinery makers, according to the Ministry of Trade, Industry and Energy.

Analysts and economists have said that the current situation could still get worse for Korean exporters if Japanese rivals start to offer price cuts in dollar terms to gain a bigger market share overseas. A weaker demand from China will also be a major headache, they said.

“The likelihood of Japanese manufacturers such as Toyota Motor cutting price increases on Prime Minister Shinzo Abe-led monetary easing would weaken the yen further,” HI Investment & Securities analyst Park Sang-hyun said in a research note.

Few economies in Asia are as affected by a weaker yen as Korea, given its strong competition with Japan, he said.

As the relative strength of the won which hit a seven-year high against the yen as of April 23 emerges a major concern for Asia’s fourth-biggest economy, economists have asked the Bank of Korea to cut interest rates in the third quarter by another 25 basis points to 1.5 percent. The central bank is holding its key rate at an all-time low of 1.75 percent after three cuts since August last year.

Samsung Securities economist Lee Seung-ho sees growing downside risks to Korea’s exports in the second quarter due to slowing shipments not only to emerging markets but also to developed ones.

“China seeks growth based on domestic consumption. Purchasing power in Europe and Japan will remain weak as the dollar continues to strengthen against other currencies,” Lee explained.

In a report released on May 5, KDI fellow Jung Kyu-chul offered a solution to the challenges facing Korea: innovate. Unless Korea innovates, it is doomed to perish, he said.

“Korea is facing tough competition in exports sectors where it has enjoyed an advantage, much like Japan did in the early 1990s. To tackle these challenges, Korea will have to foster creative and core capabilities that late comers won’t be able to easily emulate,” Jung said.