Korea's Response to China's Industrial Restructuring
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Publisher: Choi Jong-tae Published by POSCO Research Institute Editing Director: Kim Chang-do Editor-in-Chief: Yoon So-jin Printed by Jeong-Moon Printing Co., Ltd. Date of lssue: October 25, 2012 The views expressed here are those of the authors and do not necessarily represent the official views of POSCO Research Institute. Not for sale. Copyright © 2011 POSCO Research Institute All rights reserved. Production in whole or in part without written permission is strictly prohibited. Registration number: 강남바 00092 Registration date: December 16, 2010 How to contact the Quarterly: [email protected] Contents Autumn l 2012 l Vol. 08 Column 04 The future of Chindia: anticipating the hip-hopping Draphant 4 Kang Tae-young Korea’s response to China’s industrial restructuring 7 Song Byoung-jun A look at India from a long-term growth perspective 11 Kim Kyung-yool Can Chindia’s economy overcome 15 the global crisis? A round-table discussion: Chindia’s economy amidst 17 the global financial crisis Chinese firms catch an opportunity from the global 29 financial crisis Chung Sang-eun Korean companies’ response 37 to the tumbling Indian economy Diagnosis of the faltering Indian economy 39 Lee Dae-woo Automakers in India should revamp product lineup 45 and improve sales skills Park Sang-min China’s domestic market 53 China boosts domestic demand in the face of the eurozone 55 financial crisis Chung Cheol-ho Chinese and Foreign companies compete independently 61 or in alliances Chung Whan-woo India’s accelerating urbanization 71 India’s urbanization widens regional and class gaps 73 Kim Chan-wahn India toils to improve infrastructure 79 Imm Jeong-seong Issue Analyses 87 The scope of Wen Jiabao’s vision of China’s political reform 89 Cho Yong-sung The Kim Jong-un regime heralds changes in North Korea- 97 China relations Cho Bong-hyun From Finance Minister to President 105 Santosh Kumar For how long will the Indian rupee continue to depreciate? 111 Choi Ho-sang India’s anti-business policies hurt foreign investment 119 Lee Soon-chul Corporate 125 Asia Seed, filling Indian dining tables with Korean vegetables 127 Kim Yeung-ki Samsung finds a future in China 131 Kim Dong-ha Culture 137 Jiang Taigong, the founder of China’s management philosophy 138 Kim Chang-do A false accusation against Muslims in Indian history 144 Lee Kwang-su The future of Chindia: anticipating the hip-hopping Draphant COLUMN Kang Tae-young CEO & President, POSCO Research Institute hanks to high economic growth, China and India have often been dubbed “flying dragon” and “running elephant.” China achieved an average annual growth rate of more than 10% for T the 33 years from 1978 to 2011. China surpassed Japan to become the world’s second largest economy in 2011. For the three decades from 1980 to 2010, India achieved an average annual growth rate of more than 6%, and emerged as a global superpower. In 2011, India was the world’s eleventh largest country by nominal GDP and the third largest by purchasing power. Given the circumstances, it is only a matter of time until China and India become the world’s largest and second largest economies. With a huge combined population of 2.5 billion people (China’s 1.3 billion and India’s 1.2 billion), Chindia will surely become the world’s largest consumer market. With China’s competitive edge in manufacturing and India’s strength in the IT sector, Chindia has unlimited potential. However, the prospering Chindia’s economy is recently faltering as the eurozone crisis spreads. China’s economic growth fell to 7.4% in the third 4 POSRI Chindia Quarterly�Autumn 2012 quarter of 2012, a three year low since the first quarter of 2009, when the figured stood at 7.9%. China’s economy has slowed for six consecutive quarters, triggering discussion about a hard landing. Also, India’s economic growth is low at 5.3% in the first quarter and 5.5% in the second quarter of 2012. With economic downturns and aftereffects of a long period of high growth, both countries are facing daunting tasks. China should respond appropriately to the disparity among regions and cities, and an increasing number of labor disputes. It needs to promptly sophisticate its industrial structure, because most of its industries, including the steel industry, suffer from oversupply. China should also shift from an export-dependent economy to a domestic-based economy. For its part, India should solve the problem of ongoing deficits of trade, current account, and fiscal balances. India has other issues to deal with: weak fundamentals of the secondary and manufacturing industries, excessive democratic processes and the caste system, bureaucracy, and corruption. All in all, the myth of Chindia seems to end here. However, there is something not to be overlooked. Even though China and India’s economies are faltering rather badly, they are still performing better than the economies of other countries. Facing many challenges under the current global recession, China and India have achieved economic growth rates of about 7% and 5%, respectively. Moreover, China and India are populous countries with populations of more than 1 billion each. They have also deftly overcome the 2008 financial crisis. Prestigious financial firms, including Global Insight, Goldman Sachs, and Citigroup, are still optimistic about the future of Chindia. They predict that China and India will achieve an economic growth rate of more than 6% for the next several decades. They do not doubt that India will become the world’s second largest economy within 30 years. No one doubts that, before this happens, China will become 5 Autumn 2012�POSRI Chindia Quarterly “If Chindia becomes the the world’s largest economy. When the world’s largest market, it unique characteristics of China and will give Korean companies India are well harmonized, giving rise ample opportunities. “ to the Draphant (Dragon+Elephant) that creates new hip-hop dances in the global economy, Chindia will bolster the global economy in the medium- to long-term. If Chindia becomes the world’s largest market, it will give Korean companies ample opportunities. What would be good entry strategies into Chindia for Korean companies? First, Korean companies should actively target the Chinese and Indian markets, considering the characteristics of their domestic demand. In China, Korean companies should focus on the end-user market and intermediate goods for domestic use, rather than those for export purposes. In India, they need to pay close attention to Indian consumers in their 20s and 30s, who will become the main pillar of the future Indian market. As China and India are diverse countries, Korean companies should diversify and fractionate strategic bases in China, with its 31 provinces, and India, with its 28 states and 7 union territories. In addition, Korean companies should establish self-sufficient local systems in both countries. To this end, they need to localize R&D, manpower, and marketing. In particular, it is important to secure local distribution networks and establish cooperative relationships with local companies. Since the first publication of the Korean monthly magazine Chindia Journal in September of 2006, and the English quarterly magazine Chindia Quarterly in January of 2011, POSCO Research Institute has dealt with the past, present, and future of Chindia. I hope the outcomes of this open innovation research will help Korean companies successfully enter Chindia’s market. 6 POSRI Chindia Quarterly�Autumn 2012 Korea’s response to China’s industrial restructuring COLUMN Song Byoung-jun President Korea Institute for Industrial Economics and Trade (KIET) s worries spread that the global economic slowdown will linger due to the ongoing European financial crisis, the world is paying close attention to the future of China’s economy, Awhich currently leads the global economy. The growth rate of China’s exports, which had previously been around 20-30%, only stood at 7.6% for the first quarter of this year. In particular, China’s exports to the EU, which receives the lion’s share of China’s exports, declined by 1.8 percentage points in that quarter. China’s economic growth is projected to be at approximately 7.8% this year. However, a sharp decline in China’s exports is highly likely to realize worries about partial oversupply in Chinese industries. In addition to traditional industries, such as the steel, shipbuilding, petrochemical, and display panel industries, where oversupply has been an issue, the problem seems to be worsening in the new and renewable energy industries, such as photovoltaic and wind power. Oversupply in Chinese industries is different from what Korean industries have experienced in the past in terms of 7 Autumn 2012�POSRI Chindia Quarterly “With continuous monitoring of diagnosis and remedies. In the Chinese economy, Korea Korea’s case, due to its small must formulate a new policy for domestic market, a slight failure economic cooperation with of government policies and China. “ overinvestment by the private sector immediately translated into structural oversupply in the economy, leading to massive industrial restructuring. In contrast, it would be possible for China to prevent overall oversupply because its domestic market is expanding with rising incomes and the urbanization of inland China. If the export environment improves, oversupply could be easily addressed by Korean industries, which account for a small proportion of the global market. With Chinese products dominating the global market, however, the oversupply problem would not be easily remedied by exports in China. For these reasons, the need for industrial restructuring in the Chinese economy cannot be assessed on the basis of Korea’s experience. Industrial restructuring is significant in that it eases quantitative imbalance in supply and demand and sophisticates the industrial structure by adding great value to industries.