Too Much Depending on Semiconductors: Does an Alarm Bell Start to Ring over Korean Economy? | BusinessKorea

Thursday, January 18, 2018

Too Much Depending on Semiconductors

Does an Alarm Bell Start to Ring over Korean Economy?

The Morgan Stanley’s repot on November 27 can be regarded as a warning for the South Korean economy as a whole.
The Morgan Stanley’s repot on November 27 can be regarded as a warning for the South Korean economy as a whole.
Seoul, Korea
28 November 2017 - 9:15am
Jung Suk-yee

It has been found that South Korea’s exports totaled US$44.98 billion last month, up 7.4% from a year ago, led by semiconductor exports, which increased by 69.6% year on year and reached US$9.48 billion last month.

Meanwhile, South Korea’s non-semiconductor exports fell from US$36.34 billion to US$35.49 billion between October 2016 and October 2017. According to the Korea Institute for Industrial Economics & Trade (KIET), semiconductors accounted for 16.1% of South Korea’s total exports in September this year and the ratio is estimated to increase to 19.9% next year.

The country’s high reliance on semiconductors is witnessed in a variety of economic indices such as investment and production as well as exports. For example, the item represented 20.2% of the country’s capital expenditures for the past one year and the item currently represents 10.7% of the total manufacturing production of the country. In the third quarter of this year, major South Korean listed companies posted an operating profit of 47.2 trillion won, up 38.8% from a year earlier. The rate of increase drops to 3.2% when Samsung Electronics and SK Hynix are excluded from the calculation.

This implies the country’s high reliance on the single item can pose a significant risk. Morgan Stanley said in its report on November 27 that the NAND flash price and DRAM demands are about to fall. This report can be regarded as a warning for the South Korean economy as a whole in view of such a high level of dependence.

Experts also point out that economic crises followed the crises of the semiconductor sector on multiple occasions and the same can be repeated in the near future. South Korea’s semiconductor sector enjoyed booms in 1993 to 1995 and in 2002 to 2004 before the economic crises of 1997 and 2008, respectively. South Korea’s total exports broke the US$100 billion mark for the first time and reached US$125.1 billion in 1995, when its economic growth rate was as high as 8.9% with semiconductor exports making a significant contribution. However, the DRAM price plummeted in 1996, that year’s current account deficit hit an all-time low, and an IMF bailout program followed in the next year. 

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