Actual Minus Growth
The South Korean economy has been led by “two top” players – semiconductor and automobile. However, the semiconductor industry is struggling as the car industry is facing crisis due to the court’s ruling on ordinary wages and plunge in sales in China caused by China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system as well as ceaseless rumors of GM's possible withdrawal of manufacturing presence from South Korea.
Economic indicators seem to be improving thanks to the super boom in semiconductor. However, most of the nation’s major manufacturing industries, such as smartphone, home appliance, automobiles, shipbuilding, textile and metal, saw their sales and operating profits continuously decrease or show stagnation in growth. Economists said, “The South Korean economy seems to be improving with better economic indicators due to semiconductor’s illusionary effects but it is very vulnerable except for semiconductor.”
The combined operating profit of 650 companies listed on the South Korean stock market stood at 78 trillion won (US$68.97 billion) in the first half of this year, up 12 trillion won (US$10.61 billion), or 18 percent, from 66 trillion won (US$58.36 billion) at the same period last year. However, the combined operating profit of the remaining companies, excluding Samsung Electronics and SK Hynix, amounted to 48 trillion won (US$42.44 billion), down 2 trillion won (US$1.77 billion) from a year ago. Hyundai Motor’s operating profit dropped a whopping 16.5 percent from 3.1 trillion won (US$2.74 billion) in the first half of last year to 2.59 trillion won (US$2.29 billion) this year. Kim Yun-kyung, a corporate researcher at Korea Economic Research Institute, said, “The share of Samsung Electronics and SK Hynix in the total operating profit of listed firms surged from 24 percent last year to 38 percent this year. The super boom in the semiconductor industry inflated the overall performance.”
The same foes for trade surplus. The total trade surplus in the first half of this year reached US$45.8 billion (51.8 trillion won) but the figure, excluding semiconductor, nosedived to US$21.6 billion (24.43 trillion won). It is only 58 percent of US$37.5 billion (42.41 trillion won) of the total trade surplus, excluding semiconductor, in the first half of last year. In short, exports of other surplus items decreased rapidly. In fact, the exports of new smartphones and home appliances dropped 28 percent and 12 percent, respectively, in a year. Kim Ko-hyun, a business competitiveness researcher at the Korea International Trade Association (KITA), said, “Assuming semiconductor performance is the same as last year, the total trade surplus in the first half of this year would fall 14 percent from last year.”
The manufacturing operation rate, excluding semiconductor, also show a sharp drop. The average manufacturing operation rate in the second quarter this year stood at 71.5 percent, reaching a record low in eight years after the first quarter of 2009. The operation rate of the shipbuilding industry, which was once the largest export item in South Korea, in the second quarter was as low as 67.6 percent.
In addition, even exports showed a negative growth. South Korea’s annual exports, excluding semiconductor, reached its peak at US$510 billion (577.6 trillion won) in 2014 but continuously decreased to US$433.2 billion (489.95 trillion won) last year. The figures slightly rose in the first half of this year but it was largely due to the dramatic increase in exports of oil products which were re-exported after processing.
The semiconductor boom will not last forever. Gartner, an information technology (IT) research and analysis firm, predicted that the recent boom in the semiconductor industry will end in 2019. The problem is after that. Economists said, “Problems in the South Korean economy obscured by the super boom in semiconductor can come thick and fast at the same time.”
In fact, the South Korean economy enjoyed the largest boom in 1995after recording exports of US$125.1 billion (141.49 trillion won), surpassing the US$100 billion (113.1 trillion won) market for the first time. This was due to an explosive increase in exports of Samsung Electronics, Hyundai Electronics and LG Semiconductor. An official who worked at the Ministry of Finance and Economy at that time said, “Earnings of companies, excluding semiconductor businesses, decreased but financial institutions borrowed money from other countries with the stronger won of 700 won to the US dollar on its back and lent them to insolvent enterprises.” Eventually, the semiconductor depression in 1996 worsened trade balance and raised the exchange rates. Then, companies which were deeply in debt went under one after another and the South Korean economy went continually downhill.