S. Korea's Key Manufacturing Industries in Structural Crisis

Seven out of South Korea’s 13 main industries posted a decrease in exports in the first half of this year. The automobile and shipbuilding industries are tottering, while the steel and home appliance industries are moaning. In contrast, China is hot on the trail. China has already overtaken Korea in the smartphone and liquid crystal display (LCD) industries. Given the situation, a trade dispute between the United States and China is dealing a fatal blow to South Korea.

The Organisation for Economic Cooperation and Development (OECD) said last month, “A boom in the semiconductor industry is hiding South Korea’s weak points.” For a change in the share for the nation’s 10 export items of total exports from 2014 to 2017, semiconductor increased 6.2 percent, while display, car and petroleum products, which are other key industries, decreased 1 percent, 1.2 percent and 2.8 percent, respectively. South Korea’s exports dropped 0.7 percent overall. As the OCED noted, the nation’s key industries are in a complex and structural crisis.

The same applies to the semiconductor industry. The industry is facing two snares – falling prices and China’s chase. The price of 8-gigabyte (GB) DRAM chips has recently fallen to US$8.6 (9,623 won) from US$9.6 (10,742 won) in December. With China’s aggressive investment in the semiconductor industry, its market share is expected to grow to some 18 percent in 2025.

The future of South Korea’s other key industries seems dimmer. The combined market share for Huawei, Xiaomi and Oppo in terms of global smartphone sales in the first quarter this year stood at 25.2 percent, while Samsung accounted for 20.5 percent of the market share. Samsung has a mere 1.3 percent share of the smartphone market in China. Hyundai Motor Co. finished outside the top 10 as its sales in China fell to 53,371 units in May. Hyundai Heavy Industries Co. posted 123.7 billion won (US$110.55 million) in operating loss in the first quarter alone. Metal processing showed the biggest fall in production at 8.4 percent, followed by textile at 3.8 percent, machinery at 2.4 percent and primary metal at 2.2 percent.

The future is even more bleak. South Korea’s labor productivity remains the same but its working hours have been reduced to 52. Taking a look at companies listed on European Commission’s investment scoreboard, South Korea showed a 12.5 percent decrease from 80 in 2013 to 70 in 2016. To be sure, China and the US showed a growth by 88.9 percent and 2.2 percent, respectively. As a result, the share for South Korea’s car industry of the global market will shrink from 5.2 percent in 2015 to 3.8 percent in 2025, while that of the shipbuilding industry will decrease from 36.2 percent to 20 percent over the same period.

Experts say that South Korea’s manufacturing industry has a linchpin missing. Semiconductor items took up 38 percent of US$28.3 billion (31.67 trillion won) of the last year’s trade deficits with Japan. A senior official from the government said, “South Korea’s manufacturing industry will not be able to survive after five or 10 ten years without technologies that are differentiated from China.”