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TOKYO – Japan's restrictions on exports of semiconductor materials to South Korea have created an international climate. But if South Korea's economy was strong, taking the lead would not be much.
In 2011, after the earthquake, tsunami and triple melting that hit northeastern Japan, Mitsui Mining & Smelting shut down one of its factories. At that time, the Japanese company controlled more than 90% of the market for ultra-thin copper foil, essential for smartphone production.
This interruption has almost made impossible the manufacture of smartphones by Samsung Electronics in South Korea.
In the end, the shutdown had a limited impact.
South Korea's economy grew by 6.5% the previous year, rebounding after the global financial crisis. The gains of automakers and other companies were up.
Fast forward eight years. Earlier this month, S & P Global Ratings, the US credit rating agency, lowered its growth forecast for South Korea from 2.4% to 2%. The gloomy economy could further deteriorate, driven by Japan, whose export restrictions have brought to light the excessive dependence of the South Korean economy on China. .
Exports, which account for 44 percent of South Korea's gross domestic product, fell 9 percent year-over-year in the first six months of the year. Those to China fell by 17% during the same period of deterioration of the Chinese economy (exports to China accounted for 27% of all South Korean exports in 2018).
The South Korean stock market has always sounded the alarm.
Until a few years ago, market players around the world knew about Kospi, the South Korean reference, under the name "Dr. Kospi". Ed Hyman, a renowned economist and president of the US investment research firm Evercore ISI, has popularized the nickname, noting that Kospi is taking key actions in a country that depends on exports and shipping its products to a large number of countries.
But the term has become obsolete. Investors, according to an economist from Everscore ISI, no longer see the Kospi as a global indicator.
Until 2008, the Kospi was almost in tune with the GDP readings of the G20 countries. Since then, the index has underperformed the G-20 GDP results. During the same period, South Korea became more dependent on China. This is somewhat ironic given that the Chinese economy has slowed down from 10.6% in 2010 to almost 6%.
This does not seem so ironic from a long-term perspective: South Korea and China normalized their diplomatic relations in 1992, and the trend has continued ever since.
But many experts have worried about South Korea's excessive dependence on China, urging South Korean companies to strengthen their ties with Japan.
SaKong Il, a world-renowned economist and former finance minister, is one of them. SaKong said in a written response that "we should increase our exports to other countries, including, of course, the world's third largest economy, Japan."
But the diplomatic dispute between South Korea and Japan has turned into a trade dispute and South Korean companies will not consider trying to export more to Japan, while Tokyo announces an increase in customs duties .
"I sincerely hope that Japanese leaders will make special efforts to reverse the current position of the government." At the same time, Korean leaders should strive to find solutions to complex bilateral historical problems through hard work. of diplomatic cooperation geared to the future retaliatory measures, "said SaKong.
Investors have their own advice for Korea Inc. – to mimic Japan. An executive of a South Korean institutional investor suggests to the country's trading companies to pull out a book page from their Japanese peers and start investing capital in infrastructure projects around the world.
In North America and Europe, there is strong demand for the rebuilding of airports, highways and other aging infrastructure. If South Korean trading houses were involved in such projects, they could obtain direct income and increase their exports to advanced countries.
This would help them reduce South Korea's dependence on China.
South Korean trading houses mainly engage in unprofitable trade. Compared to South Korean chip makers and automakers, they are relatively unknown. They must make a big change and focus on investment, said the executive of the South Korean institutional investor.
South Korea is already in the process of going through the 36-page manual of Japan, which was handed over to the government in 1973. It is entitled "Construction Plan for Trading Houses in South Korea" and was was written by Ryuzo Sejima, then vice president of the Japanese trading house. Itochu.
Sejima presented its opinion at the request of South Korea, which wanted to form trading companies with the aim of turning the country into an exporter. He then served as the secret envoy of Prime Minister Yasuhiro Nakasone, charged with improving relations between countries.
South Korean stocks have remained strong since Japan announced its export controls. The latest interest rate cuts by central banks have been helpful. Yet foreign investors, who hold more than 30% of South Korean equities, are unstable. And if Korea Inc. does not implement the reform measures, investor sentiment will deteriorate. "Patient Kospi" would then be underperforming other global indices.
South Korea is already becoming less attractive as a destination for investment, as foreign direct investment in the country has fallen by 37% in the first six months of 2019. Businesses can not afford to doubt the value of investment. Export expansion with the support of the Government and South Koreans.
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