Made in China

Went to the local E-mart a few nights ago. Standing around with my son while my wife finished the shopping we both got sucked into staring at a nearby flat-panel TV screen showing Madagascar 2. “Wow, look at that quality, and the price… but what the hell is a Haier?” The sales woman told us it was the latest model out of China, a big hit in Europe. Always wary of sales pitches I chose not to believe her spiel, assuming it was likely some no-name knock off.

This from Reuters:

Korea also faces stiff competition to hang onto its edge in sophisticated manufacturing from China itself. In electronics, Haier and Hisense have developed wide product lines while automakers from BYD to Geely have started to attract attention overseas.

I guess she was telling the truth afterall. In fact South Korea is facing increased challenges from its rising neighbor on all fronts, including the local mainstay. According to a London-based researcher, Chinese shipbuilders outstripped their South Korean rivals in orders this year. British author Simon Winchester begins his book on walking across Korea with a look at the country’s shipyards nearly twenty years ago, predicting that the sight before his eyes spells a death knell for England’s own shipping industry. I wonder if local manufacturers are now thinking the same thing when they look west.

Trade wars

It’s not all doom and gloom though. China may (or may not) move to allow its currency to appreciate against the dollar, which would be welcome news to the U.S. and columnists over at the IHT. For South Korea, analysts say a stronger yuan would mean “more demand for Korean goods on Chinese markets.” China is South Korea’s largest trading partner by the way and has been since 2003.

The bulk of that trade, however, isn’t in consumer goods but rather in materials used to produce finished exports. Per the Reuters article cited above:

Geographic proximity, cultural affinity and its own recent experience of economic development provided South Korea with a platform to reach out to China. Its companies — notably, electronics makers such as LG Electronics and Samsung — adapted their business models to send intermediate goods to China for assembly before selling the finished products abroad.

Such manufacturing inputs account for roughly half of all of Chinese imports. So as China’s export factories revved up production, South Korea and Taiwan, the two countries most integrated in their supply chain, reaped huge dividends.

China rising

Advertisements

Oh what a feeling – Hyundai

Via Reuters comes an analysis of the success that South Korean automakers Hyundai and Kia have had in recent months, particulalry in comparison to their Japanese rivals.

Hyundai has also struck gold with big operations in India and China — two of the fastest-growing markets. And ingenious marketing such as an offer to allow buyers to return vehicles if they lost their jobs within a year helped Hyundai and Kia increase sales even in the sinking U.S. market.

The volume growth has come hand in hand with industry-defying profit improvements. In July-September, Hyundai made a record net profit of 979 billion won ($847 million) — equal to the combined earnings of Toyota and Honda Motor that quarter.

For the sake of full disclosure I’ve driven a Hyundai for the past several years, first in the US because it came cheap and now in Korea because, well… because I’m in Korea.

While I’m loathe to heap scorn on our first Hyundai, an  Elantra — simply because like a loyal canine that refused to quit  it took my family and I as far afield as Vancouver and New Mexico — the thing rattled and shook whenever we approached the speed limit. The model I drive now is a vast improvement, far more solid and better milage, but in the end I doubt either will outlast the 25 year old Toyota Camry my folks still drive with 200,000+ miles on it.

But anyway, some of the reasons cited in the Reuter’s piece for Hyundai’s success are the local currency’s relative weakness compared to the Japanese yen, which aid in boosting exports.

This then dovetails with the second reason, which has to do with Seoul’s free-for-all market policies that has led to “more than 40 free trade agreements (FTAs) with countries ranging from the United States to India. Japan has less than a third as many, almost all of them with the rest of Asia.”

What this means for Korea was spelled out in a recent report that warned of a too-heavy reliance on international trade.

South Korea’s dependence on overseas trade exceeded 90 percent of the national income last year for the first time, leaving the nation’s economy more vulnerable to fluctuations in global market conditions…

Comparable ratios for Japan stood at 31.6 percent, while those for India, Australia and Britain were 37.7 percent, 39.1 percent and 41.2 percent, respectively, suggesting that those countries have well-nurtured domestic markets…

Lingering uncertainty in the job market is a major source of concern for leaders in Seoul when it comes to the health of South Korea’s domestic market. While unemployment figures have been improving there’s concern that they could drop off again once a government-led job creation plan ends this month. According to Yonhap irregular employees make up some 35 percent of the nation’s workforce.

The latest figures on household income aren’t promising either, with average household income fallingand  for the second straight quarter with a family of two earning just under US$3000 per month.