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

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Korea’s subprime: kikos

I know jack all about economics but as my job entails understanding at least the bare basics I found this NYT editorial on Korea’s kiko contracts enlightening for its direct and comprehensible explanation. I’ve read a lot about these so-called “knock-in Knock-out” contracts that have to do with foreign exchange rates and exporters hoping to hedge their risks but was never fully able to wrap my head around the mechanics.

Some choice selections:

Korean and international banks promoted this product as a way for Korean exporters to offset the risks of having the Korean won rise in value against the dollar or other currencies. Such an increase was bad from the point of view of the exporter, since it would mean the dollars received would not go as far as expected to cover the local costs of production.[…]

What it meant was that if the won rose against the dollar, or even held more or less steady, the Korean companies would get a break on foreign exchange costs. But they paid for that break by risking huge losses if the won collapsed.

A total of 330 legal proceedings have gotten under way this year as companies sue for losses stemming from the won’s collapse. They say they didn’t understand the risks and were taken in by the more “sophisticated” banks. Sounds oddly familiar.

S. Korea’s bulldozer buries media dissent

On-line autocracy

On-line autocracy

South Korean authorities arrested an unemployed man on Wednesday suspected of being the author of a series of online postings critical of the government’s economic policy.

The Seoul Central District Prosecutors’ Office arrested the 31-year-old identified by his surname Park on Wednesday and is conducting an investigation into whether he is indeed the netizen known as “Minerva.”

Late last year, a series of postings appeared on the country’s largest portal Daum under the alias Minerva, blasting the government for its handling of the then burgeoning economic crisis. Minerva gained widespread fame with his prophetic predictions of the collapse of US giant Lehman Bros. just days before it occurred.

That event triggered a rapid downturn in South Korea’s financial fortunes as the currency and local stock market entered into a dizzying spiral of decline. On Dec. 29, another posting appeared under the name Minerva claiming the government had issued an order to local financial institutions to stop purchasing dollars in an attempt to stabilize the won.

Government officials were quick to deny the rumor, especially after the currency market began to wobble that same day. South Korea’s has been the worst performing of Asia’s currencies since the global economic crisis erupted.

Park is being held on charges that he violated the country’s telecommunication laws by spreading what officals claim are “false facts.” As bloggers have noted, facts in themselves are not false and the government’s own statements on the state of the economy in recent weeks have been as dubious as anything on the Internet.

One comment reads, “So it is now illegal to make economic predictions in Korea? Shouldn’t someone in the current administration be arrested for their economic growth predictions?” Another quotes a Korean coworker, “I’m ashamed of Korea and ashamed to be a Korean.”

According to authorities, Park graduated from a vocational high school and a two-year college in Seoul. He once worked for a local manufacturer and has never left the country, contrary to claims made in one posting under the Minerva alias that the author had done a masters and doctorate degree in the US and had experience on Wall Street.

Officials say Park admits to being the person behind the Minerva postings.

The arrest is the latest in a string of measures by the current administration to tighten its grip on the flow of information in one of the world’s most wired countries.

In December, fists went flying in parliament as opposition lawmakers attempted to prevent the ruling party from unilaterally passing a set of bills that included media deregulation. If passed, the legislation would allow major newspapers to take partial ownership of local broadcasters, further reducing the existence of independent voices in the media.

The rule of President Lee Myung-bak, once known as the “bulldozer” for his years in the construction industry, is looking to many here increasingly like a return to the three decades of military rule that ended some twenty years ago. And ironically, for a president who has taken a firm approach to increasing freedom in North Korea, he seems quite ready to squash it here.

Internet rumors shake economy, NK aid

Korean currency

Korean currency

An article in the Chosun Ilbo raises the issue of Internet based rumors and their effect on Korea, pointing to the recent anti-US beef protests that nearly shut down the country and were fueled by a flood of mis-information over the saftey of US beef.

More recently is the impact such rumors have had on the local economy, drumming up what has come to be called the “September crisis,” a scenario which envisions a repeat of 1997, where foriegn investors flee in droves and the economy goes down the toilet.

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