By Choi Sung-jin
Like other free trade agreements, Korea's FTA with China, which takes effect this year, provides challenges and opportunities for domestic businesses.
To maximize gains and minimize losses, however, Korean firms have no choice but to carve out a larger share of China's domestic market, armed with far sharper technological competitiveness, trade experts here advise.
"China has long ceased to be the global factory and is emerging as the global market," the experts said at a recent trade forum in Seoul. "Korean businesses should take a more strategic approach to take part in developing China's inland provinces and secure the home markets of the world's second-largest economy."
Up to 70 percent of the nation's exports to China are intermediary goods, showing most Korean companies still regard China as a manufacturing base. "That should change now," said Kim Geuk-su, head of the Institute for International Trade. "Labor costs there are no longer cheap, and Beijing has shifted to a consumption-led growth strategy, forcing Korean firms to target China's domestic market far more positively than they are doing now."
Describing the rapidly narrowing technological gap between the two countries as a "new" China risk, Kim said many companies could fall into crisis unless they maintain technological superiority. on the other hand, companies that maintain competitiveness in high-end consumer electronics will benefit from the FTA, he said.
Other experts warn China's growth strategy is not about chasing Korea but exceeding it.
The Chinese government's plan to further develop manufacturing by 2025 does not stop at promoting specific industries but focuses on upgrading the development strategy itself to a higher dimension by, for instance, "informatizing" industry and taking a forward-looking stance on an open market economy, according to Lee Il-hyung, director of the Korea Institute for International Economic Policy.
"Out of the 19 industries Korea has designated as future growth engines, 18 overlap with China's strategic sectors," Lee said. "However, China's industrial strategy, based on combining the manufacturing and information sectors, is expected to stimulate demand in information-communication technology, providing ample opportunities for Korea, a global ICT power."
Professor Lee Hee-ok of Sungkyunkwan University also noted China has the world's fastest growing online market, because it has a flexible labor market and businesses that are using big data aggressively. "The reason Korean businesses are experiencing difficulties in China is not their lack of understanding of Chinese markets but their rapidly dwindling advantages in product competitiveness," Lee said.
As to Korea's future trade strategy, most of the experts stressed the need to put a "mega-FTA" at its center. "Many people expect that the U.S.-led Trans-Pacific Partnership and the Chinese-centered Regional Comprehensive Economic Partnership (RCEP) could eventually merge into one," said Professor Bark Tae-ho of Seoul National University, who served as the nation's top trade negotiator under the Lee Myung-bak administration.
"If the RCEP is concluded at too low a level of liberalizing trade compared with the TPP, their integration will be difficult to be realized."