A Record High Trade Surplus

Korea projected to log more than $40 billion in trade surplus this year

The Korean economy is recovering at a fast pace from the global economic downturn, as the nation is forecast to post $42 billion in trade surplus, surpassing a record high of $39 billion set in 1998.
The following are excerpts of an written interview between NewsWorld and Minister of Knowledge Economy Choi Kyung-hwan, held on the occasion of the Trade Day anniversary. He touched on his ministry’s policies on trade, the convention industry, greenhouse gas emissions reductions as well as the automobile and IT industries.
Question: The nation saw the trade balance revert back to positive territory last December. Korea has continued to post a surplus trade balance since this past February. How much has the balance ballooned?
Answer: The trade surplus in the first 11 months of this year surged to a record high of $37.8 billion, surpassing the $31.9 billion trade surplus registered during the January-November period of 1998 during the Asian financial crisis. Exports amounted to $328.314 billion during the January-November period, a 16.9 percent drop over the same period of 2008 and imports contracted 28.9 percent to $290.491 for a combined $37.328 billion trade surplus during the 11-month period.
Korea logged $26.6 billion in goods trade surplus in the first half of 2009, ranking second in terms of trade surplus among OECD (Organization for Economic Cooperation and Development) member countries following a $71.9 billion surplus for Germany. It marks the first time the nation saw its goods trade surplus outstrip Japan, which posted a $9.1 billion surplus during the same period to rank seventh.
Q: Declaring that an era of recession-type trade surplus has come to an end, the MKE put forward a prediction that Korea will log a more than $40 billion in trade surplus by the end of this year. Are there any uncertainties on prospects that Korea will post a record high trade surplus this year?
A: Although such factors as the recent appreciation of the Korean currency against the dollar and international oil price hikes have a negative impact on trade imbalance for this year, it is possible to predict that the nation’s trade surplus for the whole of 2009 will reach more than $40 billion. The ministry forecast that exports will contract some 13.9 percent year-on-year to $363 billion in 2009 and imports will plunge about 26.3 percent to $321 billion for an approximately $42 billion trade surplus for the whole of this year.
Of late, there are some uncertainties, including foreign exchange rates and crude oil price hikes, but as there is a time lag in their influence and external conditions like the turnaround of the global economy, the nation is predicted to maintain a trade surplus balance with double digit growth. There is a time lag of two to three months and one to two months for foreign exchange and crude oil price fluctuations to be reflected in measuring exports and imports. Figures released by the International Monetary Fund show that the global economy is projected to contract 1.1 percent for the whole of 2009, grow 0.8 percent in the fourth quarter of 2009 and 3.1 percent in 2010.
As the accumulated trade surplus reached $33.8 billion in the first 10 months of this year and the trade surplus averaged more than $4 billion per month, Korea is projected to log more than $40 billion in trade surplus for 2009, surpassing a record high of $39 billion registered in 1998.
Q: Will you tell us about prospects for external export conditions for next year? What’s your forecast for exports, imports and the trade balance?
A: As such international institutions as the IMF predict that the global economy will return to positive territory for 2010, the nation’s export conditions are expected to get better next year than this year.














However, since uncertainties, including the appreciation of the Korean currency, crude oil and raw material price hikes and the possible recurrence of the global financial crisis still exist, it is too early to paint an optimistic picture.
The Samsung Economic Research Institute and the Korea Institute of Finance forecast that the value of the Korean won will appreciate to 1,130 won to 1,120 won against the dollar in 2010. Major investment banks placed the figure at 1,110 won. The Korea Energy Economics Institute predicted the average crude oil price at $74.40, while the Samsung Economic Research Institute estimated the figure at $83.90. U.S. financial institutions might see nonperforming loans rising due to an increase in overdue payments in U.S. commercial properties and consumer bankruptcies.
Even though next year’s export and import prospects will likely change to some extent, depending on the path of the recovery of the global economy, Korea is forecast to see exports surging some 13 percent, imports jumping about 21 percent and the trade balance shrinking to approximately $20 billion in 2010, almost half of the estimated 2009 surplus.
Exports are projected to turn around to about $400 billion in 2010, riding on a booming performance of such IT exporting items as semiconductors and display products and a rise in such mainstay exports as automobiles, steel, petroleum and home appliance products. On the other hand, imports are predicted to shoot up thanks to the recovery of domestic demand, raw material price hikes and a rise in facility investments, surpassing the export growth rate.
Q: The government announced strategies to expand advanced trade infrastructure in order to boost a trading foundation. Will you tell us the goal of the strategies?
A: We plan to implement strategies to expand advanced trade infrastructure in order to realize the goal of evolving into the rank of global top eight trading countries and posting about $1.3 trillion in trade in 2014. If trade infrastructure is expanded without a hitch, the nation’s exports are forecast to grow at an annual average of some 12.5 percent to more than $650 billion in 2014, which will enable Korea to remain stable with an estimated 3 percent share of the global export market. The number of exporitng companies and items is projected to increase from 103,000 and 8,641 in 2008 to 120,000 and 12,540 in 2014, respectively. An additional 10,000 exporting SMEs with a record of exporting more than $2 million will be cultivated in order to raise the percentage of SMEs to more than 40 percent.
On the qualitative aspect, improved productivity in exporting activities and efficient labor division structure will be combined to boost new exporting industries and improve the price and non-price competitive edge. By doing so, Korea is sure to establish a trade structure so that such unfavorable external factors as massive foreign exchange fluctuations and crude oil price hikes can have less of an impact on Korean exporting companies.
Q: An integrated network designed to integrate and manage trade and logistics information is being built and a global e-commerce system is to be established. Will you elaborate on major features of these systems and any steps being taken to protect information?
A: First of all, we strive to make sure that all trade processes companies demands can be handled online through the linkage of information via domestic trade, customs and logistics networks and such services as freight information tracking and confirmation can be done at one time. Customer-specific trade analysis information based on the integration of information on overseas markets and trade knowledge is offered, while such information on marketing, now being divided into industrial associations and organizations and exporting support will be supplied in one place via an e-commerce portal. About 30 marketing portals being operated by public and private organizations will be hooked up to share information by 2012.
Korea is striving to realize a full-fledged, paperless e-commerce system with its major trading partners, including China and Japan, via such global telecommunication networks as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the Pan-Asian e-commerce Alliance (PAA).
The exporting of Korean-type e-commerce systems and the linking of service networks will be explored for such developing countries with weak IT infrastructure as Uzbekistan, Libya and Mongolia by holding overseas road shows and operating e-commerce publicity halls in foreign countries.
A legal foundation will be laid out so that e-commerce services can be made available from abroad and export bills can be issued and distributed.
Q: Will you elaborate on plans to build domestic exhibition infrastructure?
A: The government plans to provide indirect support to SMEs that cannot afford to attend overseas exhibitions by inviting foreign buyers to Korea. It subsidizes costs for inviting foreign buyers, including accommodation charges, provides tour programs related to exhibitions and offers domestic exhibition information to foreign buyers by establishing integrated exhibition information service systems.
The ministry plans to reduce the number of global top exhibition candidates from the current 10 to two in order to concentrate its focus on nurturing domestic exhibitions into large-sized, world-class ones. It will provide support for overhauling one or two of the global top exhibition candidates, which will be selected under a pilot international brand project. The government will provide financial support for publicizing exhibitions, which will integrate similar or identical ones, and will hold government-initiated overseas advertising and road shows.
It seeks to expand major exhibition venues, including KINTEX and BEXCO, according to the market demand for exhibition space in order to invigorate the domestic exhibition industry, while selecting and nurturing exhibitions befitting features of each region in connection with strategies designed to develop the 5+2 greater economic spheres. The government supports the expansion of all exhibition industry infrastructure by building joint logistics facilities, standardizing exhibition industry statistics classification codes and lowering local taxes on provincial exhibitions.
Q: What steps will the ministry take to reduce greenhouse gas emissions in the future? Will you tell us about the ministry’s roles and plans to support industry circles?
A: The MKE, a major government agency charged with overseeing the energy and industry sectors, is responsible for industrial circles’ reduction of greenhouse gas emissions. The ministry plans to formulate the 2020 greenhouse gas emissions reduction master plan and establish its own implementation plans to reduce greenhouse gas emissions according to such areas as industry, energy and trade.
The ministry administers such effective regulation tools as cap and trade, negotiated agreement (NA), renewable portfolio standard (RPS) and mileage. It is striving to proliferate the spread of such green energy sources as photovoltaic power, wind power and geothermal power while trying to develop such green technologies as smart grid, green cars and LED.
It is also seeking to spread the use of low-carbon production technologies and low-carbon processes so as to provide support for industrial circles’ reduction of greenhouse gas emissions. The ministry plans to work out ways to shift the industrial paradigm to a green concept by proliferating green management and raising the efficiency of resources through the nurturing of manufacturing industries.
Q: Will you introduce the Korea National Oil Corp. (KNOC)’s post-merger integration following its acquisition of Harvest Energy and other M&As?
A: The KNOC is drawing up a post-merger integration management plan in order to maximize its petroleum exploration capacity and the synergetic effects of the M&A target company following the Oct. 22 signing of a contract with Harvest Energy.
KNOC working-level officials were dispatched to discuss the matter with Harvest Energy. Accenture was commissioned to offer consulting services for the establishment of a management plan of the acquired company.
The KNOC is now holding consultations with Korean and foreign banking institutions and institutional investors to acquire additional investment resources. The Korean petroleum exploration company is predicted to have no problems in obtaining additional investment money, given the experiences it accumulated in its unsuccessful bid to acquire Addax Petroleum and its credit rating as one of Korea’s top public corporations.
In the years to come, the company plans to conduct additional M&As with promising petroleum exploration companies so that its petroleum exploration capacity can be optimized. It is continuously monitoring tenders of a number of promising M&A target companies as well as market movements in a bid to advance the government’s scheme to make the KNOC a large-sized, world-class company.






















Q: Will you tell us the status and prospects of the Korean and global automobile industries?
A: As the nation’s conditions for exporting automobiles have exacerbated despite a rise in domestic sales, the domestic automobile manufacturing industry is projected to produce about 3.42 million units during 2009, a 10.6 percent drop from 2008. Thanks to financial support for replacing old cars with new ones and automakers’ releases of new brands, Korean automakers are forecast to sell some 1.37 million units during this year, an 18.7 percent surge from the previous year. Due to the contraction of major markets, particularly the United States and the EU, and environmental restrictions, automobile exports are projected to drop 23.6 percent from 2008 to about 2.05 million units for 2009, while auto imports are predicted to drop 7.7 percent to about 70,000 units.
Looking ahead at the year 2010, the ministry expects Korean automakers to produce about 3.65 million units, an 8.2 percent rise over 2009, riding on the recovery of exports to emerging markets. Despite the termination of government support for replacing old cars, the turnaround of the national economy and improved consumer sentiment and the continuous release of new car models are combined to increase domestic auto demand 2.2 percent over the previous year to some 1.4 million units. Exports are projected to shoot up 12.2 percent to 2.3 million units thanks to a rise in strategic exporting car models and a recovery of the emerging markets in the Middle East and Africa. Imports are forecast to surge 14.3 percent over 2009 to 80,000 units due to the recovery of the domestic economy.
As to 2010 prospects of the global automobile market, automakers around the world are projected to sell approximately 64.43 million units in 2009, a 7.3 percent drop over 2008. China has emerged as the largest single country automobile market in the world, while the markets in Germany, Brazil and India have made a good showing due to the effects of government intervention. On the other hand, the world’s largest market, the United States has seen a plunge in auto sales due to the economic downturn, and Russia and other Eastern European countries have continued to suffer setbacks.
Global automobile demand in 2010 is predicted to rise 3.9 percent over 2009 to 66.97 million units, but the global automobile market is likely to revert to the pre-economic crisis level ―the 2007 level ―in 2011 or after.
Q: What effect does the lease of Apple’s iPhone in Korea have on the domestic market?
A: Of late, despite the global financial meltdown, Korean mobile phone makers have greatly contributed to overcoming the national economic crisis as they have swiftly adapted to markets to see their global market share surpassing 30 percent.
However, they have yet to have standing as key players in the global smart phone market due to a lack of related original technology properties and a weak competitive edge. The existing three Korean telecom service providers are on the edge of a precipice in the global market as they have failed to maintain a test-bed for mobile telecommunication gadgets due to their closed-door market policies that hinder the application and proliferation of new technologies.
At this juncture, the recent release of the global smart phone leader iPhone in Korea is expected to serve as an opportunity for domestic mobile phone makers to build their capability to challenge foreign rivals by expanding their development of smart phones ―a shot in the arm in the closed domestic mobile telecom market by facilitating the use of mobile Internet and distribution of content.
But such institutional overhauls as the unlimited use of data for uniform pricing need to be made so as to bring benefits from the release of the iPhone to the development of the domestic mobile phone industry.
The government plans to come up with comprehensive steps to help the domestic industry ramp up competitiveness for the infrastructure for manufacturing next-generation mobile phones, calling for the development of key technologies, facilitating the use of smart phones and support for expanding infrastructure, among other things. nw

Minister of Knowledge Economy Choi Kyung-hwan

Minister of Knowledge Economy Choi Kyung-hwan presides over the 3rd trade meeting in which officials from trade-related government, industry and financial circles discussed to review 2010 export prospects and steps to boost exports at the Gwacheon Government Complex on Dec. 23.

MKE Minister Choi holds a ceremony to sign a negotiated agreement (NA) to reduce greenhouse gas emissions with business leaders at the COEX InterContinental Hotel on Dec. 18.