South Korea | Country Report
One of Asia’s most powerful economies, South Korea is maneuvering deftly between even more powerful neighbors and allies.
China and South Korea agreed on the basic outline of a free-trade agreement (FTA) during the Asia-Pacific Economic Cooperation meeting in Beijing in mid-November 2014. The signing was only the latest signal by Seoul that its center of gravity is shifting toward its huge Asian neighbor and ever-so-slightly away from the US, its longtime military and economic ally.
South Korea’s trade with China in 2013 was $230 billion, more than double its trade with the US. Now with the FTA expected to come into effect this year, the benefit to South Korea’s economy stands to be greater than the boost received as a result of the US-Korea pact.
The US and South Korea inked their own trade agreement three years ago, and trade has grown significantly between the two partners.
Over the next two decades, China will remove tariffs from 91% of its goods, and Korea will remove tariffs from 92%. Their FTA will eventually boost South Korea’s GDP by 3.3% over that period, according to HSBC’s Hong Kong-based analyst Ronald Man.
With the conclusion of the pact with China, Korea has hammered out trade pacts with about two-thirds of its total export market, according to HSBC. “The wide coverage of Korea’s bilateral FTAs will leave the trade-dependent economy less dependent on joining the Trans-Pacific Partnership to boost trade,” writes Man. The US, which is the main driver of the TPP, has been urging Korea to join for some time. Both the US and China have separate comprehensive free-trade agreements (the pact China is pushing is called RCEP) they are promoting. What Korea appears to have brokered with the bilateral China FTA is independence.
It was never going to be easy for South Korea, being one of Asia’s most remarkably industrious countries, as the rivalry between China and the United States grew.
GFmag.com Data Summary: South Korea
Central Bank: Bank of Korea |
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International Reserves |
$ 366.6 billion |
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Gross Domestic Product (GDP) |
$1,308 billion |
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Real GDP Growth |
2011 3.7% |
2012 2.3% |
2013 3% |
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GDP Per Capita—Current Prices |
$25,975.07 |
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GDP—Composition By Sector* |
agriculture: 2.6% |
industry: 39.2% |
services: 58.2% |
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Inflation |
2011 4% |
2012 2.2% |
2013 1.3% |
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Public Debt (general government |
2011 31.7% |
2012 32.3% |
2013* 33.9% |
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Government Bond Ratings |
Standard & Poor’s A+/Positive/A-1 |
Moody’s Aa3 |
Moody’s Outlook STA |
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FDI Inflows |
2008 $9,773 million |
2009 $9,496 millionn |
2010 $12,221 million |
* Estimates
Source: GFMag.com Country Economic Reports, IMF
CORPORATE GROWTH
The country’s political and economic stability has been a boon for its companies, but it has also pushed a stronger won against the US dollar. The won has appreciated dramatically in 2014, as much as 6.3% against the US dollar in the third quarter, according to Korean Central Bank figures. According to Moody’s Investor Service, the most vulnerable industries to appreciate against the US dollar are automobiles, chemicals and construction. Samsung, too, in the technology sector has complained that a stronger won against the greenback is curtailing growth. The won’s rise against the yen will bring medium-to-high risks for Korea’s electronics makers and steelmakers, says Chris Park analyst at Moody’s Investors Service in Hong Kong.
