Korea needs to step up efforts to increase exports in the service sector to offset a possible decline in the outbound shipment of its major manufactured goods, experts here say.
Exports have shored up the slowing Korean economy so far this year, as decreasing investment and slumping consumption decelerate its growth.
According to data recently released by Korea Customs Service, the country’s goods exports increased 22.7 percent on-year to $54.9 billion in October, mainly on the back of a rise in the shipment of semiconductors, petrochemical products, autos and auto parts.
The figure is expected to surpass $600 billion for the first time this year.
But the prospects for exports of Korea’s key manufactured goods down the road are being darkened by protectionism triggered by US President Donald Trump’s administration and a protracted trade conflict between the US and China.
Industrial officials expect the country’s outbound shipment to decrease 10 percent in steel, 5 percent in petrochemical products and 3 percent in autos next year, compared with this year.
Launching a consultative body encompassing key manufacturing sectors last week, the Federation of Korean Industries saw an “80 percent possibility” of the Trump administration imposing import restrictions on semiconductors and cars like it did earlier this year on steel and aluminum.
What is most worrisome for the Korean economy is a possible downturn in the outbound shipment of semiconductors, which account for nearly a quarter of its annual goods exports.
Prices for memory chips have continued to drop in recent months as global demand is on the decrease. In October, export prices of DRAM and flash memory chips made by local semiconductor companies fell 4.9 percent and 4.3 percent on-month, respectively, according to recent data from the Bank of Korea.
Analysts say the semiconductor industry is expected to take a steep downturn next year, ending years of a boom cycle.
A slump in semiconductor exports could rattle the Korean economy, which has made little progress in developing new growth engines, while most of its key traditional manufacturing industries have been overtaken by Chinese competitors.
To move ahead from this difficult situation, economists say, Korea should strengthen efforts to enhance domestic service markets and increase service exports.
President Moon Jae-in’s administration and its predecessors have pushed for policies to bolster the service sector, which have not led to substantial results.
Choi Nam-suk, a professor of international trade at Chonbuk National University, criticized the Moon government for having focused solely on small businesses and venture startups in extending support.
Leaving large companies out of consideration, the government’s approach is “far from a policy to nurture the service industry as a whole,” he said.
Experts say it is necessary to work out support measures tailored to meet the specific needs of large and smaller companies in the service sector.
“(The government) should draw up policies to help make small and mid-sized firms competitive enough to go abroad, while eliminating regulations that have hampered large companies advancing into overseas markets,” said Moon Jong-cheol, a researcher at the Korea Institute for Industrial Economics and Trade.
Enhancing the service sector would be a more effective way to increase employment. A study showed that for a decade from 2006, Korea saw the number of service jobs rise by 3.16 million, while the corresponding figure for manufacturing jobs stood at 350,000.
But a set of bills designed to promote the service sector by lifting regulatory restrictions have been stalled at the National Assembly for years. Many ruling party lawmakers have particularly opposed plans to allow for-profit hospitals to be set up in free economic zones around the country.
Korea remains far below other advanced economies in terms of the service sector’s proportion of total exports.
According to data from the Institute for International Trade, service industries accounted for 18.5 percent of the country’s total exports in 2016, compared to 79.1 percent for the UK, 50.3 percent for the US, 47 percent for France and 26.2 percent for Japan.
Korea’s service exports, which include spending by foreign tourists here, increased 4.5 percent on-year to 72.2 trillion won ($64.1 billion) in the first three quarters of this year. The country saw a 10.7 percent cut in service exports in 2017, due mainly to China’s ban on group tours to Korea and the import of Korean cultural contents in retaliation for Seoul’s hosting of an advanced US missile defense system.
Korea is expected to continue to see a deficit in service trade this year. According to BOK data, the country’s service trade imbalance soared from $3.7 billion in 2014 to $34.5 billion in 2017.
Experts note the country needs to focus on boosting service exports –particularly in education, health care and other areas where it has a competitive edge — to China and Southeast Asian nations before looking to US and European markets.
China, which has recently eased restrictions on package tours to and cultural contents from Korea, is the world’s second-largest service importer. China’s service markets have room for further expansion as service industries account for slightly over 51 percent of its gross domestic product, far lower than the corresponding figures for other major economies.
In keeping with their increasing consumption powers, service markets have also expanded rapidly in Southeast Asian countries, where Korean pop culture enjoys high popularity.