Sorry for the confusion in changing the date.  The confluence of holidays makes squeezing in a second chance meeting complicated apologise if this timing is inconvenient.  The material used will have been updated to include September exports and imports.  If you have trouble downloading the material for this session please contact me directly. 

The session began with comments on the general slowdown of the Korean economy and the likelihood that 2023 growth would be in the 1%-1.2% zone, with knock on effects for 2024.  Our update with August and September data supports the view presented that Q3 was more like Q1 and Q2 than the predicted upturn.

Despite the title this session gave due attention to all Korea’s major export and then looks at the potential for further exports of nuclear and armaments in detail.  Our overall conclusion was that most manufactured exports have limited room for expansion in the current environment of low trade growth and decoupling. Of the traditional core exports chips, ships and petrochemicals are down compared with a year ago,  chips down 21% in August, petroleum products 35%.  But the petrochemical products and chips were at a higher price per unit a year ago (in the case of petrochemicals and refined fuel much higher), so we need to look at the longer term picture than a single year.  Some exports are closely tied to imports so we need to look at the product business cycle as well.  Out of the “traditional” exports only vehicles are doing exceptionally well up 28% in August with EVs constituting 23% of total vehicle exports.  OLED screens also up by 4% despite lower production of screens in Korea.

Korea’s industrial exports are likely to be increasingly produced in overseas factories of Korean companies partly induced by measures like IRA and the Science and Chip Act but also would include defense deals like that concluded with Poland.  Moreover the value of nuclear exports compared with any other staple export is low.  Defense equipment offers more opportunities.  But both come with complications and part of the income will appear in the services balance along with overseas construction earnings and other items.

We then looked at the thesis we have been developing that Korea has a potential to be a safe haven for investment by both Chinese and US and European firms wishing to avoid sanctions and prohibitions.  This however depends on the skill of the present administration in encouraging FDI.  The safe haven thesis develops the idea that Korea’s pivotal role developed by MOFA in their Indo-Pacific Strategy of December 2022 could, with care, make Korea a safe haven for investment from both the US and China.  While it is already happening in the battery components industry there is great interest in the US of investing the other way.   I argued that shipbuilding could also be a beneficiary of current geopolitics.

We turned to new exports including EVs up 65%, battery components and batteries and then the nuclear industry (which is in part a services story rather than products) and the prospects for Korea’s armament industries with the recent International Defense Industry Exhibition (MSPO), fair in Poland where Hyundai Rotem, Hanwha, KIA, KAI and LIG were well represented along with 25 other companies.   It is ironic that both North and South Korea could be major suppliers of weaponry in the near future, sanctions notwithstanding in the North and the rule of not selling to combatants in the South.

Join us for a good discussion on all these issues.  If you missed the session on September 21st consider joining us on October 11th.   The  main session on October 19th will be looking at domestic sources of growth in a period of export slowdown.

Yours sincerely