S.Korea export boom to ASEAN may be less than meets the eye
July 14, 2013
By Choonsik Yoo
SEOUL (Reuters) - South Korean exports to southeast Asian bloc of ASEAN jumped recently, but instead of showing the birth of a new market, it just adds to the evidence of Korean manufacturers hollowing out of home and now from China.
South Korean firms from such big names as Samsung Electronics <005930.KS> and LG Electronics <066570.KS> to small stuffed toy makers are establishing assembly lines in southeast Asia instead of expanding existing plants in China, where wage and other costs are growing fast.
The result: Exports to the ASEAN grow fast mainly for the supply from South Korea of raw materials and components, shipments to China lose some lustre if not fall, but overall South Korean exports to the global markets remain depressed.
"Demand for consumer goods is also growing but the recent sharp rise in exports there is led by shipments of components and equipment to newly established production lines there," said Jung Young-hwa, director of the emerging market team at Korea Trade-Investment Promotion Agency (KOTRA).
South Korean exports to the ASEAN grew faster than its global exports for six out of the past seven years and more than those to China for five years, as Korea's direct investment there jumped during the period to surpass that in China from the year 2009 on, government data shows.
GROWING INTRA-REGIONAL TRADE
The combined gross domestic product of the 10-member Association of Southeast Asian Nations (ASEAN) is expected to reach some $2.53 trillion this year, a whopping 65 percent gain in five years, according to the International Monetary Fund.
Yet the average annual income of its 620 million people stood far below $6,000 per head, the ASEAN's official 2011 data shows, indicating huge growth potential as the bloc's poor members strives to narrow the gap with richer neighbours.
"ASEAN will surely become an important market for exporters of consumer goods, but it's far from that stage as of now," said Lim Young-seok, senior research officer about the region at the state-run Export-Import Bank of Korea in Seoul.
Samsung Electronics, the world's largest producer of mobile phones, employs around 30,000 workers at its $700 million plant in Vietnam to turn out about 120 million phones per year, Yonhap news reported. Samsung declines to provide details.
Each phone is assembled with hundreds of components sourced from Korea, China and other countries, which in turn mark the sales as exports. The finished phone eventually is sold to another country, boosting Vietnam's exports.
"Exports data between certain countries can be misleading. Korean companies export a huge amount of oil products such as diesel to Singapore, but much of the shipments were for re-sale to countries nearby," said Kim Hong-ju, a Korean government official stationed at the embassy in Singapore.
This suggests the growing intra-regional trade, a long sought-for goal since the 1990s Asia financial crisis, is still more a result of relocation of assembly plants rather than newly-created demand for imported consumer goods within the region.
Data published on Monday shows South Korean exports to the ASEAN bloc jumped 10 percent for the January-June period over a year before on top of a 11 percent gain a year before, but global shipments rose less than 1 percent this year after a 0.5 percent gain a year earlier.
Still, rising investment within the region is making its own contribution. Samsung's Vietnam unit exported more than $12 billion worth of products last year, helping to bring the country's trade balance back to surplus for the first time in 20 years, Yonhap reported. (Editing by Eric Meijer)
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