As “green growth” becomes more important, interests in the culture industry which is highly value-adding, eco-friendly, and job-creating have increased. China has paid much attention to the culture industry as a new engine of the sustainable growth. As China is expected to stand with U.S. and Japan as a big market for culture industry, Korean firms have stronger interests in entering China’s culture industry.
Specifically, Shanghai is one of the regions that have witnessed rapid growth in culture industry. The city’s development of culture industry has generated extensive economic and social spillover effects to nearby regions and the potential for further growth in Shanghai seems to continue in the future. Examining the experience of Shanghai, our study provides implications for Korean firms which have prepared for entry into China (including Shanghai) as well as for the Korean government which supports Korean firms.
This manuscript is organized as follows: In Chapter 1, we provide research background, motivation, summary of prior research, and research methodology. In Chapter 2, we introduce the current snapshot for culture industry in Shanghai and analyze what is ongoing between Korea and China (Shanghai). The dynamic growth for culture industry in China has been explained broadly by three reasons. First, Shanghai municipality has attempted to restructure the culture industry with varying approaches; second, specific types of ownership are dominant in each sub-industry and; third, Shanghai residents have been strongly interested in consuming the cultural goods. In Chapter 3, we analyze the policies to promote culture industry, which were designed by Shanghai municipality, and examine cases on cooperation between the local firms and foreign firms. Shanghai municipality has been active in development of culture industry through financial supports, construction of culture industry complex, and building of cultural infrastructure. In addition, the leading Chinese firms in Shanghai such as SMG, CMC, Shendi, Shanda, SFG, or SSCEG highly welcome global cooperation. Foreign firms have entered the culture industry in Shanghai by establishment of joint venture, although few joint ventures are found.
Finally in Chapter 4, we assess the current situation and the direction for culture policy in Shanghai and discuss implications for Korean firms and government. We also address limitations for this study.

Executive Summary

 

I. Introduction

II. Regional Borders and Trade

1. Definition of Regional Borders
2. Trends of Regional Trade and Regional Border Trade

III. Empirical Works

1. The Gravity Model of Asian Trade
2. Estimation Results

VI. Conclusion

References

Data Sources

Internet Sources

Appendix

This paper investigates the effect of regional borders on trade in Asia. The regional borders define the three regions of Asia: South, Southeast, and East Asia. Regional trade indicates the flows of trade within a region, whereas regional border trade means trade across regions. A gravity model is augmented with the region dummies to estimate the regional border effects that capture any and all time-invariant factors promoting or impeding regional trade. The main finding is that regional border effects are asymmetric on the three regions in Asia: There is a large and significant regional border effect on South Asia, small on Southeast Asia, and negligibly negative on East Asia. The significant and positive regional border effect in South Asia suggests that countries share intrinsic factors facilitating trade between countries in this region. Although the regional border effect of Southeast Asia is positive, its magnitude shows little difference between its regional trade and regional border trade. Finally, the estimate on East Asia presents a completely different picture from the actual data. It implies that there exist some factors leading to active regional border trade between East Asia and other Asian regions.

The purpose of this research is to analyze the pattern of export competitiveness for environmental goods between Korea, China, and Japan, examine the current status of the intra-regional trade including the tariff and non-tariff measures, and set policy recommendations based on the research findings. As for environmental goods, we use the APEC list of 54 environmental goods agreed in the 2012 APEC leaders’ meeting in Vladivostok, Russia.
To better assess the pattern of export competitiveness for the environmental goods between the three countries, we applied the concept of the unit value and discriminated between price and quality competition based on Aiginger (1997, 1998, 2000). As a complementary, we additionally applied the concept of product differentiation from Abd-El-Rahman (1991), Greenaway, Hine and Milner (1994), Fontagne and Freudenberg (1997).
The main findings of this research are as follows. First, trade in environmental goods has increased significantly over the past decade worldwide. In particular, the share of Korea, China, and Japan in the trade in environmental goods is substantial and the growth rate of the intra-regional trade among the three countries came out higher than the three countries’ trade with other countries. Second, the share of the top 10 major export environmental goods dominates the total trade in the environmental goods industry, and many major export products overlaps among the three countries. Third, Japanese products showed comparative advantage in quality competition while the Korean and Chinese products had more comparative advantage in price competition. The status of the comparative advantage for each item showed to be closely connected with the trade balance. Fourth, the tariff rate is relatively higher in Korea and China while most Japanese products were subject to zero. However, considering the non-tariff measures such as the technical barriers to trade, China and Japan seem to have more protective trade measures compared to Korea.
Based on the main findings, we suggest the following policy recommendations. First, Korea needs to develop a strategic approach per item when negotiating for further trade liberalization in environmental goods since the characteristics of intra-regional trade, pattern of export competitiveness, and tariff and non-tariff measures in the environmental goods industry are distinct from each other by items. Second, Korean government needs to focus more on the non-tariff measures. However, there are difficulties to discover the non-tariff measures due to asymmetric information problems and cultural difference among countries. Accordingly, the Korean government could initiate a separate trilateral joint research project and a committee to identify and deal with the issues of non-tariff measures. Third, concerning the characteristics of intra-regional trade and the patterns of comparative advantages in environmental goods, Korea needs to diversify its strategic export products and upgrade its quality competitiveness. Korean products, compared to that of Japan’s, are more price dependent with relatively high tariff rate. Examining patterns of trade between Korea and China, the comparative disadvantage in the price competition is widening. The intra-regional trade in environmental goods is concentrated in few specific items. Since APEC member countries agreed to cut tariffs to five percent or less by 2015 for on the 54 environmental goods, the Korean government should minimize the negative impact from further tariff cuts by making more efforts to increase the quality competitiveness of environmental goods and diversify the support towards the industry.

Amid deterioration of North Korea’s foreign relations due to its nuclear development, economic cooperation between North Korea and China is actually showing unmistakable signs of expansion. It is expected that economic relations between the two states will become even closer in the coming years as cooperation projects between the two are materializing along with the rapid promotion by China of its development plan for its Northeast provinces. This study seeks to gain an understanding of the characteristics and problems of the current North Korea-China economic cooperation, by investigating trade, price settlement methods and transaction practices in the border areas.
In transactions between North Korea and China, the methods of exchange are often unofficial, taking advantage of close relations between partners from both sides. Unlike regular international transactions using letters of credit or financial institutions, cash transactions and barter trade are prevalent in commercial transactions between the two communist states. Such practices include illegal elements such as smuggling of foreign currency into the country. In the face of economic sanctions by the international community along with industrial stagnation and foreign currency shortage due to economic difficulties, North Korea is actively taking advantage of these ‘unofficial’ methods in an attempt to circumvent official rules of financial transactions. Chinese trade companies located in the border areas are accustomed to cash or barter transactions, and some companies even prefer such transactions precluding involvement by financial institutions, for reasons of reducing extra expenses and avoiding taxes.
Among modes of trade, border trade is reflective of characteristics of border areas. Chinese companies in the border areas favor conducting transactions with North Korea through such “border trade.” It is because there is more room to utilize unofficial methods in foreign exchange control, price settlement, and tax rebate through border trade than through general trade. Taking various unofficial trade practices into account, the scale of trade between North Korea and China is very likely to far exceed the figures recorded officially by Chinese customs.
North Korea is receiving payments in cash for processing imported materials commissioned by Chinese companies. Such cash brought into the North is easy to hide and there is high possibility that North Korean authorities divert such cash for their own operations. State institutions, trade companies, and financial institutions in North Korea often do not abide by rules stipulated in transactions with China regarding trade settlement. Though there are no official statistics regarding bank remittance for trade settlement, it is estimated that about 20 to 30 percent of trade settlement are conducted through bank remittance and the rest are settled through cash.
This study points out that though unofficial transactions carried out between North Korea and China are attributable to expanding economic cooperation between the two countries, there are illegal elements in such transactions which can undermine economic sanctions imposed by the international community.

2013
Policy References(in Korean)
Working Papers
Journal of East Asian Economic Integration
World Economy Update

2012
Policy Analyses
Policy Analyses(in Korean)
Conference Proceedings
ODA Regional Studies(in Korean)
ODA Policy Analyses(in Korean)
Studies in Comprehensive Regional Strategies(in Korean)
Trade and Investment Study Series(in Korean)
Policy References(in Korean/in English)
Working Papers
APEC Study Series
Journal of East Asian Economic Integration
World Economy Update

2011
Policy Analyses
Policy Analyses(in Korean)
Conference Proceedings
ODA Policy Analyses(in Korean)
ODA Policy Report(in Korean)
Studies in Comprehensive Regional Strategies(in Korean)
Regional Study Series(in Korean)
Trade and Investment Study Series(in Korean)
Policy References(in Korean/in English)
Working Papers
APEC Study Series
Journal of East Asian Economic Integration
World Economy Update

The Korea Institute for International Economic Policy (KIEP) was founded in 1990 as a government-funded economic research institute. It is a leading institute concerning the international economy and its relationship with Korea. KIEP advises the government on all major international economic policy issues and serves as a warehouse of information on Korea’s international economic policies. Further, KIEP carries out research by request from outside institutions and organizations on all areas of the Korean and international economies by request.

Executive Summary

I. Introduction

II. An Economic Model of International Production Networks
1. An Introduction to Our Approach
2. Basic Elements
3. Costs Related to Parts-production Location Choice
4. Costs Related to Assembly Location Choice

III. Analysis
1. Utilizing Production Cost Advantages
2. Lowering Offshoring Costs
3. Overcoming Disadvantage from the Agglomeration Effect
4. Aligning with Immediate Upstream and Downstream Locations

IV. Economic Interpretations on India’s Weak Involvement in East Asia IPNs
1. Matching Theoretical Variables with Actual Data
2. Costs Related to Assembly and Parts Production
3. Offshoring Costs: Trade Costs and Coordination Costs α
4. Agglomeration Effects
5. Others: Historical Relationship

V. Concluding Remarks

References

Appendix

This study provides a conceptual framework to explain what kinds of difficulties a late-follower will suffer from when it tries to join pre-existing International Production Networks (IPNs). We consider the total production cost minimization problem by a multinational company (MNC) in allocating locations of fragmented production processes across borders. From the clarification of IPN-related costs, we draw out what structural disadvantages late-follower countries have and provide several policy implications to overcome these disadvantages with more targeted efforts. Especially we put India’s case in the conceptual framework of the IPNs and then look at the hurdles that make India’s participation in the East Asian IPNs hard and sluggish. Relevant data are provided in order to support the theoretical explanations.

The preliminary announcement on 'Act on support for return of overseas Korean firms' was made in July 2012. This so-called 'U-turn Bill' created a legal platform for overseas Korean wishing to return to Korea. Meanwhile, Korean free trade agreements with the European Union and the United States have officially went into effect in June 2011 and March 2012. The two FTAs marked a turning point in the overall trade environment of Korea, which enabled Korean firms to benefit from tariff elimination, of up to 100%, on export goods to the EU and the U.S. markets.
In light of the above circumstances, this research was designed to review the present U-turn policy and make suggestions on policy priorities. Given the increases in corporate U-turns, it has become an issue that requires greater attention and focus. Therefore, the two main questions were posed regarding this research: "What are the types of business/industries that are appropriate for U-turns?" An effective answer to this question would no doubt great enhance policy efficiency. The second question is "What are the responses of neighboring countries regarding U-turns and what kind of policies did they adopt?" Up until now, comparative analysis of country policy trends has only been conducted in full scale and was thus general in nature. Instead, we reviewed various specific policy cases of the U.S., Japan and Taiwan, and derived policy implications for Korea. Research methods included literature research and field study, and during the research process, Korea-EU/Korea-U.S. FTA Concession categories and other related studies were closely analyzed. Field study was conducted in Shandong and Liaoning provinces in which the most recent U-turn cases occurred.
Our findings show that there exist specific business types and industries more suitable for U-turns. Especially, businesses of the 'FTA utilizing type' are very likely to consider U-turns in terms of reducing costs of production in the long run. These firms would likely include ones that import raw materials from Korea and export it to the EU or the U.S., that import raw material from the EU or the U.S. and export it to Korea, and that import raw material from the EU or the U.S. and re-export it to the same markets. We also found that such industries as leather/wood, shoes/textiles, accessaries/glass/jewelry, plastic, machine/ electronics, vehicle are favourable to maximizing the effect of tariff elimination.
The comparative analysis of country cases also revealed meaningful implications for Korean U-turn policy. Country analysis was carried out targeting the U.S., Japan and Taiwan. The U.S. is relatively late in terms the U-turn trend, so its policy does not seem as developed as Korea's. Still, it was found that the U.S. case can provides us with insights in solving domestic opposition against U-turn policies. Meanwhile, Japan is a first mover in terms of formulating U-turn policies. Japanese U-turn policies was implemented with the aim of boosting regional economy and creating jobs, which shows a high degree of similarity with Korea. But, the study found that Korean U-turn firms tend to be export-oriented while Japanese firms aim for the domestic market. Thus it is necessary for the Korean government to adopt policies considering Korean circumstances, and not blindly follow the Japanese precedent. Taiwan is rather unique among the four countries since its U-turn policy were politically-inspired. Taiwan promoted its U-turn policy in order to decrease growing economic dependence upon mainland China. The Taiwanese case gives us useful examples in terms of using ECFA(Economic Cooperation Framework Agreement), which played a significant role in accelerating Taiwanese firms' U-turn from mainland China; the implications from Taiwan are very significant in that Korean U-turn policy is also being promoted as a result of the conclusion of the two FTAs.
However, U-turns are not the only option for Korean firms considering relocation of their production bases to outside of China. There are other alternatives such as moving to the mid-central region of China or Southeast Asia where labor costs are much lower. So, it is inappropriate to regard U-turns as panaceas.
This study is an attempt to categorize China-based firms/industry types according to U-turn suitability. This is because Korean U-turn policy needs to be applied correctly depending on priority of those types which would enhance policy effectiveness.

 This paper examines land issues in China along with urban expansion. In China, private ownership of land is prohibited. Collectively-held lands in rural area can be requisitioned for the supply of urban construction sites. Once requisitioned, the land becomes a state possession which could be distributed to the developers or other users. Land for 60~99% of urban construction sites was obtained through requisition every year since 2003. Compensation standards for such requisitions are based usually on the value of crops, and the typical amount is ten times the value of the annual produce. This compensation level is usually unsatisfactory for farmers because the selling price of the land to developers often exceeds compensation expense by ten times or even more. Due to discontent related to land compensation, tens of thousands of collective protests have occurred annually in the last five years. Land-related protests account for half of all civil protests in China.
Among the five modes of land distribution-administrative allocation, sales of right of use, leasing, investment for SOEs and management in trust; the most typical one is sales, which means local government transfers the use right to the user for a lump sum fee. Related laws clarify the maximum period of the land use contract-70 years for residence, 50 years for manufacturing, 50 years for education and culture, 40 years for business and entertainment and so on.
There are several problems related tothis land supply system. First, land itself is limited. Chinese government declared 1,211 thousand㎢ of farmland for absolute protection. As of 2011, the total area of farmland is 1,217 thousand㎢ – very close to the limit. Considering that 2,000~4,000㎢ of farmlandis requisitioned every year, the limit will soon be reached. To avoid a potential catastrophe, the government makes efforts to transform develop equivalent area of wasteland into farmland but the danger of running up against the limit still remain unresolved. Exhaustion of land is reflected in the decline of land sales income for local governmentssince 2011. At the same time, the most developed cities such as Beijing, Shanghai and Tianjin show little in the way of income from land sales compared to other developing regions.
Around the urban area, there exist non-government, collectively-held lands (Chengzhongcun) and structures (Xiaochanquanfang) illegally built on them. According to estimates, the total area of the illegal structures during 1995~2010 reached 0.76 billion㎡, or as much as 8% of total urban residential construction. In Shenzhen, where rapid urbanization occurred, the area of Chengzhongcun reaches 42% of total construction land. Inhabitants in these structures do not have protection of property rights and are often exposed to merciless demolition.
Chinese government has arranged a land system to support efficient and rapid economic development. The measurements include commercializing residential houses, introducing a leasing system and operating a bidding system for manufacturing sites. More recently, property law has been made as to guarantee the automatic renewal of residential land use right after 70 years of the current contract. In addition, collectively-held rural land has been allowed to be circulated.
On the other hand, the Chinese government, which has managed reforms in a gradual manner until now, has initiated various changes (though not yet formalized). First, as of 2012, it is said that the Ministry of Land and Resources is preparing to legalize the development of collectively-held land by its residents. By doing so, their property rights could be protected and more efficient land supply for urban construction sites could be realized. Second, in ‘Comprehensive Reform Pilot Districts’ such as Binhai District in Tianjin, many reform measures such as provision of fully satisfactory compensation for requisition and alternative land supply are under experiment. Third, structures on illegally developed land would be legalized albeit region-by-region and case-by-case. Fourth, the abolition of the ceiling for compensation level is in the works. Fifth, for handling the expired land use rights, institutional devices such as introduction of re-sale price are under discussion.
However, by far the most important reform in land management system is the introduction of the property tax. The Chinese government introduced the tax in early 2011 in Shanghai and Chongqing. The current mode of operation suggests that the tax is only for suppressing speculation but the Ministry of Finance apparently has a larger objective in sight, i.e., substitution of income from land sales which is facing a potential decline due to exhaustion of land resources and increasing compensation for requisition. In addition, the property tax can generate the virtuous cycle of investment and income. All the more, it matches up with the principle of ‘pay as you gain.’
The theoretical model of this paper assumes that as more land development takes place, and decrease future land sales, it would be more profitable to introduce the property tax. For smootherintroduction of the tax, land sales income of each region should warrant being made a priority. In addition, tax rate should be high enough to substitute the existing land sales income and the tax system on the whole should be re-designed to avoid dual taxation. In spite of its urgency and necessity, local governments are reluctant to introduce the tax due to the short-term decline in land sales income.
Based on these analyses, future prospects can be deduced as follows. First, among the five modes of land distribution, the proportion represented by sales is too large to be replaced in the near future. Second, informal development of non-national land in Guangdong Province could be expanded throughout China. Third, land requisition would not be prevailing in the developed cities in coastal region but not in inland provinces. Fourth, for the next decade, property tax would be introduced in agradual manner. Fifth, land use right expiration might not become a central issue in the near future but the market will soon realize its potential implications and policies will be required in response.
For the Korean government and enterprises, we would like to propose as follows. First, as selling is the most typical mode of land distribution, it is suggested that they gain an understanding ofits features along with contract period and prices. Second, the firms should be prepared to use collectively-held lands. Third, as the level of land requisition level is undergoing readjustment, one should be cautious about land contracts whether the land is clear or not in this term. Fourth, as property tax is under expansion, one must understand its implication on ownership. Fifth, land depreciation system could be created in the future to respond to the expiration of land use contracts.

The Environmental industry is emerging as a new engine for sustainable growth. However, an international consensus on identifying the environmental goods has yet to be established. In September 2012, APEC Leaders reached an agreement to endorse a list consisting of 54 environmental goods and reduce applied tariffs on these goods to 5 percent or less by 2015. It represents a remarkable accomplishment following several years of efforts by APEC since the Early Voluntary Sectoral Liberalization (EVSL) in 1997. It is arguable that APEC’s voluntary and non-binding principle facilitated the consensus. This breakthrough will have positive repercussions and spillovers at the bilateral and multilateral level.

This study reviews what characteristics of discussions and activities in APEC brought about the accomplishment. It also examines Korea’s competitiveness with respect to APEC environmental goods. In terms of imported goods to Korea in 2012, the applied tariff rates range from 0 to 8 percent. As of 2012, only one HS sub-heading out of 54 accords with the commitment of reducing tariffs to 5 percent or less. Regarding major trade partners for Korea-China, Japan and the United States-. Korea has the competitiveness over China, whereas there is no competitiveness vis-a-vis Japan and the United States.

Based on the analysis, this paper draws policy implications on how to deal with further discussions and to strengthen competitiveness in preparation for market liberalization, not only in the APEC region but also around the world. It is suggested that a more in-depth analysis be made to present more concrete and specific strategies for Korea’s long-term competitiveness.