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East Asian Regional Financial Cooperation: Visions and Challenges
After the East Asian financial crisis in 1998, the need to strengthen financial cooperation, including liquidity support at the regional level, emerged. Accordingly, the Chiang Mai Initiative (CMI) was signed at the A..
Deok Ryong Yoon et al. Date 2020.12.30
Economic cooperation, Financial integrationDownloadContentSummaryAfter the East Asian financial crisis in 1998, the need to strengthen financial cooperation, including liquidity support at the regional level, emerged. Accordingly, the Chiang Mai Initiative (CMI) was signed at the ASEAN+3 Finance Ministers’ Meeting in 2000, and institutional efforts to strengthen regional financial cooperation have been continued for 20 years. The outcomes of this effort include the Chiang Mai Initiative Multilateralization (CMIM) and the Asian Bond Market Initiative (ABMI). However, it is difficult to find countries actively utilizing them. For example, even though the blockade caused by the spread of COVID-19 in 2020 led to a decline in economic activity and suffered instability in the foreign exchange market, none of the ASEAN+3 countries attempted to resolve market instability by using regional financial cooperation mechanisms. Under this circumstance, we try to find the reason for the poor use of CMIM. First of all, CMIM is linked to the International Monetary Fund, so it cannot be free from the sigma effect. The size of support is also small, as well as using the holding amount. Chapter 2 pointed out the lack of leadership and vision as the cause of the failure to improve even though there was the awareness of such institutional weakness in the region. Therefore, a plan to increase the effectiveness of CMIM was suggested as follows. First, we suggest establishing a “CMIM Fund” and the future vision of regional financial cooperation by introducing regional currency cooperation and regional settlement systems in connection with financial cooperation. Second, It will also helpful to bring Australia and New Zealand as new member states. This is to take advantage of the developed financial industries of those countries while coming out of the sluggish financial cooperation caused by political conflicts between the existing member states. ABMI, which has been performing the most within the ASEAN+3 framework, has taken the strategy of presenting a new roadmap every certain period of time, thereby facilitating the introduction of financial infrastructure and institutions in the ASEAN region as well as the development of the local currency denominated bond market. However, due to the gap in the level of economic development among member countries, there are limits such as the continuing difference in the degree of development of the bond market between ASEAN+3 countries and the still large regional infrastructure investment gap. Chapter 3 proposes a multilateral and bilateral approach to improving the financial settlement infrastructure and expansion of regions including Australia and New Zealand to address these problems. In Chapter 2, the participation of Australia and New Zealand to improve the governance structure of CMIM was considered. In terms of the local currency bond market, it is interesting to discuss with Australia. As of the second quarter of 2020, the size of the bond market in Australia is $2.19 trillion, similar to the size of the Korean bond market. The peculiar thing is that the share of financial institution bonds is 53.9%, which is considerably higher than that of the US, UK, and Japan. In addition, as the share of raw materials in Australia’s export composition is close to 60%, the Australian dollar shows a high positive correlation with raw material prices. In other words, unlike most advanced countries’ currencies, it has the property as a risky asset that reacts sensitively to fluctuations in commodity prices. This can be interpreted as, for example, that there are many cases of moving in the opposite direction to Japanese yen assets, and it can be seen that it helps to organize an optimal portfolio. Therefore, attempts to expand ABMI’s regional reach, including Australia and New Zealand, which are pursuing policy strengthening of cooperation with ASEAN will be meaningful. Chapter 4 looks at monetary cooperation between East Asian countries and explores the possibility of new cooperation through the use of Central Bank Digital Currency (CBDC) in this region in the future. The fundamental reason why East Asian monetary cooperation has not been successful is that it has set a low-realistic goal of stabilizing exchange rates in the region. Therefore, we would like to consider setting a more specific goal of “cooperation in issuance and common use of CBDC” and think about ways to achieve more visible results. Still, the cross-border payment and settlement process involves problems due to high costs, risks, and uncertainty in transactions. If CBDC is introduced and can be used for international payment and settlement, this problem can be solved in terms of improving the efficiency of payment settlement and promoting the internationalization of the local currency. However, in order to realize this, cooperation between central banks of regional countries is essential for the holding and using the CBDC. Cooperation through the CBDC may lead to a change in the international monetary order centered on the US dollar, and in the process of cooperation, international capital movements may be promoted, leading to further fluctuation of exchange rates. However, rather than reducing options due to excessive concern about this, we suggest that the time has come when efforts to realize the potential of cooperation through CBDC are needed. The effect of promoting the international use of Korean won could also be achieved. More specifically, it is possible to consider raising the “cooperation through CBDC” as a new agenda at the ASEAN+3 Finance Ministers and Central Bank Governors Meeting or Regional Comprehensive Economic Partnership (RCEP). In Chapter 5, we present new options that can be considered in order to escape the inactivity of financial cooperation in East Asia and cultivste the cooperation. In other words, from the perspective of change the existing cooperation structure centered on ASEAN+3 into a new one, it is transforming into regional development cooperation and expanding and moving its center country to Northeast Asia. The Northeast Asian region has great growth potential and enormous demand for investment, as it is called “the last major economic resort of the Asian continent”. However, since funds are insufficient to satisfy this, the establishment of a development financial institution in Northeast Asia is proposed as an additional method like Northeast Asia Development Bank, Northeast Asia Infrastructure Fund, and Northeast Asia Development Corporation. As a result of comparing and analyzing these three alternatives from various angles, the Northeast Asia Development Corporation seems to be the most suitable. The reason is that it does not require membership qualifications in international financial institutions when supporting funds first, allowing efficient allocation of funds. In addition, development-related banks in each country can avoid the form of international organizations, and local governments instead of central governments can participate, making it easy to establish. In addition, there are many other advantages, such as encouraging private participation and, from the standpoint of Korea, fostering the asset industry and enabling efficient use of long-term capital. However, in consideration of the fact that it cannot be free from political issues, some cautions are needed regarding the implementation system of the Northeast Asia Development corporation. First, rather than the government’s direct initiative, development banks, such as development banks and export-import banks, should lead the establishment, while encouraging the participation of private financial institutions in the region by emphasizing its commerciality to attract public-private cooperation. Second, it is not necessary to exclude China’s participation itself, but it is desirable to avoid letting China play a key role. This is because China’s pursuit of a one-on-one route and already high in its own fundraising capacity cannot rule out the possibility that this participation will be part of an external strategy rather than a regional development and cooperation level. Third, the Northeast Asian Development Corporation should also actively promote cooperation with existing multilateral development banks, such as Asian Development Bank (ADB) and European Bank for Reconstruction an Development (EBRD). Fourth, in order to focus on the aspect of financing necessary for the development of the Northeast Asian region, it can have a practical effect to establish the Northeast Asian region as the scope of activities of the Northeast Asian Development Corporation rather than encompassing all countries subject to economic cooperation with the New Northern Policy. In Chapter 6, we also propose a transition to the subject of financial cooperation, which is the transition from ASEAN countries to Central Asia, a relatively underdeveloped partner with high demand for development finance. These regional alternatives are Mongolia and Central Asia, which have been alienated from the target of financial cooperation so far in order to prepare Korea’s response strategy to Japan, led by the Asian Development Bank, and China, led by the Asian Infrastructure Investment Bank (AIIB). Cooperation is needed to encompass five countries (hereinafter, Mongolia and five Central Asian countries collectively referred to as Central Asia). Specifically, the “Korea-Central Asian Financial Cooperation and Training Center (tentative)” will be established as soon as possible for Central Asia to maintain the momentum of financial cooperation, and to expand the scope of cooperation to macro-financial fields including KRW settlement cooperation. This should be promoted in a direction that supports cooperation in the real sector, such as discovering new growth engines of the Korean economy in the long term, and finally, we need to build Korea-Europe-Central Asia’s trilateral financial cooperation system through cooperation with Europe, especially EBRD. As discussed above, this study proposes a new policy alternative to overcome the limitations of East Asian financial cooperation. Of course, more precise preparation is needed to implement these alternatives, and it is also acknowledged that the topics covered in this study are only a part of regional financial and monetary cooperation. However, in overcoming the limitations so far, it is hoped that it can be a contribution that provides at least a hint of thought, and it is expected to be more concrete in future studies. -
A Study on the Changes in China’s Industrial Policies and Industrial Structures in Manufacturing Sector after China’s Reform and Opening
As China's recent industrial advancement has changed the trade structure between Korea and China from a complementary relationship to a more competitive one, the need for research on Chinese industrial policy has incr..
Wonseok Choi et al. Date 2020.12.30
Industrial structure, Industrial policy ChinaDownloadContentSummaryAs China's recent industrial advancement has changed the trade structure between Korea and China from a complementary relationship to a more competitive one, the need for research on Chinese industrial policy has increased. This report aims to analyze and evaluate changes in major industrial policies and industrial structures following China's reform and opening, thus enabling better understanding of China's industrial policies and forecasting the direction of China's industrial policies during its 14th Five-Year Plan period. In particular, unlike previous studies, this report classified China's major manufacturing policies into four types after China's reform and opening, and proposed Korea-China industrial cooperation through policy analysis and comprehensive evaluation.Chapter 2 divides China’s industrial policies into four stages after the initiation of reform and opening-up, and described the trend of major industrial policies by period. The first stage is the market economy exploration stage (1978-1991), when industrial policies first began to be introduced in China, focusing on adjusting proportional relations such as imbalances between the agricultural and industrial sectors, and light and heavy industries. The second stage is the initial construction stage of the market economy (1992-2001), during this period, policies to foster key industries were implemented, direct intervention by the government in promoting industrial policies was reduced and the transition to guide-type intervention began. The third stage is the stage of full-scale and in-depth reform (2002-2012), when the government began to foster high-tech industries after declaring the path to “new industrialization” in November 2002. Since the global financial crisis of 2008, the government has also promoted strategic emerging industries as a new growth engine, while implementing 10 major industrial promotion and coordination policies in response to the issue of oversupply. From 2013 to the present, various strategies to strengthen manufacturing power, such as the China Manufacturing 2025 and Internet+ initiatives, are being pursued to further promote full-scale reform within the country. However, as competition for trade and technology hegemony between the U.S. and China intensified, new industrial policies were needed to cope with this, and the 14th Five-Year Plan presented the direction of industrial policies focused on securing core technologies through innovation.Chapter 3 summarizes and evaluates China's industrial development policy, industrial restructuring policy, industrial organization policy, industrial technology policy and the timing characteristics and direction of policy measures. The industrial development policy was carried out by selecting industries that did not meet market demand at each period to supply resources first, and to intensively foster industries that will lead the national economy now or in the future. In this process, the size of the industry grew and the industrial structure advanced, but indiscriminate overlapping investments in industries designated by the government resulted in oversupply or quantitative growth without yielding core technologies. To solve the problem of oversupply, the Chinese government implemented various industrial restructuring policies for each period.China's industrial restructuring policy changed from a uniform control of production and construction of various industries to an approach where specific targets were set for the liquidation of redundant businesses or management and support measures to make each local government and company more active in removing underdeveloped facilities. In addition, instead of determining targets based on size, comprehensive indicators such as technology and environmental pollution began to be considered as well. However, the concrete achievements of these policies still remain limited due to the sheer scale of long-term policies conducted and the protection of local governments.Through industrial organization policy the government engages market structures and market activities to maximize market performance. Implemented since the reform and opening of the market, the policy has focused on establishing a modern corporate system and the order of market competition. The recent rapid growth of the digital economy is expected to have a significant impact on China's industrial ecosystem and business activities, leading to the revision of the anti-trust law in 2020 for the first time in 11 years in response to the possibility of a small number of Internet (platform) conglomerates exploiting a monopoly in the market.Industrial technology policies are a series of policies enacted by the Chinese government to promote industrial development, enhance industrial technology innovation capabilities, and advance industrial technology. For about 40 years since the reform and opening of its market, China's industrial technology policy has evolved through the stages of simple technology introduction, to absorption and assimilation of these technologies, and then to autonomous innovation. Technology development is increasingly being led by the corporate sector, instead of directly planned and controlled by the government. Recently, policies to promote and support industrial-academic cooperation in China are expected to be implemented to drive the independent development of key technologies in response to U.S.-China technology conflicts.In the 1980s, China mainly used government intervention measures such as government investment, state-owned bank loans, tax revenues and plans, but after the reform to introduce a socialist market economy, direct intervention by the government has gradually been reduced and replaced with market-based means applied in the form of state guidance and economic or legal measures. The government is expected to focus more on identifying efficient industrial policies through means that utilize the market rather than direct means such as government subsidies, which run the risk of trade disputes.The major milestones of China's industrial policy can be summed up as its rise as the world's largest manufacturer, securing stability in industrial development through long-term policy implementation, upgrading industrial structure, and technological development. However, increasing problems with overlapping investments and oversupply, increasing dependence on state-owned companies and improving inefficiency, and international disputes over industrial policies are major policy tasks to be resolved.Chapter 4 analyzes changes in China's industry, trade, and Korea-China trade structure due to the effects of industrial policies after reforms and opening, as presented in Chapter 2 and 3. First, the core of China's industry has shifted from light industries to heavy industries in accordance with policies to upgrade the industrial structure. Second, due to policies to foster high-tech industries since the early 1990s, the proportion of high-tech industries has increased and the technology level of manufacturing has increased. Third, localization and domestic industrialization are proceeding in line with policies to foster domestic companies. According to these changes in China's industrial structure, Korea's exports to China have gradually advanced from labor-intensive to technology-intensive industries, while Korea's import and export dependence on China has increased. However, as Korea's coefficient of correlation between exports and investment to China is gradually increasing, the coefficient of inducement of imports and exports to China per unit of investment in China has continued to decline.Based on this analysis, the results of a panel regression analysis of Korea-China industrial data from 1997 to 2017 showed that Korea's exports to China increased as China's exports to the world increased. In addition, there was a trend in which Korea's exports to China increased since 1997, but this rise tapered off between 2012 and 2017, indicating that the synchronization of Korean and Chinese exports decreased. This result indicates that Korea has driven export growth to China in the past by supplying intermediate goods needed for China's heavy industry development policy and export-led growth method, but has failed to respond to changes in demand caused by the advances in China’s industrial structure and technological innovation policies centered on high-tech industries.Chapter 5 presented trade risks and Korea's strategies due to the impact of friction between the U.S. and China, and changes in the direction of China's industrial policy. First of all, we propose ways to cope with U.S.-China friction by diversifying export markets, analyzing changes in the Korea-China industrial cooperation environment, preparing industrial technology protection policy in Korea, diversifying global supply chains and participating in China’s value chain to target its domestic market.We also emphasize the need for research on industrial policies and the process of creating related industrial ecosystems as China's industrial policies gradually change from simple to comprehensive policies. In response to the expansion of China's industrial influence in state-of-the-art technology, there is a need to redefine long-term industrial policies in new industries. This was followed by a proposal of promising areas to focus cooperation efforts, identified by comparing China's industrial policies and related strategies in Korea.As our analysis indicates that Korea's supply capacity for China's new growth industry will become increasingly important in choosing opportunities and strategies for Korea-China economic cooperation, our study divides products in the areas of materials, parts, and equipment according to three classifications based on China's growth and Korea's trade competitiveness.Finally, efforts to maximize the performance of the Korea-China FTA in China's growth industry, urge China to comply with international rules and rules in promoting new industries, respond to China's independent standardization, and strengthen Korea-China cooperation in digital economy and environment. -
Japan’s 4th Industrial Revolution Efforts in Response to Social Challenges
This research aims to present policy implications to the Korean government and private companies by providing an in-depth analysis on how the Japanese government and companies deal with the country’s so-called “soci..
Gyupan Kim et al. Date 2020.12.30
ICT economy, Economic cooperation JapanDownloadContentSummary정책연구브리핑This research aims to present policy implications to the Korean government and private companies by providing an in-depth analysis on how the Japanese government and companies deal with the country’s so-called “social challenges” using the technologies of the 4th Industrial Revolution. In order to do this, this study chose 1) health, medical care and nursing, 2) manufacturing, logistics and mobility, and 3) regional revitalization as its fields of focus, and examined how the Japanese government and private companies utilize the 4th Industrial Revolution technologies—namely, Artificial Intelligence (AI), Internet of Things (IoT), Big Data, etc.—in addressing the country’s social issues.In chapter 2, “Japan’s ‘Social Challenges’ and the 4th Industrial Revolution,” this research analyzes the social cost of Japan’s low birthrate and aging population in terms of its fiscal sustainability, medical costs and regional imbalance. Then it looks into the Japanese government’s 4th Industrial Revolution policy and the digital transformation (DX) movement further stimulated by the spread of COVID-19.Chapter 3, “Health, Medical Care and Nursing Sector,” examines the Japanese government’s efforts to utilize health data including regulatory reforms and its “Data Health Reform” policy. It also introduces some model cases of corporate-level utilization of health and medical big data. It was noted that remote medical treatment is rapidly spreading in Japan, after the country temporarily eased restrictions on remote medical care in April, 2020, following a spike in the coronavirus cases.In chapter 4, “Manufacturing, Logistics and Mobility,” this research firstly analyzes the Japanese government’s efforts to connect different manufacturing companies’ digital platforms, and presents some case studies of Japanese manufacturing companies’ utilization of 4th Industrial Revolution technologies, such as AI, IoT, 5G, etc. Next, in the mobility sector, this research examines the Japanese government’s movements in the area of Mobility as a Service (MaaS), including its roadmap, pilot operations, policy supports and commercialization efforts. Finally, the Japanese government’s policy supports for DX in the logistics field were analyzed.Chapter 5, ”Regional Revitalization,” introduces Japan’s efforts at dealing with the growing regional imbalance by using the technologies stemming from the 4th Industrial Revolution. This chapter focuses on the three topics of creating a regional IoT Platform, implementing 5G networks and smart city construction as distinctive examples of Japanese (central and regional) governmental efforts at regional revitalization.Finally, chapter 6 suggests policy implications for the Korean government. First, for the health, medical care and nursing sector, this research presents three proposals for the government: institutional reforms and data standardization in healthcare, broader collection and utilization of nursing data, and engaging in an active discussion on how to expand telemedicine. In the manufacturing, mobility and logistics sector, this research suggests supply chain optimization across the entire chain, as opposed to merely implementing smart technologies in a manufacturing plant, and introduction of MaaS and DX in the mobility and logistics fields. Regarding regional revitalization, this research draws policy implications from Japan’s regulatory reforms, which helped shift the focus of its regional DX policy from “technology” to “problem- solving,” and from a supply (provider)–driven approach to a demand-driven approach. -
A Study on Credit Supply, Economic Growth and Financial Crisis
This study investigates the impacts of credit supply on economic growth and financial crisis. While credit supply helps boost economic growth through resource reallocation, excess credit supply can make the economy an..
Hyosang Kim et al. Date 2020.12.30
Financial crisis, Financial policyDownloadContentSummary정책연구브리핑This study investigates the impacts of credit supply on economic growth and financial crisis. While credit supply helps boost economic growth through resource reallocation, excess credit supply can make the economy and financial market more vulnerable. In the event of a negative shock to the financial or real sector in a situation where credit is excessively supplied, asset prices sharply fall as the deleveraging proceeds. Moreover, economic activity can be sharply shrunk, thereby expanding the width and duration of the recession. The rapid credit crunch and stock price plunge that appeared in the early stages of the COVID-19 pandemic highlight the phenomenon in March 2020.Chapter 2 presents qualitative analysis and event studies to describe the relationship between credit supply, economic growth, and financial crisis. In the qualitative analysis, we visualize the long-term relationship by comparing the household, corporate, and government credit with macroeconomic variables in each country. In the cross-country comparison, the correlation of household credit and consumption is negative, while that of corporate credit and investment is positive, suggesting that the impact on economic growth is different for each type of credit. Moreover, to examine the relationship between private credit and GDP growth, we find that GDP generally grows faster in the group where private credit expands rapidly. This relationship, however, blurs in the highest-income group. In the event study, we consider the relationship between credit expansion and the financial crisis. We observe that private credit increased significantly before the banking crisis, including the global financial crisis. This phenomenon is particularly noticeable in advanced economies.Chapter 3 examines a dynamic relationship between private and government credit and various macro variables by estimating the panel VAR model. Household credit shocks tend to increase real GDP in the short-run, mainly by boosting consumption. However, in the long-run, real GDP tends to be decreased by appreciating the real exchange rate, increasing non-tradable goods production, and decreasing productivity and current accounts surplus. On the other hand, the corporate credit shock is opposite to the household credit shock. Its impacts on real GDP are relatively small, leading to the real exchange rate decreasing and the production of trade goods. The macro variable responses to the government credit shocks are clearly distinguished from private credit shocks, but overall significance remains statistically low.In Chapter 4, we analyze the effect of credit supply on the possibility of a financial crisis using the panel probit model. We find that the household credit expansion significantly increases the probability of a banking crisis, while it does not affect the probability of a currency crisis. On the other hand, corporate credit expansion increases the probability of all types of crises. Government credit expansion tends to increase the probability of a government debt crisis. However, it is statistically insignificant for the period before the other type of crisis, suggesting that the rapid government credit expansion in response to a financial crisis rather than the level of government credit increases the likelihood of a government debt crisis. Moreover, government credit expansion has the effect of lowering the probability of a banking crisis and a currency crisis, supporting the counter-cyclicality of government credit.In 2020, in the responses to the economic shock of the COVID-19 pandemic, the level of both private and government credits are sharply increased due to the massive fiscal stimulus programs and expansionary monetary policy. The impacts of household, business, and government credit on the macroeconomics can differ, so policymakers should pay attention to the level of total credit and the change in the composition of credit. In particular, it should be aware that the economic stimulus through short-term boosting of aggregate demand can lead to a deeper downturn by deteriorating in long-run productivity. -
Determinants of Foreign Security Investment: Focusing on Interest Rates and Exchange Rates
As the linkage between domestic and foreign financial markets grows stronger, concerns have been raised about the inflow and outflow of foreign investment capital as a source of financial instability whenever the fina..
Deok Ryong Yoon et al. Date 2020.12.30
Financial policy, Exchange rateDownloadContentSummary정책연구브리핑As the linkage between domestic and foreign financial markets grows stronger, concerns have been raised about the inflow and outflow of foreign investment capital as a source of financial instability whenever the financial market becomes unstable. This is because, as the volume of capital inflows and outflows increases and volatility rises in the market, the financial system becomes more vulnerable and financial market price variables and macroeconomic uncertainty are increasing. Considering that opening the capital market is not an option, it becomes essential to examine the determinants of foreign investment to maximize the benefits of foreign capital inflows and outflows for sound growth in the real sector as well as the financial sector. Accordingly, this study attempts to produce evidence-based policy implications by empirically analyzing the determinants of the inflow and outflow of foreign investment funds.Chapter 2 examines the trends of foreign investment-related systems and capital flows. Regulations in the system for foreign securities investment began to ease after the late 1990s, increasing the volume of foreign funds flowing into the stock and bond markets (Table 1). In particular, it has been observed that index funds have increased due to a decrease in active investment and increase in passive investment in the stock market. Also, the turnover rate of foreign stock investment is rising. In the bond market, foreign investment is continuously increasing, and due to the increase in duration and diversification of investors, changes are being detected both in quantitative and qualitative terms. From this, three policy implications can be drawn. First, the increase in passive funds in equity investment implies that the importance of risk management for financial market stability increases. Second, since the movement of bond funds is often determined by the volatility of the exchange rate, management of volatility in the foreign exchange market may be an important condition for the stable maintenance of foreign bond investment. Third, it is necessary to improve the investment environment to increase the inflow of foreign investment funds into the Korean financial market and maintain a long-term growth trend. To this end, it is necessary to consider enhancing the stability of the foreign exchange market by strengthening the global financial safety net and strengthening the transparency of foreign investment-related systems.Chapter 3 analyzes the determinants of foreign investors’ stock investment, and the main results and implications derived from them are as follows. First, when foreigners invest in domestic stocks, they consider the foreign interest rate (push factor) as a more important decision-making factor than the domestic interest rate (pull factor). This suggests that Korea’s monetary policy may have a limited impact on the inflow and outflow of foreign investment funds. Second, foreigners’ selling and buying of stocks were affected by different rates of return. When purchases and sales of stocks were at low levels, the Dow Jones yields was an important factor in buying stocks, but the KOSPI return was an important factor in selling stocks. Third, depending on the policy target and the market phase, different policy measures should be selected. For example, there was a difference between a model well-suited to explain the net buying of stocks and another to explain the buying and selling of stocks. Net buying of stocks was best explained by global liquidity, while buying and selling of stocks were better explained by risk indicators. In addition, since the effective determinants differ between the two phases and the sign (direction) of the effect on the variables is different, this implies that the policy authorities can achieve the intended policy objectives by considering different policy measures according to the phases. Fourth, when the outflow of foreign stock investment is high, volatility is high as well. In general, the ripple effect caused by the outflow of foreign funds occurs in the short term, and given that policy responses are difficult, it poses a huge policy challenge for policy authorities. Foreign capital outflows are highly volatile, and the effects of foreign capital outflows can occur in the very short term and disrupt the financial market, as experienced in the Asian foreign exchange crisis and global financial crisis.Chapter 4 analyzes the determinants of foreign investors’ bond investment, and four main points can be derived from this. First, foreign bond investment is sensitive to interest rates and exchange rates. Interest rate was a significant determinant not only for the total amount of net purchase, but also for each maturity and phase. The effects of interest rates on long-term bonds were particularly significant in the case of bond purchases. As the proportion of long-term bond investment is likely to increase gradually in the future, it is necessary to understand the impact of interest rate variables on bond purchases. Won-euro and won-dollar exchange rates had a significant effect on both short- and long-term bonds when the level of foreign investment was high. Therefore, when the size of foreign investment is large, attention should be paid to the effect of exchange rates on foreign investment. Second, foreign stock investment and bond investment are related to each other. Therefore, when implementing a policy related to foreign investment, it is necessary to clarify the object of the policy implementation. In addition, bond investment within three years of maturity and net purchase of stocks mainly had a complementary relationship. This points to the need to also closely observe foreigners’ investment trends in the stock market when analyzing foreign investment trends in the bond market. Third, for foreign bond investment, variables related to developed markets are more significant than those related to emerging markets. Therefore, in order to predict foreign bond investment trends, it is necessary to closely examine the situation in the stock markets of developed countries. Fourth, macroeconomic variables have a significant impact on foreigners’ bond investment, and are particularly important determinants when foreigners invest in long-term bonds. Therefore, it is important to increase the stability of macroeconomic variables in order to maintain stable levels in foreign bond investment in the future.Chapter 5 proposes three policy implications based on the current status of foreign stock investment and empirical results. First, it was proposed to consider the qualitative aspects of expanded foreign securities investment funds to develop the financial market and mitigate volatility in securities prices and foreign exchange markets. Next, it is necessary to reinforce monitoring of securities investment in order to accurately grasp the policy environment and design policies accordingly. Lastly, there is a need to improve the governance structure for external soundness to enable integrated management and supervision of the foreign stock and bond markets and foreign exchange markets that are linked to each other although they are different markets. -
Digitalization in Asia-Pacific Region and Policy Implications for Korea
This study examines the progress of digitalization in the Asia- Pacific region, compares and analyzes the digital transformation policies of major economies in the region using text mining techniques, and demonstrates..
Yungshin Jang et al. Date 2020.12.30
APEC, ICT economy Southeast Asia OceanDownloadContentSummary정책연구브리핑This study examines the progress of digitalization in the Asia- Pacific region, compares and analyzes the digital transformation policies of major economies in the region using text mining techniques, and demonstrates the effect of the digital gap on economic performance by dividing the regional economic development stage by individual country. Also, an empirical analysis was performed on how the difference in access to digital technology and intensity of use has an impact not only on the overall economic performance of a country but also labor market performance through the mechanism of individual human capital accumulation. The analysis results suggest APEC and its member economies focus their capabilities on digital inclusion policies. And the results propose a direction for strengthening APEC’s function as an international cooperation platform for digital inclusion in the region, and a cooperation plan for strengthening digital cooperation in Korea.Chapter 2 compares the progress of digitalization in each stage of economic development in the Asia-Pacific region and the digital competitiveness of significant economies in the region, and examines the status of digital economy cooperation in APEC fora. The digital gap between high- and low-income member economies of APEC is examined using ICT indicators published by the International Telecommunication Union (ITU). According to the results of our comparative analysis of digital competitiveness in 10 major developing economies in the region, using the IMD World Digital Competitiveness Ranking, etc., there was a digital gap by income group within APEC in terms of the quality of ICT infrastructure utilization and companies’ ICT utilization. But, fortunately, the gap appears to be shrinking in terms of ICT accessibility. After adopting the APEC Action Agenda for the Digital Economy and APEC Internet and Digital Economy Roadmap for the first time in APEC’s core agenda in 2017, the number of digital economy-related cooperation projects within the APEC fora has steadily increased.In Chapter 3 text mining techniques are used to compare and analyze critical areas of digital transformation policy pursued by major developing economies such as Malaysia and Vietnam and leading APEC members in the digital sector such as Korea and the United States, China, and Japan. While certain differences exist, digitally leading countries tend to focus on basic and applied research, talent attraction, and development. In contrast, digitally developing economies focus on public sector reform and infrastructure creation. The results also confirm that both digitally developed and developing economies’ groups have focused on using digital transformation as a tool for economic growth rather than improving digital inclusion and international cooperation. Also, these policies have been implemented within each country rather than as a form of international cooperation.Chapter 4 analyzes the impact of progress on digitalization in the Asia-Pacific region on economic growth and income inequalities. For this, we measure the degree of digitalization at the country level by ICT accessibility (e.g., the sum of fixed telephone subscriptions per 100 people and mobile cellular subscriptions per 100 people) and ICT use intensity (e.g., the ratio of fixed broadband subscriptions to individuals using the internet). We first study the relation between digitalization and economic growth using country-level panel data. We construct two samples for comparison: one the total sample, which consists of 114 economies globally, and the other the APEC sample, which consists of 17 out of the 21 APEC member economies for which data was available. According to the estimation results, economies with larger ICT accessibility have higher economic growth rates for both samples. We also find that ICT use intensity increases economic growth rates for both samples. We also study the relation between digitalization and income inequality using country-level panel data. We construct two samples for comparison: one the total sample, which consists of 134 economies globally, and the other the APEC sample, which consists of 18 out of 21 APEC member economies for which data was available. According to the estimation results, ICT accessibility tends to reduce Gini coefficients for both samples. Regarding the effects of ICT use intensity, the results are reversed: ICT use intensity tends to raise the Gini coefficient for both samples. But the estimates are not statistically significant for the APEC sample. We further study if the effects of digitalization on income inequalities are different across income levels. For high-income economies, ICT accessibility and ICT use intensity negatively affect income inequalities, while for low-income economies, ICT accessibility tends to improve income inequalities.In Chapter 5, we study how digitalization affects labor market outcomes using individual workers’ survey data. In particular, we investigate how individual workers’ digitalization affects the probability of being employed and wages. For this, we produce the survey data of individual workers in Korea and Vietnam. We select Korea, which belongs to the high-income group in the APEC economies and Vietnam, which belongs to the low-income group. We measure the level of individual workers’ digitalization classifying individual workers’ ICT accessibility, ICT use intensity, and interaction between ICT use intensity and human capital. According to the estimation results, workers who use ICT more intensively are more likely to be employed and to receive higher wages for both Korea and Vietnam samples. However, the statistical relationships are weak in the Vietnam sample. The different results between Korea and Vietnam samples may be because there are more ICT skill-related jobs in Korea than in Vietnam. Here, workers’ ICT use intensity is measured by the ratio of working hours spent using the internet (or computer or mobile phone) to total working hours. We also measure ICT use intensity qualitatively by constructing an index based on information about workers’ various ICT-related activities such as obtaining data and information via the internet, looking for and applying for a job via the internet, internet banking experience, etc. We find that workers with higher ICT use quality index are more likely to be employed and have higher wages for the Vietnam sample. These results imply that the variables that measure ICT use intensity qualitatively capture better the labor market impacts rather than quantitative approaches. Regarding the effects of ICT accessibility, we find that the results are different between the two samples. For the Korean sample, ICT accessibility does not much affect labor market outcomes, while ICT accessibility improves the probability of being employed for the Vietnam sample. This result is mainly due to the difference in ICT accessibility between Korea and Vietnam: Almost all workers in the Korea sample can access ICT-related devices such as mobile phones and computers and the internet.The analyzed results above indicate that APEC and its member economies should focus their policy capabilities on digital inclusion to minimize the side effects of the national and individual digital divide which can appear as digitalization progresses. Chapter 6 presents three criteria to be considered when APEC sets the direction to strengthen its function as an international cooperation platform for digital inclusion in the region. First, considering convergence is a prevalent feature of the digital economy, the collaboration within APEC fora should be emphasized in digital inclusion cooperation across various subjects and areas. Second, in consideration of APEC’s economic status as the world's most extensive regional cooperation body, cooperation among the APEC economies should be emphasized so that the different interests of the economies in various economic development stages on digitalization and digital inclusion can be synchronized and balanced. Third, considering APEC has consistently emphasized public-private cooperation, unlike other international organizations and regional councils, the triangular cooperation channel between government, private enterprises, and experts within APEC should be effectively utilized on digital inclusion.Under these three principles, in strengthening the APEC’s function as a platform for digital inclusion, we present five cooperation initiatives for Korea, as a leading economy in the digital sector, to establish itself early on in the agenda for digital inclusion within APEC and become a rule-setter in the area. First, we propose that APEC build a collaborative culture among APEC fora by improving project evaluation criteria. Considering the issues have cross-cutting and convergence features, this improvement could induce APEC to address more digital inclusion issues and endorse more joint projects on digital inclusion. Second, Korea could propose a project on discovering effective digital inclusion policies within APEC economies and sharing their success stories. For example, based on its experiences with the Digital New Deal policy, Korea could play a leading role in proposing research projects on holding workshops or publishing books about best policies and practices regarding digital inclusion. Third, Korea can position itself as an early mover in digital inclusion agenda in the healthcare sector by proposing or cooperating with other APEC economies on digital healthcare projects, considering the importance of digital healthcare in the post-pandemic world. For example, building and improving on the “K-Quarantine” online platform in cooperation with other economies interested in the platform could be a promising approach. It would be possible for Korea to beneficially share its strong experience and rich data in combating COVID-19 with other APEC members through the online platform. Fourth, we also suggest that Korea should play a leading role in devising and improving digitalization measurement indexes and indicators, taking into account the stages of economic development and conditions in the APEC region. These could contribute to strengthening research on digital inclusion within the APEC regions by providing essential data to study digital inclusion, such as measuring the impacts of digitalization or digital divide on economic growth or inequality. Fifth, we propose establishing an digitalization integrated data information system for the APEC region to collect and manage data showing the status of digitization of APEC member economies in the long term. To make it possible, as an ICT leader, Korea should play an active role in the process of designing and constructing the system. -
China’s FDI in Europe and Europe’s Policy Response
China’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands..
Pyoung Seob Yang et al. Date 2020.12.30
Economic relations, Overseas direct investment China EuropeDownloadContentSummaryChina’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands for analysis on its negative effects on the EU companies and industries. The largest economy in the world, with an advanced capital market and technology, the EU has been China’s most important economic partner in the course of the latter’s rapid growth. In this context, the present study aims to analyze main characteristics of Chinese investment and M&A in Europe, major policy issues between the two sides, the EU’s policy responses, and prospects of Chinese future investment in Europe, going on to draw important lessons for Korea.This study differentiates itself from prior research in that implications are produced for Korea by analyzing main characteristics of the EU’s M&A market and China’s investment. This study further distinguishes itself through its use of primary data to capture indirect Chinese M&As via third countries (e.g. Hong Kong) or Chinese subsidiaries already established in Europe. Until now, existing studies were only able to analyze direct M&As from mainland China due to limitations of available data. Thanks to the new approach, the study presents a more complete picture of Chinese M&A in Europe and captures distinctive features of the two types of M&A.The present study focuses on three key issues, as follows: first, the overall status of China’s investment in Europe and the characteristics of M&A in Europe were examined; second, major investment issues and policy responses in China and the EU were reviewed; and lastly, China’s investment decision-making factors in Europe were analyzed and compared with those of Korea, leading to implications for Korea.With regard to the second issue, the study compared policy responses of the EU to the US vis-à-vis Chinese investment. First, the study analyzed China’s investment strategies in the US and the EU respectively. Especially, the study focused on China’s recent investment moves in Eastern Europe, predicting the possibility of future strategic changes. In order to link these analyses to implications for the Korean government and businesses, quantitative analysis techniques such as factor analysis of investment decisions were used to show determinants of Chinese investment compared against that by Korea.To summarize the main characteristics of China’s investment in Europe, the study found that the EU’s share of China’s overseas direct investment has continued to increase until recently. Second, investment in the Central and Eastern European Countries (CEECs) is gradually increasing, although it is still insignificant compared to the top five destinations in the EU: Netherlands, Sweden, Germany, Luxembourg and France. Third, China’s investment in the EU is being made in pursuit of innovation in manufacturing and to acquire high-tech technologies.Using data from Thomson Reuters information system as primary source, the study collected and analyzed 1,172 M&A cases conducted by China in the EU between 2000 and 2019. The main characteristics identified are as follow. First, the number of China’s M&As in the EU decreased to 113 in 2019 from a maximum of 206 in 2016, showing fluctuation largely in line with China’s overall trend of overseas investment. Second, when compared to overall M&As made in the EU, the proportion of indirect China’s M&As was relatively higher than direct ones. Third, the study found that Chinese investment mainly targeted Western European companies. Investment in Germany, France, and the United Kingdom represents 49.5 percent in terms of number of cases and 74.3 percent in terms of amount invested. Fourth, in the case of CEECs, investment has been in full swing since 2010. Targeted sectors are mainly transportation infrastructure and construction materials such as ports and airports, which seem to be related to China’s Belt and Road Initiative (BRI).As there are many companies in the CEECs that are competitive in the high-tech and strategic technology sectors, there is a good possibility that Chinese companies will increase M&A investments in this region, bypassing investment regulations of major Western European countries. Although it is too early to fully confirm this, the study underlines some indirect evidences. First, China’s M&A investment in the CEECs is largely concentrated in the Czech Republic, which is the most advanced in terms of technology. Second, the CEECs are less wary of China’s M&A investment than major Western European countries, and are generally more welcoming to China’s investment.Empirical factor analysis of investment shows that China’s investment in the EU is strongly motivated by the pursuit of strategic assets. Other factors such as institutional-level and regulatory variables are found to have no significant impact, or have an effect contrary to expectations. This suggests that China’s investment in the EU is based on the Chinese government’s growth strategy, and accompanies an element of national capitalism. China’s investment is also found to be sensitive to the degree of taxation and openness in investment, which can be attributed to state-run companies leading this investment. When compared to China, Korea’s investment is largely concentrated in the CEECs and more prone to make greenfield investments in the manufacturing sector. The factor analysis also shows that Korea’s investment strategy is more about integrating with Europe’s value chain than acquiring core technologies.It is highly expected that the COVID-19 pandemic will have a reorganizing effect on the global value chain (GVC). Greater fluctuation is expected in major advanced economies, including Europe, as they are strengthening control on foreign investment. To begin with, a post-COVID Europe is expected to gradually increase the proportion of its regional value chain (RVC) within the GVC. Moreover, changes will be centered on smart manufacturing in the era of the fourth industrial revolution. These economies are also expected to further diversify their supply chains in order to hedge against other risks on the global level.Foreign investment regulation in the high-tech sector motivated by national security is emerging as a global issue as the US and the EU are tightening their control. As Korean companies are not free from the risk of falling under such regulations, a thorough and careful response is required. Given that such regulations principally target China, and Korea is known as a traditional ally of the US and the EU, there is not much concern that they will be placed on the list of main regulatory targets. However, it should be noted that major countries have set the high-tech sector as future strategic industries and are highly sensitive to cases of technology leakage and issues of national security.For the Korean government, it is necessary to prepare legal and institutional measures regulating foreign investment in reference to the US and the EU. In this regard, the recent revision of the “Act on Prevention of Divulgence and Protection of Industrial Technology” (promulgated on August 20, 2019 and implemented on February 21, 2020) strengthened the basis and effectiveness of foreign M&A regulations. Cases of regulating foreign investment in the name of national security are becoming an important trade issue, particularly in the US and EU, and conflicts are expected to continue. In particular, the scope of national security review is expanding. Korea also needs to respond more actively to these new trade issues. To this end, it is necessary to clearly establish the concept of national security and standards for application in reference to relevant legislation changes in economies such as the US and EU, and to prepare more specific definitions of national core technologies, and their scope and deliberation procedures, to enhance the enforcement capability of the revised law. -
Korea’s Macroprudential Policies for Cross-border Capital Flows: Accomplishments and Road to Improvement
Major advanced economies have taken policy measures to strengthen the resilience of the financial system since the 2008 global financial crisis. On that basis, the G20 Coherent Conclusions for the Management of Capita..
Sungbae An et al. Date 2020.12.30
Monetary policy, Exchange rateDownloadContentSummary정책연구브리핑Major advanced economies have taken policy measures to strengthen the resilience of the financial system since the 2008 global financial crisis. On that basis, the G20 Coherent Conclusions for the Management of Capital Flows Drawing on Country Experiences was established in 2011, followed by discussions among policy circles including the OECD and IMF. Emerging economies have also taken various policy measures to manage systemic risks associated with cross-border capital flows. In 2010, the Korean government and central bank announced foreign exchange-related macroprudential measures (MPMs) aimed at building resilience against external financial shocks. These measures have greatly contributed to limiting systemic risk by curbing excessive capital inflows. Twelve years have passed since the global financial crisis started, and ten years after the introduction of FX-related macroprudential policy measures in Korea. It is now an opportune time to check the performance and effectiveness of these policies. Given the newly heightened risky environment, it is urgent to discuss how to improve macroprudential measures in response to emerging external risks.Chapter 2 reviews trends in macroprudential policies from a global perspective, and approaches by several international organizations to cross-border capital flow management measures. The IMF and OECD take different approaches to capital flow management measures to mitigate volatility in capital flows in emerging counties. Such conflicting signals from the OECD and IMF regarding those macroprudential measures make it difficult for emerging counties to implement tools relevant for themselves. Cooperation between the IMF and OECD is essential to enhance the consistency between the IMF’s institutional view and OECD approaches for the management of capital flows.Chapter 3 analyzes the determinants of macroprudential policy measures in the external sectors and examines the empirical effects of these measures. As determinants of capital flows, pull factors (private credit, foreign exchange reserves, and economic size) as well as push factors (the VIX index) were significantly associated with cross-border capital flows. An analysis reveals that reinforcement of capital inflow regulations and deregulation of capital outflows were significantly related with a depreciation of domestic currency. We also find that the strengthening regulations on capital inflows had a large effect on scaling down capital inflows, and deregulation on capital outflows also lowered the accumulation of net capital inflows. Further analysis also reveals that deregulation of capital outflows is significantly associated with lower volatility of portfolio investment.In Chapter 4, we check the performance and effectiveness of FX-related macroprudential measures in Korea. In 2010, Korea’s authorities introduced three-pronged macroprudential policies ‒ a regulation on the ratio of FX derivatives position, an FX stability levy, and a tax on bond investment by foreigners ‒ in order to mitigate volatility from capital flows. These measures are considered to have contributed greatly to easing vulnerabilities in the FX sector through curtailment of external debt in the banking sector and improvements in maturity structures. In particular, the short-term portion out of total external debt in foreign bank branches has declined greatly. In March 2020, the authorities relaxed FX macroprudential regulations in a flexible manner to cope with external shocks triggered by the Covid-19 pandemic.In Chapter 5, we make an effort to identify new types of risks unanticipated by policy authorities and to recognize thin markets usually ignored due to their relatively small business sizes. The Covid-19 pandemic led to globally tighter US dollar funding conditions as the US dollar money market became severely strained. Under these circumstances, it also tightened the local financial conditions in Korea, which remain heavily exposed to US dollar funding risks.Finally, based on the analysis outcome, we suggest the following policy implications. Korea’s FX-related macroprudential policies greatly contributed to stabilizing systemic risk by curbing excessive capital inflows to Korea since its 2010 introduction of macroprudential measures. However, it is necessary to note that financial stability is threatened by potential risks not comparable with risks in the past. In particular, the global financial market is now grappling with difficulties in funding the US dollar. This indicates that the Korean authorities should strengthen monitoring of changing trends in the international financial market, while prioritizing to secure enough US dollar liquidity during a crisis. As a result, it is critical to sustain a resilient framework for curbing excessive capital inflow, but to respond with caution to the trend of decreasing capital inflow. In this regard the current macroprudential system in the external sector – introduced to mainly curb excessive capital inflow – should be overhauled. -
The Study on Transport Strategy for the Small-and Medium-sized ASEAN Cities
With a population of 640 million, ASEAN is a young and dynamic growth region including the rapidly increasing middle class, as the major consumer group. This trend is also prominent in the small- and medium-sized ASEA..
Hun Ki Lee et al. Date 2020.12.30
Southeast Asia Ocean India and South AsiaDownloadContentSummaryWith a population of 640 million, ASEAN is a young and dynamic growth region including the rapidly increasing middle class, as the major consumer group. This trend is also prominent in the small- and medium-sized ASEAN cities. However, the small- and medium-sized ASEAN cities experience traffic congestion due to an imbalance between an increasing transport demand and insufficient supply of transport infrastructure. The traffic congestion problem in the small and medium-sized ASEAN cities have been gradually indicated to noticeable issue, and the demand for transport infrastructure development has been shown with increasing trend.Multilateral and bilateral aids have tended to be concentrated on the spatial scope of whole country and/or metropolis. Despite the relatively small aid scale, the Republic of Korea has followed the general trend and Korea has limitations on aid effectiveness and aid leadership. Accordingly, if public and private sectors in Korea reflect preemtive response to development demand of the small- and medium-sized ASEAN cities utilizing establishment experience of transport infrastructure and ICT know-how, not only the aid effect of the Korean government but also the effect of supporting Korean companies' overseas expansion will be maximized.This study aims to categorize the city types in consideration of the social, economic, and transport status of the small- and medium-sized ASEAN cities, to illustrate case studies of major city types, and to propose the directions for establishing transport strategies by city types for supporting Korean companies' overseas expansion. The Chapter 2 illustrates the population, economic scale, transport, energy, information and communication infrastructure, and PPP policies of ASEAN member countries. The Chapter 3 categorizes the small- and medium-sized ASEAN cities and reviews the project implementation methods and transport characteristics by each city type. The Chapter 4 includes selection of representative cities of major city types and review of their socio-economic and transport status, pending tasks, and development issues. The Chapter 5 derives transport problems of the small- and medium-sized ASEAN cities, and propose major transport projects and implementation strategies including a stepwised plan, package-type plan, and various financing plans. Moreover, selective transport projects by city types are described in consideration of urgency and feasibility of transport projects.This study derived from the awareness of the current issue that interest and support for the small- and medium-sized ASEAN cities are insufficient even though their importance is being emphasized, This study highlighs the importance of small- and medium-sized ASEAN cities, suggests directions for establishing transport strategies for each type. It is expected that the study outcome will contribute to conduct the effective and successful transport projects in the small- and medium-sized ASEAN cities. -
Changes in China’s Regional Economic Structure and Strategies to Enter the Domestic Market after the Global Financial Crisis
The growth of the Chinese domestic market, in terms of final domestic demand, is an important factor influencing Korea's economic growth. With the progress of so-called “servicification” in the Chinese economy, the ..
Jihyun Jung et al. Date 2020.12.30
Economic cooperation ChinaDownloadContentSummary정책연구브리핑The growth of the Chinese domestic market, in terms of final domestic demand, is an important factor influencing Korea's economic growth. With the progress of so-called “servicification” in the Chinese economy, the influence of Chinese domestic growth on Korean economic growth has decreased to some extent, but the Chinese domestic market still remains important to Korea.On the other hand, as the conflict between the United States and China intensifies in various fields, it has become difficult for Korea to openly publicize strategic economic cooperation or cooperation projects with China as before, as it must balance its traditional focus on the US from a security standpoint and on China in economic aspects. In particular, the Biden administration will further systematize anti-China solidarity centered on allies, and in response to this, China's willingness to cooperate with neighboring countries is expected to grow. In the meantime, there is a concern that the scope of Korea's operations in the area of foreign cooperation will further narrow.In this situation, Korea needs to promote economic cooperation with China, centered on regional cooperation, that can minimize the impact of unstable global governance. This is because it will be possible to promote cooperation at each regional level even in the midst of the US-China conflict, and this form of cooperation is much more flexible and practically accessible than cooperation between countries. Companies and associations in the US and Japan are maintaining and expanding cooperation with local governments, including participation in Chinese local government projects, even in the face of poor relations between their countries and China.Deciding that the conflict with the US would be prolonged regardless of the results of the US presidential election, in October 2020 China proposed the strategy of “Dual Circulation” as a key economic policy direction up to 2035. This is a mid- to long-term strategy to increase economic independence by expanding the industrial and supply chains in the region and improving the efficiency of economic cycles in the face of increasing external uncertainty. As China is emphasizing the elimination of inefficiencies in domestic demand during the period of the 14th Five-Year Plan (FYP), when the Dual Circulation strategy will be implemented in earnest, China's regional economic and industrial cooperation is expected to become more active than before. Accordingly, participation in the domestic market through expanding economic cooperation with the Chinese region will become more important.As such, although the development of China's domestic market is expected to intensify and our demand for cooperation in the regional domestic market is expected to further expand, most of the existing studies on the Chinese domestic market mainly analyze the consumption and import markets. Recognizing this gap, this study expanded the scope of analysis of the domestic market in China to the entire domestic final demand, and analyzed inter-regional trade relations and other economic relations based on the Inter-Regional Input Output analysis.This study analyzed the domestic market in China from various angles. First, an in-depth analysis of China's long-term domestic demand expansion policy was conducted, and changes in the regional structure of the domestic market were analyzed through the Inter-Regional Input Output analysis, which has rarely been attempted in analyses of the Chinese domestic market. In addition, the changes in the regional structure of the Chinese import market and Korea's competitiveness were analyzed using Chinese trade statistics. In particular, by synthesizing the changes after the global financial crisis, a turning point in China's economic structure, we project future changes in the regional structure of China, which emphasizes independence in the domestic economy. In addition, in the era of US-China conflict, the study aimed to select regional markets meaningful to Korea, and to present strategic directions toward China focusing on regional cooperation and approaches into the domestic market.Chapter 2 analyzes the changes in China's economic structure after the global financial crisis in terms of industrial structure, trade structure, and competition structure in the Chinese import market.Chapter 3 analyzes changes in China's strategy to expand domestic demand by period and region, and reviews the directions of the 14th FYP and mid- to long-term strategies in the area of domestic market policy. China has maintained rapid growth by participating in global value chains based on its low factor costs and export-led strategy after reform and opening, as a result of which its trade dependence climbed to 60% in the mid-2000s. However, following the 2008 global financial crisis the Chinese economy reinforced strategies to expand domestic demand. Immediately after the global financial crisis, domestic demand was boosted mainly by infrastructure investment, but with the advent of the New Normal era accompanied by structural changes in the economy, consumption-oriented policies to expand domestic demand have gained strength. Since then, the domestic policy has shifted toward qualitative improvement while promoting restructuring to improve economic inefficiencies and imbalances caused by excessive investments. However, facing an unprecedented decline in the growth rate due to the COVID-19 shock, the strategy to expand domestic demand is gaining momentum again, and the 14th FYP looks to promote domestic demand expansion in a new direction that combines the quantitative expansion of domestic demand and qualitative enhancement strategies at the same time. By region, the eastern region has accounted for a vast majority of China's domestic demand over the past 20 years and maintains a significant position in the consumption sector. On the other hand, in the investment sector, the status of the western region has elevated mostly due to infrastructure investment and the central region based on manufacturing investment. These changes are closely related to China's regional balanced development policy. The central and western regions have been utilized as strategic areas for investment expansion, and the eastern regions as leading regions of qualitative growth such as high-tech industries and service industries. Even during the period of the 14th FYP, it is predicted that the strategy of having the eastern region lead the digitalization and “smartization” of the economy will continue.In Chapter 4, based on China's inter-regional input output table, changes in the regional structure of the Chinese domestic market were analyzed through changes in domestic items and industry structure, changes in the share of imports inherent in domestic import demand, and changes in trade relations between regions. In particular, trade relations between regions were examined in terms of trade in products, movement of imported intermediate goods between regions, and trade based on value-added (TiVA). Following the global financial crisis (GFC), domestic demand in China expanded, centered on investment demand in the central and western regions. In addition, the proportion of imported goods in China's inherent in domestic demand decreased, mainly due to the decrease in the proportion of imported intermediate goods. Just as domestic demand expanded mainly for investment, imports for investment exceeded that for consumption, but imports of final goods for consumption showed the highest growth rate in the post-GFC period.The share of trade between regions in China decreased to about 29% compared to pre-GFC levels, signifying that the share of regions satisfying final demand with their own products has increased. After the GFC, the production inducement effect on each region's final demand increased for its own region and decreased for other regions. This means that just as the dependence on domestic demand of countries around the world increased compared to trade dependence after the GFC, the dependence on regional demand between Chinese regions also increased. In the process of decreasing the share of trade between regions after the GFC, the share of output from the midwest region in particular increased and the share of input from Huadong and Huanan areas decreased. This is mainly related to the increase in investment demand in the Chinese Midwest and the contraction of production activities in Huanan and Huadong, where GVC participation is high. Inter-regional trade moves the imported intermediate goods embedded in the trade products to other regions. When we identified the import base of intermediate goods based on the region from which intermediate goods were directly imported, the proportion of the eastern region exceeded 80%. Compared to the eastern region's proportion of imported intermediate goods embedded in domestic demand of about 70%, intermediate goods imported from the eastern region are be produced to the midwest region through regional production activities. This means that in Korea's export of intermediate goods to China, it is necessary to pay more attention to the changes in the base regions for importing intermediate goods than the changes in final demand in each region. Lastly, the characteristics of interregional value-added trade (TiVA) show that the Midwest has a large input of value-added, but the scale of output is even larger, resulting in a negative net input. This is mainly due to differences in trade items. Based on its production networks, the eastern region mainly accounted for production in the manufacturing industry and high-end service industry-related items sent to the midwest region, while the midwest region mainly produced subsistence resource-related items in the areas of mining, agriculture, forestry and fishery, food and beverage manufacturing. This resulted in an increase in added value-added net input in the eastern region. In other words, domestic demand expanded after the GFC, centered on the investment demand in the midwest region, but added value net input increased in the eastern region and decreased in the Midwest.Chapter 5 uses China's trade data to classify the structure of the import market by processing stage and industry, to identify changes and causes of regional structure. In addition, the competitive relationship between Korea and major countries in the import market was analyzed using the Market Comparative Advantage (MCA) Index. After the GFC, the import market in China showed a tendency to diversify. Although the eastern region is still in the top ranks, the proportion of other regions such as the western region increased after the crisis (Sichuan, Chongqing, Henan, etc.), and the eastern region also showed signs of diverging to Shandong and Hebei. On the other hand, China's import market for Korean products became more concentrated in traditional top-importing provinces such as Guangdong and Jiangsu, while among other eastern regions Shandong, Tianjin, and Beijing fell significantly after the GFC in terms of their proportion of Korean imports. This is mainly due to the withdrawal of local investment and production decline by Korean companies due to overheated competition in China and rising production costs. Meanwhile, among items such as medical supplies, cosmetics, semiconductors, and automobiles, which are promising import items in the Chinese market, medical supplies and cosmetics are likely to continue to increase in the future due to improved income levels, a preference for imported products, and easing of import restrictions in China. In addition, semiconductor imports are greatly affected by non-economic factors such as the US-China conflict, and competition may intensify in the long run as they are seen as a top priority import replacement item. Among these items, Korea's exports to China accounted for a higher proportion in the area of medical devices than pharmaceuticals among medical supplies and a higher proportion of parts than finished automobile products. In addition, Korean products were more favored in the area of cosmetics imports in Shandong and Henan, and in pharmaceutical imports in Tianjin and other regions. Meanwhile, imports of semiconductors and automobiles were greatly influenced by Korean companies' entry into China.The results of our analysis of changes in the competitive structure of China's import market showed a decline in the total share of the import market in the five major countries of Korea, Taiwan, Japan, the United States, and Germany. Of these, only Germany increased its share after the GFC. Japan's share fell the most, while Korea's share of semi-finished products declined, but that of parts and parts rose. In addition, while the market share in the capital and consumer goods market fell, the share of food and beverage semi-finished products, durable goods, semi-durable goods and non-durable goods among specific consumer goods increased. Industries in which Korea showed an increase in market share were non-metallic mineral products, general/special equipment, electronics/computers/communication equipment, electric machinery, and agriculture. In these industries, Japan and Taiwan had a comparative advance in non-metallic mineral products, and Japan, Germany and the United States in general and special facilities, indicating that Korea’s competition with these countries may intensify. As for the area of electronics/ computers/communication equipment, Korea and Taiwan both have industries with competitive advantages, and both are rising in their market share, meaning that competition with Taiwan can be expected to become more intense. Among major promising import items, medical supplies maintain their share and comparative advantage in advanced countries such as Germany and the United States. However, due to the characteristics of medical supplies, which require the accumulation of specialized technology, each specific item has a different competitive structure. In particular, in the import market for dental implants, Korea's market share and comparative advantage have increased significantly. In the case of cosmetics, Korea's market share has increased rapidly since 2014. In addition, the share of semiconductors in Taiwan and Korea exceeded 50%, while Taiwan's share and comparative advantage continued to rise and Korea's share fell slightly. In automobiles, Korea's share of both finished cars and parts fell and comparative advantage was lost in this sector.In Chapter 6, based on the above analyses, the characteristics of China's domestic demand expansion strategy and regional economic structure change were synthesized into new models and forecasts produced for the 14th FYP period. In addition, strategies to enter the Chinese domestic market were presented by dividing them into strategic directions, selection of promising regions and industries for cooperation by sector, and formulation of new cooperation models. First of all, it was proposed to strengthen regional economic cooperation to minimize the impact of unstable global governance as a strategy for entering the domestic market in China in the era of US-China conflict.Next, promising regions and industries for cooperation were selected for each field related to domestic demand expansion. First, investments in transportation and energy infrastructure and new infrastructure are the initial engines for domestic demand expansion, and cooperation should be expanded in the western and eastern regions, respectively. In particular, in the area of transportation and energy infrastructure, industries such as construction, machinery facilities, transportation facilities, and shale gas development are promising. In the new infrastructure area, industries such as 5G technology, electronics/communication facilities/parts, and digital/ information technology services are promising. Second, investments related to strategic new industries, which are emphasized along with infrastructure investment in the 14th FYP, are expected to be concentrated in cluster locations designated and managed by the central government. The eastern region (Guangdong, Beijing, Shanghai, Jiangsu, Shandong, etc.), where next-generation information technology, advanced equipment, new materials, biopharmaceuticals, and clusters related to environmental protection and energy saving are concentrated, and some central and northeast regions (Hubei, Anhui, Henan, Shanxi, Sichuan, Liaoning, etc.) need to promote cooperation in new industries. Third, expansion of final consumer goods exports and entry into the domestic consumption market through the use of new consumption models should be promoted around the eastern region. As demand for non-face-to-face consumption increases rapidly with COVID-19, development of the consumption market through new consumption models such as online and offline consumption convergence is being urged. In addition, in the process of expanding domestic demand, imports of intermediate goods for investment have slowed, while imports of final consumer goods continue to increase. This trend is expected to continue due to improved income and consumption levels and policy factors. Focusing on promising items where Korea possesses high market share and comparative advantage, such as medical supplies and cosmetics, there is a need to enhance competitiveness and expand entry regions by incorporating new consumption methods. In particular, as the online retail market is concentrated in Huadong and Huanan areas such as Guangdong, Zhejiang, Shanghai, and Jiangsu, and the import of final goods is also concentrated in these regions, these can be used as an entry base into the consumer market. In addition, it is necessary to consider entering the consumption market in some inland areas where the growth of online shopping, education, remote medical care, culture, and leisure services is rapidly growing, as well as pilot zones where tax reductions and license exemptions are applied to some consumer goods.Finally, new cooperation models include cooperation using China's key regional development strategies, expansion of service convergence based on technological superiority, expansion of participation in China's domestic value chain, and open application of China's domestic system to Korea- China FTA service and investment agreements.
공공저작물 자유이용허락 표시기준 (공공누리, KOGL) 제4유형
대외경제정책연구원의 본 공공저작물은 "공공누리 제4유형 : 출처표시 + 상업적 금지 + 변경금지” 조건에 따라 이용할 수 있습니다. 저작권정책 참조