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  • 미중 전략경쟁 시기의 대만 문제와 한국의 경제안보
    The Taiwan Issue and Korea's Economic Security in the Era of U.S.-China Strategic Competition

    During the Cold War, the United States and China began visible efforts to normalize relations in 1972, with the strategic intent of jointly responding to the common threat posed by the Soviet Union, and finally established diploma..

    Jaichul Heo Date 2023.03.09

    economic security, Chinese politics
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    During the Cold War, the United States and China began visible efforts to normalize relations in 1972, with the strategic intent of jointly responding to the common threat posed by the Soviet Union, and finally established diplomatic relations in 1979. In this process, the Taiwan issue was one of the biggest obstacles to normalizing bilateral relations. Nevertheless, the two countries succeeded in establishing diplomatic relations by agreeing on the “One China” principle (policy) and recognition of non-governmental exchanges between the U.S. and Taiwan, and have managed the Taiwan issue based on three joint statements made by the two countries. However, the Taiwan issue has been brought to the forefront again, mainly due to great transformation in the international order and strategic competition between the U.S. and China, created by the rise of China and the response of the U.S. to contain it. Of course, even after the establishment of diplomatic relations between the U.S. and China, friction between the U.S. and China over the Taiwan issue and confrontation between both sides of the Taiwan Straits (i.e. Chinese mainland and Taiwan) have continued. However, the recent U.S.-China strategic competition has further increased the risk and uncertainty of the Taiwan issue. In addition, with the outbreak of the Russia-Ukraine War, the international community's concern about the Taiwan Strait has grown, and the strategic value of Taiwan is rising even more in the era of the Fourth Industrial Revolution, as an important actor in the global semiconductor supply chain. Against this background, this study analyzes the impact of U.S.-China strategic competition on the Taiwan issue and considers the implications for Korea in terms of supply chain stability, industrial competitiveness, and economic statecraft, which are important elements of economic security.

    First, the supply chain instability that can result from an emergency in the Taiwan Strait will mainly occur along the maritime transportation route, which accounts for an overwhelming portion of Korea's import and export volume. The maritime transportation routes passing through or near the Taiwan Strait account for 33.27% of Korea's maritime transportation, and if an issue arises along this route, it is calculated that an economic loss of KRW 445.2 billion per day would result even when only accounting for major resources and products. According to a wargame scenario of an emergency situation in the Taiwan Strait, fierce battles are expected to take place between seven days and 70 days, which could cause up to 31 trillion won in economic losses during the period of active engagement alone. In addition, the expected amount of economic damage is expected to increase further when including other resources, products, and air transportation routes in the analysis.

    Meanwhile, military skirmishes between South Korea and China or between the two Koreas, that may occur as a result of a military clash between the U.S. and China in the Taiwan Strait, can be expected to destabilize the Korean Peninsula and have a major negative impact on the Korean economy. In other words, the instability of the Taiwan Strait can be added as an element of the so-called “Korea discount.” In addition, if South Korea intervenes in the Taiwan issue in any way, China is expected to use its own economic power to deploy economic statecraft toward sanction measures against South Korea. Judging from various circumstances, China may impose more high-strength economic sanctions in relation to the Taiwan issue than those seen during the THAAD issue. Accordingly, as in the case of the THAAD issue, we can expect suspension of various economic cooperation projects, the promotion of boycotts, restrictions on tourism, strengthening of sanctions against Korean companies in China, and restrictions on imports of Korean products, as well as more systematic and sophisticated forms of economic statecraft implemented in accordance with the Export Control Law of the People’s Republic of China (中华人民共和国出口管制法) and the Law of the People’s Republic of China on Countering Foreign Sanctions (中华人民共和国反外国制裁法), which came into effect in 2021.

    In order to prepare for risks and uncertainties caused by U.S.-China strategic competition and cooling cross-strait relations, Taiwan, which has a high economic dependence on China like Korea, is pushing for diversification of its supply chain and imports/exports, stronger competitiveness in key industries such as semiconductors, and closer economic cooperation with allies. Such strategic measures by Taiwan, conducted to ensure its survival, present not only opportunities but also challenges for the Korean economy. In fact, Taiwan's New Southbound Policy (新南向政策), the Moon Jae In government's New Southern Policy (NSP), and the Yoon Suk Yeol government's Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region all aim at competing over the ASEAN market and fierce competition to gain the upper hand in the semiconductor industry.

    As such, in a situation where tensions over the Taiwan issue escalate as U.S.-China strategic competition intensifies, Korea must make thorough preparations to cope with the direct and indirect impacts this will have on Korea's economic security.

    From the perspective of Korea’s economic security, the worst case scenario regarding the Taiwan issue is a situation where military conflict breaks out in the Taiwan Strait and Korea is drawn into this conflict. It will be necessary to consider such a situation as Korea carefully assesses the benefits and risks associated with the U.S. Army deploying a Multi-Domain Task Force (MDTF) to the Korean Peninsula, or transition of the mission assigned to the USFK, focusing on national interests.

    In addition, more attention and measures are needed at the national level to ensure the safety of major maritime traffic routes, including the Taiwan Strait. This is because strengthening maritime power is essential not only in terms of traditional security, but also in terms of economic security, as examined in this study. 

    And, from the perspective of tensions on the Taiwan Strait and economic security, another important factor will be to improve inter-Korean relations. This is because even should a military conflict occur in the Taiwan Strait, efforts to improve inter-Korean relations could minimize the destabilizing effect this has on the security of the Korean Peninsula. If inter-Korean relations are not managed stably and left in a confrontational state, military clashes in the Taiwan Strait could directly escalate into security instability on the Korean Peninsula, for instance in the form of military provocation by North Korea.

    Meanwhile, as seen with Taiwan's New Southbound Policy, the Korean government needs to establish a more detailed foreign policy focused on ASEAN and South Asia to promote stability in the supply chain and diversify its import sources and export markets. The Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region announced by the current government of Korea presents the direction of these efforts, and further steps should be taken to establish detailed policies.

    In addition, just as Taiwan is striving to strengthen its competitiveness in the semiconductor industry as a survival strategy amid U.S.-China strategic competition, Korea should implement more active policies to strengthen its competitiveness and improve the conditions for corporate investment in the area of system semiconductors. More active support will be necessary at the national level to maintain or widen the existing technology gap Korea currently enjoys in the memory semiconductor field, and to gain competitiveness in the areas of system semiconductors, materials, and equipment. 

    Lastly, the Korean government must carry out active measures and increase its policy focus on trust-building efforts with other stakeholders in the region, another key element of economic security. While it is very important to de-escalate potential threats by building trust with other parties for economic security, as well as to secure a material and institutional basis, interest and efforts in this area appear to be relatively lacking. We should reduce the uncertainty of economic sanctions by building trust with China and actively seek a constructive role as a middle power country to restore trust between the U.S. and China.
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  • 미국의 대중 금융제재 영향과 시사점
    The US Financial Sanctions on China and Its Implications on Korea

    Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of e..

    Wonho Yeon et al. Date 2022.12.30

    economic security, financial liberalization
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    Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of economic sanctions, such as imposing import and export limitations, withholding foreign aid and investment, seizing foreign assets, and forbidding its nationals from doing economic transactions with sanctioned individuals and companies. Financial sanctions encompass a range of measures that particularly limit the movement of funds and other forms of asset value to countries, companies, and individuals subject to sanctions. These measures have a wide-reaching impact as they can freeze assets, prohibi t or restrict financial transactions, and even disrupt the settlement of import and export activities. 

    The utilization of economic sanctions as a geopolitical instrument has a lengthy historical background, but, the current impact and efficacy of U.S. sanctions are unparalleled. Although countries other than the United States have the authority to enforce tariffs, import and export controls, and other non-tariff barriers, they lack the ability to independently limit access to the global financial system, unlike the United States. Therefore, the secondary sanctions imposed by the United States, which limit dollar transactions, enables the United States to exert its influence on a worldwide scale through working in conjunction with other economic restrictions, such as export controls.

    Amidst the escalating strategic rivalry between the United States and China, the United States is broadening both the extent and substance of its financial sanctions. In the ongoing competition for technological supremacy between the United States and China, the United States can leverage its influence in the financial sector to impede China’s access to the necessary resources for the advancement of its own high-tech sectors. Furthermore, the United States has the ability to intervene in transactions occurring within the supply chain of high-tech enterprises that utilize U.S. currency, in addition to imposing restrictions on domestic U.S. companies selling components to China. 

    Chapter 2 explores the legal foundation, governance, and enforcement procedures of U.S. financial sanctions imposed on China. It also provides an account of the present situation and future possibilities of U.S. financial sanctions against China. It concludes that U.S. financial sanctions are based on a legal foundation and are implemented through a coordinated process among Congress, the President, and key executive branch agencies. While the United States has a long history of using financial transaction sanctions to address violations of international norms, it has recently adopted financial sanctions to block the flow of funds, including equity investments in certain Chinese companies, in response to China’s technological rise and national security threats.

    Chapter 3 examines China’s response. In China, finance is an important industry that supports economic growth and is still one of the fastest-growing industries in the country. Chinese companies also rely on the U.S.’s advanced financial system to finance their businesses and invest abroad. However, with the U.S. utilizing sanctions as one of its tools, China has been forced to respond and prepare for external shocks to its financial industry. Chapter 3 analyzes China’s response to the recent U.S. financial sanctions, categorized into short-, medium-, and long-term strategies. It analyzes China’s short-term responses to U.S. financial sanctions in terms of its position statements and the adoption and application of laws and regulations in response to foreign sanctions; its medium-term responses in terms of standardizing overseas listings and diversifying financing sources; and its countermeasures against U.S. financial sanctions in terms of developing the renminbi international payment system and expanding capital market capacity. 

    Chapter 4 examines the economic consequences of a protracted period of significant financial de-globalization caused by financial sanctions between the United States and China. In this context, “substantial” refers to a decline in local investments abroad and foreign investments within the country. We aimed to analyze the economic consequences of a country’s gradual shift from an open to a closed economy, where foreign capital inflows are replaced by domestic investments. Our research indicates that a reduction in trade openness has a detrimental effect on economic growth, whereas the influence of financial openness is not statistically significant. Nevertheless, if there is a rise in fragmentation within the global economy, leading to limitations on capital investment in China to specific nations, namely an increase in financial concentration, it would adversely affect economic growth. In addition, we analyzed the current level of financial interconection between the United States and China in order to assess the immediate expenses associated with an escalation of hostilities and the severance of their financial systems.

    Even if the introduction of financial sanctions between the U.S. and China reduces financial globalization in a de jure sense, it is difficult to say with certainty that it will reduce outward investment globally or between the two countries in a de facto sense. However, it is possible that competition in the financial sector between the U.S. and China could reach new extremes. In response to Russia’s invasion of Ukraine in 2022, Western countries such as the U.S. and EU took measures such as freezing the Russian Central Bank’s foreign exchange reserves and excluding major financial institutions and corporations from SWIFT. Under extreme conditions, such as a Chinese invasion of Taiwan, it is conceivable that the U.S. could impose such measures on China, and that China would be forced to dramatically reduce its reliance on the dollar payment system, even at the cost of significant short-term losses, and stick to the RMB international payment system.

    However, it is unlikely that the U.S. would want to see China accelerate the internationalization of the RMB and the internationalization of the RMB necessitates consensus among nations, rather than solely China’s endeavors. Consequently, a scenario of intense confrontation or competition in the financial sector between the United States and China is unlikely to occur. The United States is likely to choose a course of action that involves strengthening regulations on financial transactions involving specific high-tech or strategic goods. In this scenario, our government will need to devise strategies to minimize the negative impact on our industries, while our companies will need to take measures to avoid being subjected to sanctions by improving their own compliance.

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  • 한국의 서비스무역 통계 개선 방안 연구
    A Study on Updating Korea’s Services Trade Statistics System

    This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policie..

    Jong Duk Kim et al. Date 2022.12.30

    international trade, industrial policy
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    This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policies through improved data. To this end, the report categorizes Korea’s service trade statistics into short-, medium-, and long-term agendas based on the progress of discussions on international service trade statistics, domestic policy demand, and data availability for statistical improvement, and studies each agenda.

    Chapter 2 first look at the historical discussions regarding the definition of services in economics, and the definition of service supply modes stipulated in trade agreements such as the GATS. Modern service trade statistics collected on the balance of payments are compared with suggested statistics by mode of service supply under the GATS. Based on these discussions, the report presents two considerations for improvements from the perspective of services statistics construction. First, it is necessary to put an effort to converge the classification of the balance of payments to the CPC. Second, statistics by mode of supply defined in services trade agreements need to be reflected in the collection of balance of payments statistics, currently aggregated without distinction by mode of supply.

    Chapter 3 discusses how to convert trade statistics by service sector on the balance of payments, which is a transaction standard, into industrial standard service trade statistics such as the Korea Standard Industry Classification. The convergence to activity-based classification is helpful in setting out policy directions at the industry level, and matching with other activity-nased statistics, e.g. foreign direct investments, which are readily prepared based on the Korean standard industry classification. In Chapter 3, service trade statistics from the balance of payments are reclassified according to the Korea Standard Industry Classification. In this process of bridging and fill the gap between the two statistics, a fair amount of addition information and complementary data in each industry are required. Ultimately, in order to increase the rigor of the statistical correspondence between the international balance of payments and the standard industrial classification, it is necessary to test the consistency between them. 

    In Chapter 4, service trade statistics by mode of supply were estimated as a medium-term improvement issue. There is a great interest in statistical estimation by mode of supply in that different mode implies distinctive impacts on services market. Recently, statistics by mode of supply for individual countries, TISMOS (Trade in Services by Mode of Supply), have been released by the WTO and OECD. However, since Korea’s statistics shown in TISMOS were estimated indirectly using estimates from some countries such as the United States and the EU. In order to initiate discussions to accurately estimate service statistics by mode of supply in Korea we conducted surveys regarding how Korean companies in services sector have traded in terms by mode of supply, focusing on Mode 1 in particular. Then, for more accurate estimation of Mode 2, most of which is accounted for by travel services, we suggest to use additional information and data from Korea’s Foreign Tourist Survey or National Travel Survey. In the case of Mode 3 services trade estimation, we discussed ways to utilize information and data such as “Overseas Direct Investment Management Analysis” provided by the Export- Import Bank of Korea for Mode 3 exports and “Foreign-invested Company Management Survey Analysis” by KOTRA.

    Chapter 5 discussed the concerns pertaining to classification of digital products as service products, which have recently grown in interest. Currently, discussions on the classification of intangible products in the traditional dichotomous product classification of goods and services are underway internationally. In this report, we discussed how to add another mode of supply (i.e. Mode 5) in addition to the existing four modes of services supply as an idea. However, since it is difficult to fully reflect the relationship between service providers and consumers by the introduction of Mode 5, it is possible to consider ways to adopt the digital modes proposed by Ciuriak and Ptashkina (2018) within Mode 5. 

    In Chapter 6, two suggestions for institutional improvements were proposed. The first is related to the convergence of statistical classification on the balance of payments and service statistical classification in trade agreements, and the second is related to the collection of corporate- or individual-level data on service trade. The first issue is where international consensus is needed. Therefore, it is considered important to actively monitor the classification discussion of newly formed digital services and participate in international discussions so that our positions and opinions can be reflected in these processes of discussion. The second is regarding the policy directions for supplementing current statistics with various information and data from the broader perspective of services trade. As in most countries, Korea’s service statistics are in fact mostly from the balance of payments statistics, which are collected sporadically as needed, resulting in a lack of statistical consistency. Therefore, this report discusses the approaches for improvement of Korea’s service statistics in three directions, focusing on the Korea’s legal system adjustment, improvement of service trade statistics governance, and establishment of a comprehensive service trade statistics platform.

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  • 국경간 전자상거래가 글로벌 가치사슬에 미치는 영향
    The Role of Cross-Border e-Commerce in Shaping Global Value Chains

    The continuous development of the digital economy has led to a rising volume of e-commerce. From 2014 to 2020, global B2C e-commerce sales witnessed a yearly increase of 21%, while B2B e-commerce transactions grew by 16% annually ..

    Sangjun Yea et al. Date 2022.12.30

    trade structure, electronic commerce
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    The continuous development of the digital economy has led to a rising volume of e-commerce. From 2014 to 2020, global B2C e-commerce sales witnessed a yearly increase of 21%, while B2B e-commerce transactions grew by 16% annually from 2014 to 2019. As e-commerce gains ground rapidly, its impact extends to international trade as well. China, being the world’s largest trade partner, experienced an annual increase of 18% in cross-border B2B e-commerce since 2016. With the long-term global trend of digital transformation, e-commerce is expected to continue growing, and cross-border e-commerce will play a significant role in global trade. This study analyzes the economic impacts of expanding cross-border e-commerce on global trade, with a particular emphasis on intermediate goods trade and global value chains.

    Chapter 2 explores recent trends in e-commerce and global value chains (GVCs). According to the 2021 data from UNCTAD, total global e-commerce sales reached approximately $26.7 trillion in 2019, with 81.7% attributed to B2B transactions and the remainder to B2C transactions. The United States, Japan, China, and South Korea emerged as the leading countries, contributing the largest share of total e-commerce sales. Among these countries, B2B e-commerce sales accounted for over 85% of total e-commerce sales in the United States, Japan, and South Korea, whereas in China, it constituted only 41%. Notably, various metrics related to B2C e-commerce, such as retail e-commerce sales, the number of global digital shoppers, e-commerce’s share of total retail sales, and user penetration, experienced significant growth during the COVID-19 pandemic. In contrast, the size of the B2B e-commerce market, as measured by total merchandise value, has experienced double-digit growth since 2016, but in 2020, the pandemic slowed the year-over-year growth rate. The different growth rates of B2C and B2B e-commerce during the pandemic suggest that the pandemic has had a significant impact on supply chains. Despite the supply chain shocks during the pandemic, B2B e-commerce’s share of global trade is expected to grow further in the future. With many companies recognizing e-commerce as an efficient sales channel and making it an important strategy to maintain multiple sales channels alongside offline channels, B2B e-commerce is expected to continue to grow as a share of total trade in the future.

    Next, we look at recent changes in GVCs through various measures, including GVC participation rates and value chain length. Focusing specifically on the manufacturing sector and comparing the years 2018 and 2021, we observe a decline in the average GVC participation rate from 53.8% in 2018 to 52.9% in 2021. In the case of South Korea, there was a decrease from 54.3% in 2018 to 53.1% in 2021, primarily driven by a reduction in forward participation and a slight increase in backward participation during this period. The decline in forward participation indicates a decrease in the proportion of Korean intermediates being exported to third countries, while the increase in backward participation suggests a rise in the usage of foreign intermediates in Korean exports. Looking at the changes in forward and backward production lengths in GVCs for the major manufacturing countries of South Korea, Germany, Japan, and Taiwan, we find that forward production length decreased in all countries from 2018 to 2021, while backward production length decreased in all countries except South Korea. This implies a reduction in the number of production stages involved in the manufacturing of final goods during this time frame.

    In Chapter 3, we conduct two empirical analyses of the relationship between cross-border e-commerce and GVCs. The first empirical analysis utilizes firm-level data from the Business Activity Survey of Statistics Korea. GVC participation of firms is identified from their engagement in two-way import and export activities, while e- commerce participation is identified among firms that implemented an integrated e-commerce management system during the observation period. To examine the changes in GVC participation before and after the adoption of the integrated e-commerce management system, a difference-in-differences model was employed, along with propensity score matching to mitigate selection bias.

    The estimation results indicate that e-commerce participants exhibit increased overall GVC participation compared to non- participating firms. There is also a significant positive effect on GVC participation with affiliates. Comparing overall GVC participation and GVC participation with affiliates, the adoption of an integrated e-commerce management system demonstrates a long-term impact on increasing overall GVC participation to a greater extent than GVC participation with affiliates. Among specific industries, the analysis reveals a significant impact of e-commerce integrated management systems on both overall GVCs and GVCs with related parties in manufacturing and wholesale industries. In particular, the adoption of e-commerce systems in wholesale sectors significantly increases firms’ participation in GVCs with related parties compared to the case of manufacturing. We also find that the adoption of e-commerce integrated management systems has a significant impact on the increase in imports in the manufacturing industry, while it has a significant impact on the increase in exports and imports in the wholesale and retail industry. Finally, when counting into the differences in productivity levels of firms, we find that the introduction of the e-commerce system increases the participation in GVCs by firms who have difficulties in entering into overseas markets due to their low productivity.

    The second empirical analysis in Chapter 3 uses country-level data to analyze the impact of the level of e-commerce on the rate of backward and forward GVC participation in each country. To this end, a dynamic panel model is constructed, incorporating control variables such as market size, manufacturing share, tariff rate, and FDI liberalization. The export-based rates of backward and forward GVC participation, calculated using ADB MRIO data, are utilized as the dependent variables in the analysis.

    The findings of the analysis reveal a statistically significant positive correlation between e-commerce expansion and the rate of backward GVC participation. This can be attributed to the intensified competition fostered by e-commerce, which enhances the incentives for firms to utilize foreign intermediates possessing advantageous price and quality attributes. This effect is stronger in manufacturing industries than in services industries.

    In Chapter 4, we develop a theoretical model to examine the quantitative relationship between cross-border e-commerce and global value chains based on data from the World Input-Output Table. Our model incorporates key features of cross-border e-commerce such as the expansion of trading networks due to the reduction of information frictions and the efficient provision of goods and services through digitization technologies. Specifically, the expansion of trading networks allows final goods producers being engaged in e-commerce to connect with intermediate goods producers offering lower production costs, which is not feasible for producers not involved in e-commerce. Additionally, the efficient provision of goods and services through digitization technologies refers to how participating intermediate goods producers reduce their production costs through digitization innovations or bypassing tariff and non-tariff barriers.

    Using this theoretical model, we conduct two simulation analyses. In our first simulation, we examine the changes in final goods exports, intermediate goods exports, and GVC participation of major countries when the trade costs associated with cross-border e-commerce in Korea are reduced by 5%. We find that a 5% reduction in trade costs associated with cross-border e-commerce in Korea results in an overall increase in intermediate goods exports to the Asian region. Consistent with the results of the empirical analysis in Chapter 3, we find that Korea’s backward participation in GVCs increases with the expansion of e-commerce. In our second simulation, we examine the relationship between e-commerce and the stability of global supply chains. We assume a trade shock that raises the trade costs between China and other countries by 5% and find that the impact of the shock heavily affects the GVC measures with underlying cross-border e-commerce than without underlying cross-border e-commerce. This outcome arises from the fact that e-commerce opens up new trade channels and increases the reliance on cross-border supply chains, thereby magnifying the impact of a trade shock. Consequently, as digital cooperation between countries continues to advance, the reduction of trade barriers remains crucial.

    Lastly, in Chapter 5, we draw conclusions and present four policy implications for cross-border e-commerce and GVCs policies  Firstly, recognizing e-commerce as an effective channel for firms to maintain market access amid rising protectionism and the COVID-19 pandemic, governments should explore strategies to promote e-commerce, such as simplifying customs procedures related to e-commerce as observed in China or adopting market-driven digital trade policies as seen in the United States. Secondly, since the introduction of e-commerce systems has significant positive effects on exports and GVC participation for low-productivity firms, governments may consider supporting the capacity building of such firms by assisting in the establishment of e-commerce systems, utilizing web hosting services, and providing advice on maintaining an omni-channel approach.  Secondly, as the introduction of e-commerce systems has significantly positive effects on exports and GVC participation for low-productivity firms, government may consider to support capacity building of these firms through the assistance of building e-commerce systems, utilizing web hosting services, and advising to maintain omni-channel. Thirdly, as cross-border e-commerce becomes more active, the potential for external shocks propagating within the supply chain increases. Therefore, multilateral cooperation in building stable supply chains should prioritize efforts to lower trade costs. Fourthly, it is imperative for the government to establish pertinent statistical indicators that comprehensively capture the present condition of e-commerce in Korea, thereby facilitating future research endeavors and informing policy formulation. In this regard, it is advisable to consider the inclusion of separate metrics specifically dedicated to Business- o-Business (B2B) e-commerce, distinct from those pertaining to Business-to-Consumer (B2C) e-commerce.
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  • 경제안보 이슈의 부상과 대외협력 방향
    Emergence of Economic Security Issues and External Cooperation Strategy

    As geopolitical conflicts escalate, such as the US-China conflict and the Russia-Ukraine war, friction arises in various fields such as supply chain, technology, and energy. These frictions can pose a threat to the economic growth..

    Wonseok Choi et al. Date 2022.12.30

    economic security, economic cooperation
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    As geopolitical conflicts escalate, such as the US-China conflict and the Russia-Ukraine war, friction arises in various fields such as supply chain, technology, and energy. These frictions can pose a threat to the economic growth and security of a country, so the fields that need to be analyzed from the perspective of economic security are gradually expanding. Therefore, this report introduces various economic security issues in major sectors such as supply chain, technology, energy, and food. It also examines the downside risks to the Korean economy due to the deterioration of stability in the North Korean regime and space. Finally, it suggests ways to respond and cooperate.

    Chapter 2 examines economic security issues and cooperation directions in the supply chain sector by analyzing GVC (Global Value Chain) and major countries’ policies for managing supply chain risks. Some of the major economic security issues in the supply chain are △the reorganization of supply chains due to the pandemic and geopolitical conflicts △the deterioration of the domestic industrial base due to increased dependence on the US and China for supply chains △the increased importance of emerging countries such as India, Mexico and Vietnam in the global supply chain. The main findings of the GVC analysis by 2021 show that the roles of the US and China in the global supply chain of major countries are continuously increasing, and that emerging countries such as India, Mexico, Vietnam and Brazil have become more important in the global supply chain. Moreover, as a result of reviewing the supply chain policies of major countries, it was found that they commonly pursued legislation to foster high value-added industries and support investment in core minerals. Therefore, Korea needs to strengthen bilateral consultations with the US and China through regular agreements, while enhancing supply chain connectivity with emerging countries whose importance in the supply chain is gradually increasing. In particular, it is necessary to actively participate in the formation of supply chain solidarity through multilateral/bilateral cooperation in order to prevent the fragmentation of the supply chain due to disputes between the US and China and geopolitical conflicts.

    Chapter 3 examines Korea’s countermeasures, focusing on major issues in technology security, an area where interests between countries are sharp in the US-China competition. As major issues in terms of technology security, △the possibility of overheated competition due to the promotion of core technology fields by major countries and its side effects, and △concerns about the decrease of the potential for technological cooperation between countries amid technological hegemony between the US and China are being discussed. Under these issues, the U.S. and China’s policies and measures for fostering and regulating technology are summarized, focusing on the semiconductor and secondary battery industries, which are classified as Korea’s main industries. In particular, the United States is strengthening technological cooperation and control through solidarity, while China is focusing on strengthening government support to foster the domestic industrial ecosystem and promoting technology commercialization through domestic consumption. Therefore, Korea, as a country with manufacturing competitiveness and innovation capabilities, should contribute to the establishment of a multilateral cooperation system based on a technological cooperation network. It should also promote international cooperation on basic research along with preparing policy communication channels with major countries to minimize excessive competition in the core technology field.

    In Chapter 4, we examined climate change response and the resulting energy security issues. The main issue in this field is that the international community has a common perception that it must respond to climate change, but there is a lack of coordination and support measures for implementation actions by country. There is also an ongoing discussion about whether energy security, which has become so important because of the Russo-Ukrainian war, should be prioritized over carbon neutrality. In the midst of these discussions, major countries respond by △raising greenhouse gas reduction targets and expanding support for developing countries from developed countries △reducing excessive dependence on overseas energy and accelerating the transition to clean energy △increasing investment in major carbon emission sectors and promoting participation of local governments. In this regard, Korea needs to establish and implement mid-to long-term strategies to support developing countries in responding to climate change and to secure clean energy. It also needs to strengthen multilateral cooperation to respond to discussions on global norms.

    Chapter 5 deals with the stability of food security and the securing of domestic agricultural production base, which have emerged as international economic security issues after the Russo-Ukrainian War. In this context, we looked at the countermeasures of China and Japan, which are actively pursuing policies on food supply and demand. China is implementing a subsidy support policy to increase the incentives of farmers to grow food and a minimum purchase price policy for staple foods. However, despite the food supply stabilization policy, China’s dependence on imports is increasing, so it is necessary to continuously monitor related supply and demand conditions. Since 1996, Japan has set targets for self-sufficiency in major food items every five years. The policy goal is to diversify the use of paddy fields and improve farm household income through adjusting rice production and fostering strategic crops (barley, soybean, etc.).

    In addition, for major crops that have a gap in production conditions with foreign countries, it supports the difference between selling price and production cost and promotes quality.

    Therefore, Korea’s cooperation direction should pursue a strategy to expand the international grain value chain, such as promoting overseas agricultural development and entering the international grain distribution field. As domestic countermeasures, it should also consider improving the domestic grain self-sufficiency rate and expanding grain stockpiles.

    In Chapter 6, we examined cyber security, which has recently been increasing in frequency and causing great social losses. The issue in cyber security is that the damage due to the increase in cyber attacks in the field of core industrial technologies, the increase in the number of advanced persistent threats, and the increase in attacks on the IT supply chain that cause large-scale damage is gradually increasing. The countermeasures promoted by major countries are identified as △promoting standardization of ICT information protection △supply chain cybersecurity policy and task force operation △establishing a cross-governmental industrial cybersecurity verification base and △activating cybersecurity legislation. Korea needs to participate in a multilateral consultative body for international legal response to the expanded cyber threat. At the same time, it needs to establish a basic plan for building a foundation for innovation in cyber security at the national level and to create a next-generation security ecosystem for the realization of a safe digital society.

    Chapters 7 and 8 dealt with areas that have not yet been presented as major areas of economic security, but which are expected to become increasingly important from the standpoint of Korea. In Chapter 7, we examined the subject of development and property rights issues, focusing on outer space, whose ownership is not yet clear. We also examined the obstacles to space development due to the export control system for non-proliferation of weapons of mass destruction as major issues. Looking at the space development policy of the United States, which promotes space development the most, we found that in the United States, after NASA, a government agency, has laid the foundation for space development, it is promoting the space industry led by the private sector, excluding the basic and defense sectors. Space development is governed by non-proliferation export control regimes agreed upon by various countries around the world. From the standpoint of Korea, which is still in the early stages of space development, it is judged that intergovernmental agreements will be very important as a basis for smoothly promoting space development in the future. Therefore, Korea must △establish a long-term space economy revival plan considering public-private cooperation measures and incentive structures for private sector participation in space development and △grant property rights and taxes related to space development. In addition, it is necessary to consider government support to △expand the concept of defense and security to space △promote international cooperation related to space development in the private sector and make it the main direction of external cooperation.

    Lastly, Chapter 8 analyzed the impact of the North Korean problem that could arise from the ‘new security threat’ on the Korean economy. First of all, we examined the shock that the North Korean economy can receive through the ‘new security threat’ that North Korea faces. We also analyzed North Korea’s response to this. As a result of scenario analysis by North Korea’s response, we understood that there is a possibility that a sudden change may occur because North Korea’s self-sufficient countermeasures against the ‘new security threat’ are limited. Therefore, South Korea needs to induce North Korea to engage in denuclearization negotiations. It also needs to support North Korea to establish COVID-19 quarantine measures from a humanitarian perspective as a way to minimize external effects on the South Korean economy. By synthesizing the main contents of each chapter, we presented the seven principles of economic security, the establishment of a multi-layered multilateral cooperation system, and the direction of cooperation by sector as policy implications. First of all, as the seven principles of economic security, we presented △accurate recognition of economic security issues in each field △establishment of an information system considering Korea’s competitiveness and characteristics △establishment of evaluation indicators and thresholds in each major field and △determination of means for economic security in each field. Next, we presented △optimization of the decision-making system for the use of economic security measures △ensurement of competitiveness through improvement of domestic systems and △pursuit of improvement regarding unfair competition and monopolies occurring abroad. In addition, given that it is difficult to resolve major economic security issues with a single country’s capabilities and policies, we emphasized that Korea should promote a multilateral cooperation system to respond to major economic security issues and actively participate in various cooperation systems. As a result, we judged that Korea will be able to prepare a foundation for international cooperation that can respond to economic security issues that can arise in complex ways and enhance post-resilience by establishing a multi-layered multilateral cooperation system.

    We examined the direction of external cooperation in the fields analyzed from Chapters 2 to 8 in order. First, in the supply chain field, from the standpoint of Korea, which is highly dependent on foreign countries, it needs to avoid dichotomous external cooperation even amidst the US-China conflict and promote cooperation that encompasses all stakeholders in the global supply chain by utilizing multilateral and bilateral consultative bodies and alliances. In the technology sector, it needs to avoid excessive competition for subsidies for fostering core technologies between countries through a multilateral cooperation system for technological cooperation. It must prepare safeguards to prevent technology leakage by discussing protection measures for technology transfer between countries. In terms of responding to carbon neutrality, it needs to respond to discussions on global norms by making the most of cooperation with countries with similar positions to Korea or multilateral cooperation frameworks such as climate clubs. In response to the EU’s CBAM, it needs to establish a cooperative system that can be recognized for reporting product embodied emissions, which is being prepared in Korea. To secure stable food, it must plan and promote a food security strategy that links domestic food supply and demand stabilization policy with agricultural cooperation in developing countries from a mid- to long-term perspective. In terms of cyber security, it needs to actively participate in various international practice discussions, such as implementation of trust-building measures between countries, to apply international law in the expanded cyberspace. It also needs to focus on compatibility with international standards when promoting domestic cyber security systems. Korea, which has entered the early stages of space development, should promote international cooperation for basic research that the government needs to carry out. On the other hand, the government needs to play a role as a platform for external cooperation so that the missile technology control system (MTCR) does not act as an obstacle to private companies engaged in space development. Lastly, in order to stably manage the situation on the Korean Peninsula regarding the North Korean issue, South Korea needs to induce North Korea to engage in denuclearization negotiations through consultations with the US and Japan. It also needs to seek humanitarian aid through international cooperation organizations so that North Korea can respond to COVID-19.
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  • 인도의 주별 인구구조 변화가 노동시장과 산업별 고용구조에 미치는 영향
    The Effects of Population Changes on the Labor Market in India

    With projections showing it will overtake China as the world’s most populous country in 2023, India is also among the youngest nations worldwide. Even with the impact of the COVID-19 pandemic, India has sustained a robust economi..

    Yoon Jae Ro et al. Date 2022.12.30

    economic development, labor market India and South Asia
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    Summary
    With projections showing it will overtake China as the world’s most populous country in 2023, India is also among the youngest nations worldwide. Even with the impact of the COVID-19 pandemic, India has sustained a robust economic growth rate, fueled by its young workforce and the consequent surge in domestic consumption. Moreover, the prospect of global companies moving their production facilities from China to India adds to the positive outlook for India’s young labor force. Key drivers like capital accumulation, population growth, and technological advancement shape economic growth rates, and India excels in both high economic growth and population expansion. Yet, there’s a limited body of research on India’s population structure and its foreseen impact. Thus, this study delves deeply into the demographic shifts in India, the policies underlying these changes, and the economic effects stemming from them.

    Chapter 2 offers an overview of the structure of India’s population and its population policies. According to the 2022 UN survey, India’s population stands at 1.42 billion, making it the world’s second-most populous country. The age structure of India’s population is undergoing changes, and the percentage of the working-age population (15-64 years of age) out of the total population is on a steady rise. Both the Indian central and state governments have been broadening their data collection efforts and tweaking population policies in response.

    Chapter 3 examines India’s labor market characteristics, takinginto account employment changes by industry and labor market attributes across various states. Key points to note include India’s noticeably low labor force participation rate, considerable gender disparities, and the evolving landscape of employment across various industries.

    Chapter 4 performs regression analysis using household-level aiming to comprehend the interrelation between population structure, labor market dynamics, and employment structures. The findings unveil the impact of India’s population structure changes on economic growth, value added by industry, and employment structures.

    Chapter 5 lays out the implications that the research findings could have for the cooperation between South Korea and India. It emphasizes the need to understand India’s available labor force and variations among Indian states and to craft entry strategies that align with specific states’ development plans and characteristics.

    In sum, this study illuminates the connections among India’s population structure, labor market dynamics, and employment structures, offering insights into potential cooperation with the country.
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  • 주요국의 탄소중립과 그린성장전략에 관한 연구: EU, 미국, 중국, 일본을 중심으로
    Carbon Neutrality and Green Growth Strategies EU, U.S, China, and Japan

    This research analyzes the green growth strategies in major countries and regions including the EU, the US, China, and Japan with a focus on key policies such as energy transition(renewable energy, next-generation nuclear power, a..

    Gyupan Kim et al. Date 2022.12.30

    economic growth, environmental policy United States of America China Japan Europe
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    This research analyzes the green growth strategies in major countries and regions including the EU, the US, China, and Japan with a focus on key policies such as energy transition(renewable energy, next-generation nuclear power, and hydrogen energy), green finance, and carbon pricing. 

    This study begins by providing an overview of the major policy areas of green growth strategy in each major countries/region. Chapter 2, titled, “Green Growth Strategies in Major Countries: A General Overview” covers this topic. In Chapter 3, titled “Energy Transition (1): Renewable Energy and Next-generation Nuclear Power,” examines renewable energy policies and the development of next-generation nuclear technology in major countries. It discusses topics such as the European Commission’s Renewable Energy Directive(RED), Japan’s introduction of the Feed-in Premium(FIP) system through the revision of the Renewable Energy Special Measures Act (April 2022), major renewable energy policies and the state and local government-led renewable energy storage projects in the US, and the operation of the Feed-in-Tariff(FIT) system in China. The research also explores the technology and policies of the next generation nuclear energy, with a focus on the development of Small Modular Reactors(SMR). 

    Chapter 4, titled “Energy Transition (2): Hydrogen Energy,” delves into the hydrogen strategies of the EU, Germany, Japan, and China. It provides an overview of the hydrogen demonstration project known as “Mission Innovation(MI),” a group composed of government agencies from 22 major countries. The research also analyzes major countries’ international competitiveness in hydrogen technology by classifying hydrogen technologies into four types(gray hydrogen, blue hydrogen, turquoise hydrogen, and green hydrogen) and comparing the dependency and technological influence of each hydrogen technology based on a newly constructed index of backward and forward citations for patents from each country and institution.

    Chapter 5, titled “Green Finance,” analyzes the global green finance market and green finance policies of the EU and Japan from an institutional perspective. The chapter begins by reviewing various definitions of green finance—an area that lacks a unified standard—and global green finance initiatives. It then moves on to analyze the recent trends in global sustainable bond issuance, considering bond type and region. Finally, this chapter evaluates national strategies and policies of the EU and Japan, who are two of the most proactive national participants in green finance policy, and who have observed a significant increase in sustainable bond issuance in recent years. 

    Chapter 6, titled “Carbon Pricing,” discusses three types of direct carbon pricing: carbon tax, Emissions Trading System(ETS), and carbon credit mechanisms. The research also covers the Carbon BorderAdjustmentMechanism(CBAM)proposedbytheEU Commission as one of its protectionist measures. 

    Based on the analysis of each chapter, the research provides policy suggestions for the Korean government on renewable energy and next-gen nuclear power, hydrogen energy, green finance, and carbon pricing. Key suggestions in the field of renewable energy include improving policy effectiveness through adopting a PDCA(Plan-Do-Check-Act) cycle, measures for enhancing Korea’s Renewable Portfolio Standards(RPS) system, and initiatives to expand US exports by leveraging the Inflation Reduction Act(IRA) of 2022, etc. Regarding hydrogen energy, the research suggests active participation of the Korean government in developing international standards for green hydrogen and emphasizes the importance of securing competitiveness in green hydrogen production to enter the hydrogen market in China, who is current the leading player. It also suggests enhancing cooperation with Japanese companies in procuring overseas hydrogen energy, considering Japan’s heavy dependence on fossil fuels and low energy self-sufficiency rate. In the context of green finance, the research advocates addressing the problem of greenwashing, incorporating nuclear power into the green taxonomy, and introducing “transition finance” domestically. Finally, concerning Korea’s carbon pricing, the research presents policy recommendations on improving the existing ETS and managing the forthcoming EU CBAM.
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  • 주요국의 대남아시아 경제협력전략과 정책 시사점: 중국, 일본, 인도를 중심으로
    Economic Cooperation Strategies Towards South Asia and Their Implications for Korea: Focusing on China, Japan, and India

    With the Indo-Pacific region increasingly gaining recognition for its strategic importance, major countries such as China, Japan, and India are seeking close economic cooperation with South Asian countries. This study focuses on t..

    Jeong Gon Kim et al. Date 2022.12.30

    economic cooperation, international trade China Japan India and South Asia
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    With the Indo-Pacific region increasingly gaining recognition for its strategic importance, major countries such as China, Japan, and India are seeking close economic cooperation with South Asian countries. This study focuses on the strategic perspectives and cooperation policies of the major countries in South Asia (Pakistan, Bangladesh, Sri Lanka) under the rapidly changing international political and economic environment, and explores Korea’s future economic cooperation strategies and policies in light of progress in the area of cooperation. Korea’s economic cooperation with South Asian countries is centered on ODA, and trade and investment have been centered on some manufacturing industries, but have recently shown a shrinking trend. While competition between major countries is in full swing in South Asia, it is necessary to establish a new direction for economic cooperation and promote policies in South Asia under a strategic perspective. 

    China places great importance on South Asia as a strategic point. Geopolitically, bordering a number of South Asian countries, China seeks to contain India’s influence on the region. Economically, China is focusing on the possibility of economic growth based on the high population growth rate of South Asian countries. Accordingly, China is making efforts to expand the market by actively strengthening trade and investment relations with South Asian countries. After signing an FTA with Pakistan, it is also actively entering into FTAs with Bangladesh and Sri Lanka, which combines diplomatic, security and economic purposes. Meanwhile, China has supported infrastructure construction of South Asian countries from early on through loan-oriented large-scale development financing in response to the economic and development demands of the countries. As China’s influence over South Asia increases, concerns are growing in South Asian countries. Pakistan, Bangladesh, and Sri Lanka record large-scale trade imbalances with China, and their debt to China is also large. As a result, promoting cooperative projects that are economical and necessary for the local economic society are gaining momentum.

    Japan is expanding economic cooperation with South Asia under strategic consideration of the Indian Ocean region. Japan’s ultimate purpose is to counter China’s influence in South Asia while solidifying  Japan’s presence as an alternative cooperation partner. Japan established a “comprehensive partnership” with Bangladesh and Sri Lanka, respectively in 2014 and 2015, strengthening diplomatic relations. Along with the implementation of the Free and Open Indo-Pacific (FOIP) strategy, Japan has expanded its ODA to India, Bangladesh, and Sri Lanka, and South Asia has become Japan’s No. 1 ODA recipient beyond Southeast Asia. In addition, Japan is actively signing FTAs with Bangladesh and Sri Lanka under economic and strategic considerations. Meanwhile, Japan has been very active in promoting projects with neighboring countries in cooperation with India. The joint declaration issued during Prime Minister Kishida’s visit to India in 2022 specified cooperation between Japan and India in the Indo-Pacific region. While Japan has revealed its willingness to check China’s influence in South Asia, it intends to maintain its existing comparative advantage by emphasizing not only physical connectivity, but also human and institutional connectivity. In particular, Japan emphasizes the “high-quality infrastructure investment development cooperation model” to highlight its strengths as an alternative to China.

    As coming to power, India’s Modi government has begun to strengthen cooperation in economic and diplomatic relations with neighboring countries in earnest. This is because China’s influence has greatly expanded amid the increasing demand for economic growth support in South Asian countries. The Modi government’s Neighbourhood First Policy aims to expand economic and security links with South Asian countries and presents cooperation tasks in various fields such as economy, technology, transportation, energy, security, and the environment. India is actively supporting infrastructure construction in South Asia using Line of Credit. Currently, India’s share of loans to South Asia has risen to the highest level (about 44% of all loans) compared to other regions. Meanwhile, India is striving to revitalize its regional partners, SAARC and BIMSTEC. India is promoting projects and humanitarian support using its technology through SAARC, and is expanding regional connectivity through 267 projects through BIMSTEC as it seeks to strengthen connectivity between member countries. India is paying more attention to South Asian countries than ever in terms of economy and security, and is active in cooperation with third countries such as Japan.

    Korea, as a matter of fact, has never operated economic cooperation strategies or policies for South Asian countries other than India. Although the New Southern Policy has achieved noteworthy results, it has lacked consideration for South Asian countries other than India. While the Korean government announced the Korean version of the Indo-Pacific strategy in November 2022, this paper proposed the direction and tasks of economic cooperation in South Asia, centered on Pakistan, Bangladesh, and Sri Lanka, which have high independent economic and strategic importance.

    First, the importance of South Asia’s economic security dimension should be considered. It cannot be overlooked that the most important factor in intensifying competition among major countries in this region is strategic importance. Pakistan, which is located in a geopolitically strategic point connecting Asia and the Middle East, Sri Lanka, which is key to maritime transportation as a gateway to the Indian Ocean, and Bangladesh, which can act as a strategic spot through its location adjacent to Sri Lanka, China, and India and maritime connectivity using the Bay of Bengal, all hold high strategic value for Korea. In particular, it is necessary to establish strategic partnerships with Bangladesh and Sri Lanka and diversify its areas of cooperation with these countries.

    Second, it is necessary to actively consider the potential of South Asian countries as markets and production bases. It is a well-known fact that major countries are already paying attention to South Asia, so if Korea neglects economic relations with South Asian countries, it is likely to suffer significant losses in the mid- to long-term. This is because the radius of Japan and India is likely to expand as South Asian countries are expected to diversify their economic cooperation. In particular, it is necessary to push ahead the FTA with Bangladesh by paying attention to its new production base and potential as a market, and to promote the entry of Korean companies to special economic zones of Bangladesh.

    Third, support for economic and social problems common to South Asian countries, namely infrastructure improvement, industrial structure diversification, and climate change response, should be strengthened. In the case of Pakistan, it is necessary to communicate Korea’s strength as a partner in industrial development. Pakistan has a very high will to foster its manufacturing sector, and has ample potential as an export and production base in relation to its initatives for industrial development (e.g., Make in Pakistan), low wages, and geographical advantages. Further, cooperation between companies, such as joint investment to support Pakistan’s manufacturing fostering policy, and programs to strengthen industrial capabilities using ODA funds will be effective. In the case of Bangladesh, the proportion of budget expenditure to GDP is scheduled to more than double for water resource development related to climate change response, thus making demand for cooperation very high in this area.

    It is necessary to discover large-scale projects with great influence that can visualize Korea’s role throughout the ODA projects in South Asia. In the case of Sri Lanka, which has experienced large controversy over ineffective projects, PPP projects were given attention for efficient financing and project implementation by intensifying management of foreign investment projects even before its official declaration of default. This phenomenon is expected to continue while the size of ODA sources in South Asian countries is on the rise, making it an urgent task to scale up these projects using the PPP method. 

    Fourth, considering recent moves to expand links between South Asian countries and  similarities in demand for diversification of external economic cooperation and areas of cooperation, the timing is ripe for cooperation with India and BIMSTEC. Economic cooperation in South Asia linked to India is already under way by Japan through mechanisms such as the New East Forum, and Japan is closely cooperating with the Indian government. Korea also needs to actively seek its role as a cooperative partner. In particular, it is worth paying attention to the “Master Plan for BIMSTEC Traffic Connectivity.” This master plan consists of 267 projects and is also a comprehensive plan that includes building a soft infrastructure, which is expected to serve as a key platform for regional cooperation. As the Indian government has set development of Northeast region, which is racially and culturally similar to Korea, as a priority and requires to spend more than 10 percent of its federal budget on the development, it is an area worthy for Korea to focus active attention. In addition, as BIMSTEC is promoting cooperative projects related to trade vitalization, investment and tourism promotion, technology cooperation, and energy resource development, the possibility of cooperation with BIMSTEC in various fields should be examined.

    Fifth, it is necessary to consider the possibility of cooperation in South Asia with third countries, including China, from the perspective of alignment with Korea’s Indo-Pacific strategy. For example, improving the economy and quality of infrastructure, which is an important task for South Asian countries, is a part that China can also sympathize with. In addition, as Japan’s quality infrastructure model does not exclude China in nominal terms, Korea should take a forward-looking stance on the possibility of cooperation with China and Japan.
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  • 미·중 전략 경쟁 시대 글로벌 기업의 대응과 중국진출 한국기업에 대한 시사점
    Response to U.S.-China Competition by Multinational Companies and Implications for Korean Companies in China

    This report examines how multinational companies in China are responding to the intensifying strategic competition between the U.S. and China, and draws implications for Korean companies in China. With the integration of resources..

    Sang Baek Hyun et al. Date 2022.12.30

    economic cooperation, business management United States of America China
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    This report examines how multinational companies in China are responding to the intensifying strategic competition between the U.S. and China, and draws implications for Korean companies in China. With the integration of resources and markets around the world sparked by the trend of globalization, multinational companies have continued to grow at a rapid pace. In particular, global manufacturers have maintained their competitiveness by distributing resources more efficiently while establishing a global value chain with China as their main production hub. However, measures taken by the U.S. to block China’s access to technology and supply chains in some high-tech industries have prompted discussions on reorganization of the global supply chain, placing these multinational companies in an uncertain situation concerning their operations in China. At a time when competition between the U.S. and China is intensifying, it is necessary to look at the response strategies of global companies that have entered China and seek effective countermeasures for Korean companies.

    Chapter 2 examines the changes in the Chinese government’s foreign capital attraction policy and the current status of foreign direct investment (FDI) in China. Under its “dual circulation” strategy, China is responding to U.S. control measures and expanding foreign capital attraction in the service and high-tech manufacturing sectors necessary for China’s industrial advancement. In particular, the U.S.-China competition has led the Chinese government to expand its efforts to attract foreign capital through more preferential policies in high-tech manufacturing sectors, where the U.S. has concentrated its blocking measures. On the other hand, due to stricter labor and environmental regulations, and China’s establishment of an independent supply chain, the business environment of multinational companies in China is deteriorating as systems and laws related to economic security are undergoing transformation. 

    The trend of foreign investment seen through Chinese FDI statistics indicates that, despite the U.S. ramping up efforts to contain China, the inflow of foreign investment is steadily increasing, especially in the service and high-tech manufacturing sectors that the Chinese government hopes to foster. However, when comparing the FDI of major countries before and after 2018, some countries and regions are cutting back their investment in China and the investor confidence index for China is also on the decline. These conflicting signals are also influenced by China’s zero-covid policy, indicating it is necessary to continuously observe the FDI trend after China’s reopening to understand how the U.S. measures to contain China in technology sectors have affected it.

    In Chapter 3, in the situation where U.S.-China strategic competition is intensifying, multinational companies entering China have changed their business strategies in China and reviewed from various angles how they are responding to the conflict between the U.S. and China.

    The U.S. is pursuing a strategy to block China through various means and systems, such as customs imposition (Article 301), export regulations (ECRA, EAR), import regulations (Article 889 of NDAA 2019), and investment restrictions (FIRMA, CHIPS, IRA, and NCCDA). Europe has also labeled China a “strategic competitor” and is redefining its partnership with China. After the U.S.-China trade war began, European companies’ investment in China has been decreasing centered around specific industries and companies. Europe is pursuing a China strategy where cooperation and checks coexist, such as the case of Germany, which is strengthening cooperation with China while reducing its dependence on China in areas related to economic security. Japan has implemented a “China+1” strategy to prepare for “China risks” after the Senkaku Islands (Chinese: Diaoyudao) dispute in 2012, and restructuring of investment in China. Recently, the number of Japanese companies moving production bases from China to ASEAN or reducing their dependence on Chinese supply chains has been increasing due to the U.S.-China competition and China’s zero-covid policy. Taiwan continues to pursue its New Southbound Policy and reshoring policies. With U.S.-China conflicts escalating geopolitical risks, the policy deadline was extended as the number of Taiwanese companies reshoring increased.

    Multinational companies in China, from countries such as the U.S., Europe, and Japan, saw their overall management performance deteriorate after the U.S.-China conflict, adding to their difficulties due to implementation of the zero-covid policy. It was also confirmed that difficulties were aggravated by measures to strengthen the competitiveness of Chinese local companies and tighten cyber security in the process of China’s response to U.S. containment measures. As the competition between the U.S. and China intensifies, multinational companies are responding in various ways, such as: decoupling the U.S.-China supply chain in the semiconductor field, diversifying production bases (relocating to ASEAN or India), and expanding entry into China (In China, For China). 

    Major countries’ Chinese strategies are changing as competition between the U.S. and China intensifies, but unlike major governments’ strategies, multinational companies’ Chinese business strategies are mostly due to market factors such as rising production costs, intensifying competition with local companies, and sluggish local market sales. At the same time, it was confirmed that there are many cases of multinational companies expanding their investment into the huge Chinese market to enjoy a first-mover advantage in the electric vehicle sector. This points to multinational companies restructuring to explore high-tech fields and new markets due to changes in the business environment in China, rather than withdrawing their Chinese businesses or pushing for overseas relocation on a large scale.

    In Chapter 4, we investigated the business conditions of Korean companies operating within China amid U.S.-China competition and looked at what changes are being detected.

    Korean companies’ investment in China continued to rise even after the U.S.-China conflict began, breaking an all-time high. Major investments are mainly made in high-tech manufacturing industries such as semiconductors and electric vehicles. Since the U.S.-China strategic competition, Korea’s investment in China has been characterized by maximum investment, minimum number of new companies, withdrawal and relocation expansion, and concentrated investment in semiconductors and electric vehicles. This seems to be a process of restructuring similar to other multinational companies.

    Looking at the business status of Korean companies operating in China, the operating profit ratio, sales, and import and export inducement effects of Korean companies have recently declined, indicating that their management performance is deteriorating. The results of the survey on business difficulties also showed that sluggish local demand, sluggish exports, rising labor costs, and intensifying competition were major difficulties. Overall, the business environment in China is deteriorating, but this was confirmed as due to market factors rather than the U.S.-China conflict.

    A survey conducted by KIEP on 75 domestic manufacturers who had established branches in China also showed that their business performance has deteriorated or uncertainties increased. In addition, the majority of companies are not considering new investments in China due to the U.S.-China conflict, geopolitical conflict, and implementation of zero-covid policy. Nevertheless, the U.S.-China conflict has not prompted many companies to move their Chinese operations to overseas locations. The majority of companies in China had aimed at entering the Chinese market, meaning they viewed the Chinese market from a more mid- to long-term perspective. As in the case of multinational companies, most of the major difficulties were due to market factors. However, as the U.S.-China conflict continues to pose potential risks, Korean companies feel the need to reorganize their supply chains. Small and medium-sized companies found it difficult to respond with active countermeasures, such as relocating production bases or seeking legal advice, due to their limited scope of information and funds.

    Based on the above analysis, this report draws the following conclusions and implications.

    Multinational companies are showing various types of responses, according to how they are affected by the U.S.-China strategic competition and the industries they are engaged in. First of all, in the case of labor-intensive industries, it is necessary to consider withdrawing Chinese operations and relocating overseas, as production costs continue to rise in China and local Chinese companies gain higher levels of competitiveness. Moreover, it is difficult to maintain the price competitiveness of Chinese businesses in sectors subject to U.S. tariffs imposed on China. In the case of state-of-the-art semiconductors, the U.S. is expected to strongly push for a containment policy against China for national security reasons, making it necessary to prepare for the decoupling of supply chains between the U.S. and China, and to formulate prudent strategies to enter the Chinese market. Next, in the case of products that are highly dependent on the Chinese market, such as electric devices, it is necessary to pursue a strategy to diversify the production base of “China+1 or N” to strike a balance between the potential of the Chinese market and supply chain stability affected by the U.S.-China conflict. In addition, in areas with high potential in the Chinese market, such as electric vehicles and renewable energy, it is necessary to expand entry into China to gain an early mover advantage in the Chinese market. However, in order to prepare for the separation of supply chains between the U.S. and China, it will also be necessary to promote the “In China, For China” strategy of both producing and conducting sales within China.
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공공누리 OPEN / 공공저작물 자유이용허락 - 출처표시, 상업용금지, 변경금지 공공저작물 자유이용허락 표시기준 (공공누리, KOGL) 제4유형

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