Once the Four Asian Tigers, Can South Korea's Economy Take Off Again?

History of Korean Economic Development

　　The history of South Korea's economic development is a struggle from poverty and backwardness to a modern developed country. After World War II, South Korea experienced a transformation from an agricultural country to an industrialized country. Especially after the 1960s, the South Korean government implemented an “export-led” economic development strategy, which promoted the rapid development of the country's economy and formed the famous “Han River Miracle”.

　　According to the annual GDP data of South Korea, it has increased from about 2.40 billion Korean Won in 1961 to over 1.71 trillion Korean Won in 2023, showing a significant growth trend. The growth rate fluctuates in different years, for example, reaching a historical high of 14.87% in 1973, a growth rate of 1.2094% during the Asian financial crisis in 1998, and a GDP growth rate of -1% in 2020, which is the first negative growth since the 1998 financial crisis.

　　Image source: kylc

1960s and 1970s: Export-oriented development

　　Under the leadership of the Park Chung-hee government, South Korea implemented its first five-year plan since 1962, gradually forming a government-led export-oriented development model. During this period, South Korea vigorously developed light industry and textile industry, seized the opportunity of industrial upgrading in developed countries, and achieved preliminary industrialization. In the 1970s, South Korea began to develop heavy chemical industries such as steel and chemical industry, and in the 1980s, it turned to high-tech industries such as electronics and automobiles, achieving the upgrading of industrial structure and sustained economic growth.

80S-90s: Slowing growth

　　After the 1980s, South Korea faced the challenge of slowing growth and shifting momentum. The demand for political democracy and social welfare increased, while fundamental changes occurred in the factors supporting high-speed growth, such as rising labor costs and increasing pressure for technological innovation. In addition, the peak of the long-term real estate cycle has been reached, and the economic slowdown brings fiscal and financial risks and overcapacity risks. Structural contradictions and financial liberalization have triggered high inflation and asset bubbles.

　　The Asian financial crisis in 1997 had a serious impact on the Korean economy, and Korea had to seek assistance from the IMF. Although the IMF's assistance solved the short-term funding problem, it also brought a series of reform requirements, such as Financial Marekt opening and corporate reform. After the crisis, the Korean government carried out comprehensive and thorough structural adjustments, including financial system reform, corporate restructuring, and industrial upgrading, which helped the Korean economy recover quickly and re-enter the growth track.

21st Century: Industrial Upgrading

　　Entering the 21st century, South Korea continues to upgrade its industries, eliminate mid-to-low-end industries, and make large-scale overseas investments. South Korea's electronics, automobiles, and other products are sold worldwide, becoming a model for emerging countries.

　　At the same time, South Korea vigorously develops the cultural and entertainment industry. After more than a decade of dedicated cultivation, South Korea's cultural industries such as music, film and television, games, and animation have become a powerful force worldwide.

　　Overall, the development of the South Korean economy benefits from the government's active intervention and timely industrial policy adjustments, as well as the emphasis on education and research and development. South Korea's successful experience shows that as long as relatively backward countries or regions have the correct development direction, play the active leading role of the government, continuously improve the industrial structure and enhance the independent innovation ability and technological level of the industry, they can give full play to their latecomer advantages and achieve leapfrog development of the industry and the country.

　　Image source: sina

South Korea's current economic difficulties

　　Since the outbreak of the epidemic, the South Korean economy has suffered a considerable blow, and currently faces multiple difficulties and problems.

Weak economic growth

　　South Korea's economic growth forecast has been lowered, with the expected growth rate for 2023 dropping from 1.6% to 1.4%, which is lower than the predicted value of 1.5% proposed by institutions such as IMF, ADB, and KDI. Data released by the Bank of Korea shows that the nominal GDP in 2022 is about $1.67 trillion, and the economy ranks 13th in the world in terms of size, falling three places from the previous year.

　　The main reason is the sluggish domestic demand and investment. South Korea is an export-oriented economy. In recent years, exports have faced challenges, especially the continuous decline in semiconductor exports, which has affected the main pillar of economic growth. Due to the weak demand for South Korea's main products in the external market, domestic investment and consumption have performed poorly, affecting the economic recovery process.

　　The South Korean real estate market has also experienced significant price fluctuations, with public prices in 2023 falling by an average of 18.63% compared to 2022, which has had a negative impact on the economy.

　　In terms of Monetary Policy, the Bank of Korea has taken interest rate hikes to address inflation and other issues, which has exacerbated the downturn in the stock and real estate markets.

Population ageing

　　In recent years, the birth rate in South Korea has continued to decline, repeatedly hitting historical lows, leading to changes in the country's population structure and family structure, and a clear trend of social aging. By 2023, the proportion of the population aged 65 and above in South Korea's total population has reached 19%, and it is expected that this value will exceed the United Nations' standard of 20% for a super-aging society by 2025.

　　The persistently low birth rate has caused significant changes in South Korea's population structure. According to data released by the South Korean government, the population of people over 70 years old in South Korea increased by more than 230,000 compared to 2022, reaching a total of 6.319 million people; during the same period, the population in the 20-year-old age group decreased by about 220,000 people, with a total of 6.197 million people. For the first time, the population over 70 years old in South Korea has surpassed the population in the 20-year-old age group, and this reversal is the first time in South Korea.

　　South Korea's aging population has multiple long-term impacts on the economy, including a tightening labor market, declining savings and investment rates, rising retirement and healthcare costs, and slowing innovation and productivity growth.

Changes in the international trade environment

　　The South Korean economy is significantly affected by the international trade environment, and changes in the international situation will bring impacts, mainly reflected in the following aspects:

　　Export trade fluctuations: As an export-oriented economy, South Korea is highly dependent on external market demand. In 2023, South Korea's total import and export volume decreased by 9.89% year-on-year, with a trade deficit of $11.161 billion, continuing the trade deficit pattern of the previous year.

　　Changes in trading partners: China, the US, Vietnam, etc. are South Korea's main trading partners, and the trade relations with these countries directly affect South Korea's economic performance. South Korea followed the US in decoupling its industrial and supply chains from China, which affected its economic cooperation with China. In 2023, South Korea's import and export volume with China decreased by 13.78% compared to the previous year, and its import and export volume with the US decreased by 2.46%.

　　Changes in Industrial Competitiveness: South Korea's industrial competitiveness is facing challenges, especially in key export products such as semiconductors. The long-term downturn in the global chip market has led to a decline in South Korea's manufacturing exports, especially the reduction in exports to China, which has a significant impact on South Korea's semiconductor exports.

　　These issues indicate that the South Korean economy is facing a comprehensive crisis and needs to seek solutions through structural reforms, productivity improvement, and technological innovation. At the same time, the South Korean government needs to pay attention to and respond to changes in the international economic situation and adjustments in domestic economic policies.

　　Image source: baidu

Investment opportunities in the Korean stock market

　　As one of the important Capital Markets in Asia, the Korean stock market provides investors with abundant investment opportunities. The following chart shows the trend of the Korean stock market composite index KOSPI since 2015.

　　Image source: Choice

　　The South Korean stock market is known for its high volatility, which brings both higher risks and opportunities for investors seeking high returns.

　　There are currently certain investment opportunities in its stock market, mainly for the following three reasons.

　　Valuation attractiveness: The low Price Value Ratio of the Kospi index indicates that the Korean stock index is undervalued to some extent by the market, which may provide value investors with entry opportunities.

　　Policy support: South Korean President Yin Xiyue promised to eliminate the factor of “Korean discount” through Capital Markets regulatory reform, which may enhance the attractiveness of the stock market, stimulate long-term investment and asset accumulation of households.

　　Enterprise Value Enhancement Plan: The South Korean government plans to launch the “Enterprise Value Enhancement Plan” to encourage companies to improve their governance level and corporate valuation, select companies with excellent information disclosure for incentives, and launch new indices and ETFs.

　　The biggest risks are twofold: whether the South Korean economy can recover smoothly, and the governance structure of chaebol companies. The opaque governance structure and weak performance of chaebol companies in the South Korean stock market have affected investor confidence. However, the South Korean government is committed to improving the transparency and performance of these companies through reforms.

Conclusion

　　In summary, the Korean economy developed rapidly from the 1960s to the 1990s and became one of the Four Asian Tigers. However, it encountered a financial crisis and its growth rate began to slow down. Although there was some recovery after the epidemic, the Korean economy is facing a comprehensive crisis and weak economic growth.

　　When investors consider entering the Korean stock market, they should fully understand the market characteristics, regulatory policies, tax regulations, and the fundamentals of individual stocks. At the same time, they should pay attention to the risks brought by market fluctuations and choose suitable investment strategies based on their own investment objectives and risk tolerance.