Friday, January 14, 2011

China Overtakes Korea in Shipbuilding: A Scary Precedent for "Korea Inc"

China Passes Korea for the Global Lead in Shipbuilding
Yesterday, this brief clip appear on Yonhap's website:  Actually, this is not news to Korea shipbuilders nor steel companies, whose largest customers include the largest Korean shipbuilders (such as Hyundai Heavy).

The notion that Chinese industry will grow, and rapidly, is not new.  Shanghai has replaced Singapore as the world's busiest port.   Joint jentures are widespread between Korea and China.  Autos, electronics, logistics: these are just a few of the Korea's most important industries and China needs precisely this type of technology.  In fact, China's need for this technology is so great, it almost cannot afford for a wider Korean conflict.  On November 27, The Lost Seoul twitted the following, "Just because we don't understand Mandarin doesn't make the Chinese stupid."  The point: China has much a much bigger fish to fry than to let a war between North and South Korea begin.  It would jeopardize the technology transfer critical to China's economic growth. 

It's Not That Simple, Of Course
For Korea, this represents a double-edged sword.  Korea must understand (and it does) that it depends on the Chinese marketplace.  Close geographically, and with many Koreans and Chinese sharing a common, albeit distant heritage, it is an intuitively attractive notion that the two countries should forge close economic ties.  When combined with the historic idea that the Japanese and Chinese people have a long-standing mistrust of one another, China and Korea seem like logical partners in many ways.

China requires Korean technology.  Korea requires the size and breadth of the Chinese marketplace.  How long this symbiotic relationship lasts is an open-ended question.  No one can tell how quickly the Chinese will acquire the technology needed to be self-sufficient.  In other areas, China has surpassed expectations.  For example, China's initial flight of a stealth bomber has caught the U.S. by surprise.

The Shipbuilding Case as a Dangerous Precedent
It appears that Korea will need to extend its technological lead in every industry.  Shipbuilding is, relatively speaking, an industry which does not require exceptionally high levels of technical knowledge.  The largest input, steel, is also a relatively easy to produce, assuming that there is a steady supply of iron which can be refined.  For Posco et al, the challenge is immediate.  Posco and other Korean steel producers will have no choice but to sell to the Chinese and reduce their reliance on Korean shipbuilders.  Korean shipbuilders will need to secure orders from non-Chinese clients.  These are not easy tasks.  Other industries vital to Korea, such as automobile manufacturing, and consumer electronics will face the identical challenges that Korean shipbuilders and steel producers currently face.  So while Korea's leading corporations, such as Hyundai Motors and Samsung Electronics, enjoy leadership roles in their respective industries, the shipbuilding case serves as a dangerous precedent from which important lessons must be learned.
Admittedly, it may be that the Chinese marketplace is so large that it does not matter.  It may be that Korean manufacturers and newly-developed Chinese corporations will be able to peacefully co-exist.  This has not been the case in other similar situations.  Sony and Samsung used to have joint ventures with one another.  Much of those cooperative arrangements have now ended.  It is almost inconceivable that the Chinese do not try the same tactics in the future.  How "Korea Inc" addresses this issue will be a key determinant of its place in the global economic order.


JK said...

Once Chinese and Indian firms move into memory chips, electronics and automobiles and become big movers within the next decade Korea better have something to fall back on. It amazes me that Korea has no pharmaceutical industry to speak of. Everything is imported. As an aside, the acupuncture in Korea is first rate but I can't imagine it being better than Chinese acupuncture.

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