Wednesday, February 16, 2011

Not News, and No Analysis: Bloomberg Reports on N Korea-China Trade

Bloomberg Reports What Seoul Gyopo Guide's Readers Already Know
Today, Bloomberg, one of the world's most influential business news sources, reported that China has increased trade with North Korea. There is little doubt that increased trade between North Korea and China is a welcome development for North Korea.  Readers of the Seoul Gyopo Guide have known that not only is the news welcome, but has also pointed out that increasing trade poses challenges to other countries, including South Korea. 

What Conditions and What Price?
The eventual impact of these developments to all parties involved largely rests on two issues.  The terms and conditions of these agreements, of course, is confidential.  Most likely, it is the case that China has agreed to help develop North Korea's infrastructure necessary in order to extract the materials.  As a result, the total benefits to North Korea may be multiple times larger than reported.  Second, the question how is the price determined for the raw materials that China has purchased from North Korea?  It has been rumored that China has extracted very favorable price terms from North Korea.  Below market prices could potentially lead to competitive advantages for Chinese companies when compared to foreign competitors.  Those competitors, increasingly, will be South Korean companies. 

The Seoul Gyopo Guide has frequently stated that too often South Korea is subject to changes beyond its control.  This is one of them.  The notion of South Korea being a low-cost producer of almost anything is now virtually non-existent.  Domestically, the cost of labor is uncompetitive on the world stage.  In addition, the input prices of the products made by Korean companies is universally rising.  Only by producing the world's best products will South Korea be able to survive over time.  While this will not occur overnight, China's emergence and influence is making this a more urgent matter.


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