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Spex Issue 30

Spex Issue 30

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Published by: SMU Political-Economics Exchange (SPEX) on Jan 07, 2013
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02/27/2013

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INCOLLABORATIONWITHPROUDLYSUPPORTEDBY

ISSUE 307 JANUARY 2013
-SouthKorea–Morethanjustahorsedance?-IstheUSNaturalgasglutsettocontinue?-China’smuchneededeconomicreform
TheFortnightInBrief(24
th
Decemberto6
th
January)
US:PartialResolutionoftheFiscalCliff
OnNewYear’sDay,theSenatepassedtheAmericanTaxpayerReliefActof2013,partiallyavoidingtheFiscalCliff.Whilemanyissueshavebeenleftunaddressed,thebillwillextendtheBush-erataxcutsformostAmericansandsavemillionsfromtheAlternativeMinimumTax.Worldmarketsreactedfavourablytothepartialdeal,butthedebtceilinginUShasonceagainbeenhitandthebilldoesnotaddressthis.Despitetheuncertainty,employersadded155,000jobsinDecember,holdingthejoblessrateat7.8%,almostatthelowestlevelinfouryears.
 AsiaPacificex-Japan:RobustdespiteGlobalEconomicUncertainty
TheregionalbenchmarkindexinAsiaposteditsseventhconsecutiveweeklyadvancewithUS’budgetdeal.SurveysofpurchasingmanagersinAsiapointtowardanacceleratingmanufacturingsector.HSBC’sPurchasingManagersIndex(PMI)forSouthKorea,TaiwanandIndiarosefrom48.2,47.4and53.7inNovemberto50.1,50.6and54.7respectively.ThedataindicatesthatmanufacturinginAsiaremainrobustdespiteglobaleconomicuncertainty.
EU:ThePainofReform
InEurope,Markit’sPMIfortheEurozonewas47.2,aninemonthhighandanimprovementfrom46.5inNovember,despitethefigurebeingindicativeofacontraction.WhileEuropecontinuestofixitsdebtproblems,GermanChancellorAngelaMerkelcautionsthatalthoughreformsarestartingtokickin,economicconditionsarelikelytobemoredifficultin2013.Herwordsarereflectedintheunemploymentrateofalmost12%acrossEurozone,withbudgetcutsandtaxincreaseskeepingspendingandconfidencelow.

SMU Political-EconomicExchange
ANSMUECONOMICSINTELLIGENCECLUBPRODUCTION
 
 
 
 © Copyright 2012 SMU Economics Intelligence Club
 
2
SouthKorea:Morethanjusta“HorseDance”
 
ByAdamTan,SingaporeManagementUniversity

Psy’srecentKoreanpopsensation“GangnamStyle”,whichhasexceededmorethanonebillionviewsonYouTubeontheverydaythattheMayanspredictedastheendoftheworld,isyetanotherfeatthatSouthKoreanscanbeproudof.ThisisasignofhowmuchSouthKorea'sinfluenceintheworldhasgrownsinceitsrecoveryfromtheAsianFinancialCrisisin1997-98.TheAsianFinancialCrisis,whichhadseenmillionsofcitizensdonatingtheirpersonalgolddowrytothenationaltreasurytoallowthegovernmenttonegotiateaUSD58.4billionbailoutfromIMF
1
,remainsapainfulchapterinthemindsofSouthKoreans.Sincethen,theSouthKoreanshavenotlookedbackastheir
chaebols
(SouthKoreanbusinessconglomerates)havegonefromstrengthtostrengthtoemergeasthegloballeadersinmainstreamelectronicsandlifestyleinnovation.ThroughonlySamsung,LGandHyundaigroups,these
chaebols
havebusinessesspanningmultipleindustriessuchaselectronics,insurance,construction,automotiveandevenshipbuilding.Youmustbewonderinghowthishasbeenpossibleinthespanoflessthan15years.ThisistheSouthKoreanmiraclewewillbeexploring.
LeaderinInnovationExport
Therewasatimewherethewords"innovation"and“highquality”seemedsynonymouswiththelandoftherisingsun,Japan;andeveryonewantedtoownaJapaneseTV.Timeshavesincechangedasthaterahasmovedpastus.Asmarketsconsolidateandweakerplayersgetweededout,Japan’sEastAsianneighborhasdonemorethanjustcatchingupandreplicatingJapan’sinventions.SouthKoreanswentonestepfurthertoimprovetheirinventions.ThisneighborhasbeenoneofthecontributingreasonstowhyJapaneseconsumerelectronicswereunderperformingsincetheturnoflastdecadeandthattrendisexpectedtocontinue.Combiningsleekandergonomicdesignswithcutting-edgetechnology,Samsung&LGhavetakenmainstageintherecentyears.ThissurgeintechnologicalinnovationforsmarthouseholdappliancesandmobiledevicescoincideswiththerisingpurchasingpowerofthemiddleclassinAsiawhichhasspurreddemandforqualitySouthKoreanexportsglobally.China,forinstance,isoneofthelargestimportersfromSouthKoreaandthetrendisexpectedtocontinue(seeFigure1).
Figure1:Korea’sExports(Asia/China)
 
 
 © Copyright 2012 SMU Economics Intelligence Club
 
3
WithmajoreconomiesintheworldsuchastheUnitedStatesandEuropeslowlyrecoveringfromtheGreatFinancialCrisis,Iexpectpent-upconsumerdemandfromtheseregionstocontributetoSouthKorea’sincreasinglypositivetradebalance
2
.ThiswillbethepillarofgrowthforthecurrentdecadeforSouthKorea.
InvestmentsinGrowthMarkets
Besidesbeinggoodatinnovatinganddevelopingcutting-edgetechnology,theabilitytocreatedemandisoneimportantlessontolearnfromSouthKoreans.Withthefinancialcloutgatheredthroughexportingproductsaroundtheworld,SouthKoreastartedinvestinginfrontiereconomies
3
earlierthanmanyotherdevelopedeconomies.Vietnam,oneofthefastestgrowingfrontiereconomiesinAsia,putsthecaseinpoint.TherelationshipbetweentheseformerbattlefieldenemieshasimprovedasSouthKoreahasplayedakeyroleinVietnam’seconomicprogress.ThisallowedSouthKoreacompaniestooutsourceseveralfunctionsforlowercostofproductionandinturn,createdemandfortheirownproductsinVietnamasthemiddleclassmoveupthewealthladder.ThisisjustoneofmanyexampleswithothercountriesinASEANsuchasMyanmarandIndonesiaalsobenefittingfromjointventuresinenergy,electricityandconstructionprojects.WithanincreasingfocusonAsiaasanewenginetodrivegrowth,buildinglongtermsustainablerelationshipsearlywithneighborsisessentialandinthiscase,theSouthKoreanshavedonetherightthing.
PossibleHeadwindin2013
TherearetwosidesofacointotheSouthKoreanmiracle.Risingtensionsincetherecentballisticmissiletestbytheirinfamousneighbour,NorthKorea,hasalwaysbeenathornintheirside.DoubtswereraisedbypoliticalanalystsafterNorthKoreanleaderKimJong-UnseemedtosignalthewilltoreducetensionbetweentheNorthandtheSouthinhisrecentNewYearpublicspeech.However,itisbelievedtobelinkedtoafurthercallforaid.Personally,Ibelieveittakesmorethanjustthewillbutalsoasignificantlylongperiodoftimetodissolvethelongstandinganimosity.Newly-electedPresidentParkGeun-Hyehasbigshoesleftbyherfather,formerPresidentParkChung-Hee,tofillastheworldkeeptheireyesonhowshewillattempttoengagetheircounterpart,KimJongUn.Thiscanpossiblyderailtherecentsurgeininvestors’confidenceinSouthKoreancompaniesaspoliticalriskremainssomethinghardtodiversify.However,apartforthislongtermpoliticalissue,SouthKorearemainsasoneofAsia’shopesofdrivingglobalgrowthandiscertainlymorethanjustafamous“horsedance”.
Sources:IMF,Worldbank
1
Internationalorganisationwhichaimstopromoteglobalmonetaryandexchangeratestabilitytofacilitategrowthofinternationaltrade.
2
Tradeaccountusedtotrackforeigntradevalueinflowsandoutflowsinanation’saccounting.
3
Subsetofemergingmarketeconomywithlowermarketcapitalizationsandliquiditythatoffersplentyofopportunitiestogeneratehigherexcessreturnsforinvestors.

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