South Korea is one of Asia's most successful countries, second only to Japan, Taiwan and Singapore, and in just 50 years, South Korea has grown from an agricultural country lacking industry and natural resources to one of the most dynamic economies in the world.
Home to many world-renowned companies ranging from consumer electronics to heavy industrial machinery and shipbuilding, South Korea's successful transformation is the key to success in South Korea, and some experts even believe that the South Korean economy is 20 years ahead of some developed Western countries.
So will South Korea's future really be smooth? Is it true that their economic bubble will not burst?
Why is South Korea's economy successful?
South Korea has many potential industries that lead the world. But their manufacturing plants are not actually in South Korea. This is also a routine operation for world-class companies, as it allows a large amount of wealth to be accumulated quickly without consuming the resources of the country.
For example, BMW's largest manufacturing plant is not in Germany, but in South Carolina in the United States. There, BMW assembles the car using parts supplied by Mexican suppliers, which are supplied by raw material suppliers in Brazil and Canada. The manufactured car covers the entire North American market through a well-established distribution network.
In other words, the entire process of manufacturing, logistics and sales of the car is completely detached from Germany and does not consume any German resources. With the exception of a handful of company executives sent from BMW's global headquarters, no Germans were even employed, but once the cars were sold, the German companies made a profit.
South Korea is using the same model, with Samsung, Hyundai, LG Kia and Daewoo moving much of their business outside of South Korea, the world's sixth-largest steel producer, and although they do not have iron ore reserves, South Koreans import raw materials from around the world, refine them into high-quality steel components, and then sell them at exorbitant prices to countries such as China, Japan and India that desperately need them to boost their own industries and infrastructure.
In the past, global trade and economic cooperation has been one of the biggest drivers of economic growth, and global GDP is almost exactly the same as global trade volume, because the more trade between countries, the cheaper and better goods and services can be provided to the global economy.
90% of global trade is done on large container ships, and the impact of sea freight on a country is equally enormous, with 9 of the world's 12 least developed countries being landlocked. The only reason why landlocked European countries like Switzerland are not affected is that they have achieved economic growth before globalization. And now most of the economic output of landlocked European countries is dominated by the service sector. As a result, landlocked countries other than Europe are still at a disadvantage in the modern global economy.
South Korea is not only surrounded by the sea on three sides, but also has one of the world's top four shipyards. In a sense, without South Korea's shipbuilding industry, the world economy could be in trouble. In addition to shipbuilding, South Korea is also the world's second largest producer of advanced semiconductors. When China and the United States "fought hard" because of chips, South Korea was profiting from fishing, after all, "the bigger the wind and waves, the more expensive the fish."
In addition to traditional industries, there is one of the most overlooked industries that may drive the Korean economy more than shipbuilding, automobiles and even semiconductors: Korean pop culture. For example, Korean bands, Korean cosmetics, Korean movies and even Korean cosmetic surgery.
We said the BMW example at the beginning of the video. In fact, it is not easy to make money with a completely offshore company, and the German brand has a great advantage in this regard. When we think of German cars, the first impression that comes to mind is quality, luxury, sophistication and cutting-edge technology.
But that's not the case, and most BMWs today are built to economy car standards. Compared with similar models in Japan, South Korea and China, BMW has lower reliability and fewer functions. Even so, consumers are willing to pay a premium for it, partly because of BMW's marketing strategy and partly because of people's stereotypes about Germany and their craftsmanship.
Ask you a question, how much would you spend on a Thai watch? And how much will it cost to buy a Swiss watch? Which tool will you choose between India and the United States? Will you adopt the financial advice of a British or Filipino accountant? Consumers have different perceptions of the quality of goods and services from different countries, and they are more willing to pay more for the products of some established companies. Even if their quality and quality are not as good as they used to be, reputable brands are more eligible to raise the price of their products.
In other words, their profits don't come entirely from the product itself, but a large part from brand reputation. "Hallyu" and other Korean brands are doing the same.
In our traditional impression, Hyundai is a cheap car brand. And now some of Hyundai's products can compete with Lexus, Mercedes, Audi, BMW.
So is South Korea's economy really so unstoppable? Of course not. It still faces some great challenges.
The first is population. In order to get better employment opportunities, more and more young people are coming to cities, which makes already space-poor cities even more expensive. This change has made South Korea the country with the lowest fertility rate in the world. The combination of low fertility and long life expectancy will allow more than half of South Korea's population to be over the age of 65 by 2070. This segment of the population needs full-time care and hardly contributes anything to the economy.
Another problem with an ageing population is that young people have to pay higher taxes to fund pensions, and there are huge gaps in some occupations. The most direct way to solve this problem is to open the door to migration and bring in young skilled workers from poorer countries. However, South Korea and Japan have the same problems, they are very reluctant to foreign workers, and it is difficult to integrate the culture.
The second is housing prices, which are rising much faster than wages. From 2017 to 2022, house prices in Seoul are almost 14 times higher than income. In order to solve this problem, the Korean government has introduced 4 solutions, namely buying a house, renting a house, allocating public housing and investment housing.
What does this investment housing mean? Simply put, the landlord promises to rent the house to the tenant for a period of time, and the tenant needs to pay 60%-80% of the total house payment to the landlord, and the landlord needs to return all this part of the money to the tenant after the expiration date. In this way, the tenant is equivalent to renting a house for free, and the landlord can not only use the money to invest, but also enjoy the 0-interest rate loan policy provided by the Korean government. This policy is good, but there are many problems with its implementation, and landlords often do not return tenants' deposits in time because they have been invested in other projects.
With a GDP of $1.8 trillion, South Korea is the tenth largest economy in the world and the third largest in Asia. GDP is spread across a population of 51 million, bringing a per capita GDP of $35,000, almost on par with Italy and fourth in Asia, behind Japan, Taiwan and Singapore.
To sum up, first of all, South Korea's economy has been strong over the past few decades, and its economic growth rate is more in line with other advanced economies in the world, with almost 50% growth in the past decade. Second, although South Korea's diversified industries add more value to domestic economic growth and the global economy, it has not developed into a true economic superpower such as China, the United States or even Japan. Finally, South Korea's low population growth rate, serious aging and high housing prices will directly restrict economic development.
So do you think South Korea's economic bubble will burst?
End of this article