[Weekly Review] Government Strives for Early End to COVID-19... Releases Additional 3 Trillion KRW in Trade Finance

Up to 300 Billion KRW Support for Low-Cost Airlines
Household Income Gap in 4Q Last Year Decreases for the First Time in 2 Years

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government recognizes the current economic situation caused by the novel coronavirus infection (COVID-19) as an emergency and is mobilizing all available policy measures. Exports, which were expected to rebound positively in February, have turned red due to the spread of COVID-19. If exports do not rebound by the end of this month, it will mark 15 consecutive months of negative export growth. To prevent export stagnation, the government has decided to provide an additional KRW 3.1 trillion in trade finance beyond the original plan. Furthermore, more than KRW 420 billion in emergency funds will be injected into the struggling aviation, shipping, tourism, and dining industries.

◆ Striving for export growth... Additional KRW 3.1 trillion support for trade finance = According to the Korea Customs Service's announcement on the 21st, the export amount from February 1 to 20 (provisional customs clearance basis) was USD 26.25 billion, an increase of 12.4% (USD 2.91 billion) compared to the same period last year. This was largely due to three more working days than last year because of the Lunar New Year holiday movement. The problem is that as the COVID-19 situation prolongs, the average daily export amount, considering working days, has significantly decreased. During this period, the average daily export amount was USD 1.69 billion, down 9.3% from USD 1.87 billion last year. Exports to China, which account for a quarter of South Korea's total exports, decreased by 3.7%. By item, exports of petroleum products (-4.1%), passenger cars (-0.1%), and ships (-29.0%) declined. In particular, due to the closure of Chinese factories, the supply of auto parts was hit, causing Hyundai Motor and Kia Motors to face situations where they could not assemble finished vehicles.

The Ministry of Trade, Industry and Energy will support trade finance of KRW 260.3 trillion, an increase of KRW 3.1 trillion from the previous plan, to prevent export stagnation caused by COVID-19. KRW 156 trillion will be executed in the first half of the year to quickly support affected companies, and trade finance for small and medium-sized enterprises (SMEs) and mid-sized companies will be supplied at a record high of KRW 105 trillion. Logistics and customs clearance support will also be strengthened by operating a 24-hour customs clearance support system. When urgently procuring items by air, special exceptions will be granted to impose customs duties based on sea freight rates. Currently, customs duties on air freight are more than 15 times higher than those on sea freight. The scope of corporate tax reductions for returning companies will be expanded. Previously, this applied only when establishing new business sites, but now it will also apply when expanding existing business sites. Additionally, considering companies' delivery and cost reductions, a new cooperative model linked with demand companies will be introduced to provide a 'package support plan.'

◆ KRW 420 billion emergency fund injection into aviation, shipping, tourism, and dining industries = On the 17th, the government held an economic ministers' meeting on COVID-19 response and a related ministers' meeting on Japan export regulations, chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, deciding to inject more than KRW 420 billion in emergency funds into the aviation, shipping, tourism, and dining industries. A low-cost carrier (LCC) experiencing temporary liquidity shortages will be provided with an emergency loan program within a maximum of KRW 300 billion. Also, if flights are suspended or routes reduced due to this situation, payment of airport facility usage fees will be deferred for up to three months. The recovery of unused transport rights and slots (number of takeoffs and landings per hour) will also be postponed. To facilitate early recovery of air demand and stable management conditions, the saturated Incheon Airport slots will be expanded from 65 to 70 per hour, and a public guarantee program for airline operating leases will be introduced to reduce airline costs.

The government has also prepared phased support measures for the shipping industry. The Korea Ocean Business Corporation will establish an emergency management fund exclusively for the shipping industry worth KRW 60 billion, and during the passenger transport suspension period, port facility usage fees and passenger terminal rents will be reduced by up to 100%. Furthermore, if ship repairs are delayed due to reduced operation of Chinese repair shipyards, the validity period of ship inspections will be extended by up to three months. For the tourism industry, a KRW 50 billion 'special unsecured credit guarantee loan' will be introduced to alleviate financial difficulties of SMEs and tourism companies, offering low interest rates of 1%. In particular, general loans with interest rates of 1.5% to 2.25% will also expand support targets and provide early support considering industry demand, and repayment of tourism fund loans will be deferred for one year from today upon application. For affected lodging businesses, property tax reductions will be pursued with local council approval, and for duty-free shops facing difficulties due to business suspension, the payment deadline for license fees will be extended up to one year with up to six installment payments allowed. For dining businesses, the current KRW 10 billion scale support fund for dining business development will be expanded, and interest rates will be reduced by 0.5 percentage points.

◆ Household income gap narrows for the first time in two years... Business income declines for five consecutive quarters = According to the '2019 Q4 Household Trends Survey (Income Section)' released by Statistics Korea on the 20th, the average monthly business income per household surveyed was KRW 891,600, a 2.2% decrease compared to the same period last year. The decline in business income has continued for five consecutive quarters since Q4 2018. This is the first time since statistics began in 1963 that business income has decreased for five consecutive quarters.

In particular, the decrease is more pronounced among the relatively higher-income middle class and above. In Q4, business income for the lowest 20% income group (1st quintile) was KRW 231,400, up 6.5% year-on-year, and for the lower 40% (2nd quintile) was KRW 660,500, up 24.7% during the same period. In contrast, business income for the top 20% (5th quintile) was KRW 1,719,300, down 4.2% from the previous year, and the 3rd and 4th quintiles recorded KRW 810,500 and KRW 1,035,400 respectively, sharply decreasing by 10.9% and 7.0% compared to last year.

In contrast, total income including earned income, property income, transfer income, and non-recurring income increased across all quintiles, recording KRW 4,771,900, a 3.6% increase compared to the same period last year.