[Interview] "Corona-triggered crisis more severe than IMF... Supply chain alternatives must be found in digital"

Interview with Kim Hee-su, Director of KT Economic Management Research Institute

[Asia Economy Reporter Koo Chae-eun] "During the infectious disease crises such as SARS in 2003 and MERS in 2015, only consumer sentiment contracted, and the supply chain impact was not significant, allowing for recovery. However, the novel coronavirus infection (COVID-19) is different. It has spread extensively worldwide, causing contractions in both supply and consumption."

Kim Hee-soo, Head of KT Economic Management Research Institute (Executive Director), diagnosed in an interview with Asia Economy on the 2nd, "The global economy is plunging into the worst recession since the Great Depression due to COVID-19." Kim's view is that the COVID-19 pandemic is on a different level compared to past economic crises. He said, "During the 1997 International Monetary Fund (IMF) foreign exchange crisis, only some countries fell into crisis and recovered quickly, and the 2008 global financial crisis saw enhanced cooperation among countries worldwide. However, the COVID-19 crisis is experienced globally, and combined with US-China trade conflicts, no-deal Brexit (the UK leaving the EU without an agreement), and other forms of national self-interest, the situation is more severe," he warned.

"A Pandemic on a Different Level, the Worst Crisis"

Kim predicted that the global supply chain will be fragmented into country-specific and regional systems due to the intertwining of US-China conflicts and COVID-19. For example, earlier this year, Hyundai Motor and SsangYong Motor temporarily halted automobile production because they could not procure Chinese-made parts (wiring) due to the impact of COVID-19. He warned, "South Korea, which has a high export ratio of advanced intermediate goods, is greatly affected by changes in the global supply chain. If the spread of COVID-19 prolongs, the Korean economy, which is highly dependent on external factors, will face greater contractions in consumption and investment, export declines, and employment reductions."

The worst economic recession caused by COVID-19 is reflected in the numbers. The Bank of Korea lowered its economic growth forecast for this year from 0.2% to -1.3%. It is the first time in 22 years that the Korean economy has experienced negative growth since the second oil shock in 1980 (-1.6%) and the foreign exchange crisis in 1998 (-5.1%). The IMF also projected South Korea's growth rate for this year at -2.1%.

Securing Growth Engines through 5G

Kim pointed out that the solution to overcome this unprecedented crisis includes economic structural improvements such as deregulation, along with the activation of the non-face-to-face economy and early establishment of 5G communication networks. In particular, 5G can bring innovation across industries through artificial intelligence (AI) and cloud technology. He cited China's announcement of a 5G network investment plan of about 200 trillion won by 2025 to overcome COVID-19 and the United States emphasizing 5G global leadership as examples. Regarding deregulation, he added, "Policies that reduce corporate burdens, such as frequency allocation policies and incentives for investment, are necessary."

In this context, he added the need to strengthen comprehensive incentives for manufacturing reshoring (the return of overseas enterprises to the domestic market) and to promote corporate return centered on advanced industries using 5G smart factories. Support in technology, systems, and finance is necessary to enable companies returning their production bases to South Korea to utilize smart factory platforms. This is a two-track strategy that pursues diversification of the global supply chain while supplementing efficiency through 'digital transformation.' Kim mentioned, "If cloud, AI, 5G, and Internet of Things (IoT)-based smart factories can be utilized during the reshoring process, it will help improve corporate productivity and the export competitiveness of products."

Kim also pointed out that job creation is not unrelated to AI education. Although there are concerns that the non-face-to-face economy will eliminate jobs, it is rather an opportunity to create many new jobs. He said, "Rapid technological changes inevitably increase the risk of unemployment for individuals who cannot enter new industries. However, as seen in the early 19th-century Luddite (machine-breaking) movement, historically, technological advancement has not reduced jobs. When technological change is rapid, education is necessary to help individuals adapt. Just as education kept pace with technology after the Industrial Revolution, enabling prosperity, re-education and transition education using AI in the digital age will be an alternative for job creation."