[Han-Jung-Il Economic Upheaval]①This Year, South Korea's Growth Rate Likely to Be Surpassed by Japan for the First Time in 25 Years

South Korea's Growth Rate in the 1% Range This Year... May Fall Behind Japan
China Suspends Short-Term Visa Issuance to South Korea as 'Retaliation'
'China Risk' Grows Amid US Pressure to Decouple from China

Amid expectations of a significant global economic downturn this year, Northeast Asia, including Korea, China, and Japan, is also poised to face a period of upheaval. Since China shifted its quarantine policy to 'With Corona,' it has been seeking economic recovery while intensifying its technological hegemony competition with the United States. Japan, too, appears set to revise its large-scale monetary easing policy maintained over the past decade to stimulate the economy. Caught in the middle, Korea is likely to enter a 'low growth in the 1% range' phase this year as the ripple effects of high interest rates and high inflation become fully apparent.

In particular, the China risk is becoming an immediate reality. As more than 15 countries, including Korea, the U.S., and Japan, raised quarantine barriers for arrivals from China, China recently suspended the issuance of short-term visas for Korean nationals traveling to China. This immediate retaliatory measure raises the possibility of disruptions to domestic companies' business operations and business trips, causing the industrial sector to be on high alert. Experts advise that in the rapidly changing Northeast Asian situation, strategic diplomatic and economic policies must be established, while in the mid to long term, efforts should be actively made to reduce dependence on China and enhance technological competitiveness.

U.S.-China Hegemony Competition: "Growth Like the Past Is Difficult"

One of the biggest variables for the global economy, including Korea, this year is China. After abandoning its 'Zero Corona' policy and resuming economic activities, China is expected to record a growth rate close to 5% this year. The Organisation for Economic Co-operation and Development (OECD) forecasts China's growth rate at 4.6% this year, while major foreign investment banks (IBs) predict it could rise to 4.9%. Although the economy may falter initially due to a surge in COVID-19 cases following the easing of quarantine measures, once the transition period ends, increased domestic demand in China could boost exports to China and revive Korea's tourism industry, benefiting the Korean economy.

However, the China risk is also significant. Retaliatory actions like China's short-term visa restrictions may increase in the future. The Chinese Communist Party's state-run media, Global Times, expressed skepticism about Korea's restrictions on Chinese arrivals, suggesting there might be elements of a "political show," and argued that since Chinese tourists are the largest source of income for Korea's tourism industry, Korea itself would be the first to suffer from this measure. Analysts both inside and outside the industry also interpret China's recent escalation in rhetoric?despite previously showing relatively restrained responses compared to Japan or the U.S.?as an attempt to 'tame' Korea.

The intensifying U.S.-China technological hegemony competition is also problematic. The U.S. is controlling exports of manufacturing equipment to prevent China from securing semiconductor manufacturing capabilities, while strengthening blockade lines with allies through frameworks such as the Indo-Pacific Economic Framework (IPEF) and CHIPS 4 (a U.S.-led semiconductor alliance including Korea, Japan, and Taiwan). For Korea, the U.S.'s pressure to decouple from China is burdensome, but there are also considerable concerns that China might exert pressure on Korea similar to the retaliatory measures during the THAAD (Terminal High Altitude Area Defense) dispute as a response to IPEF and CHIPS 4.

Korea, which has cooperated with the U.S. on security and with China on the economy, finds itself in a 'dilemma.' Professor Ha Joon-kyung of Hanyang University's Department of Economics said, "Korea rapidly grew by riding China's rise and increasing exports after the global financial crisis, but now the growth model of the past is unlikely to work well. Even if Korea tries to drive exports, it will not be easy if China separates from the U.S."

Korea Losing Growth Momentum... Could Fall Behind Japan This Year

Meanwhile, the Korean economy is entering a full-fledged crisis phase. The Bank of Korea and the Ministry of Economy and Finance forecast Korea's economic growth rate at 1.7% and 1.6%, respectively, this year. These figures are even lower than the 1.9% and 1.8% growth rates projected for Japan by the Bank of Japan and the OECD. Japan, which has been trapped in low growth for a long time?often called the 'Lost 30 Years'?has never surpassed Korea's annual growth rate since the 1998 Asian financial crisis, but concerns are emerging that this year Korea might record growth rates similar to or even lower than Japan's.

The International Monetary Fund (IMF) projects Korea's growth rate to be higher than Japan's, but nine major foreign investment banks, including Barclays, forecast Korea's growth rate at 1.1%, lower than Japan's 1.3%. Particularly, the Monetary Policy Committee stated in its policy direction resolution on the 13th that "this year's growth rate is expected to fall below the November forecast of 1.7%," darkening the outlook further.

Japan is actively engaging in the semiconductor hegemony competition, recently deciding to invest over 12 trillion won in next-generation semiconductor development. At the same time, Japan is considering revising its ultra-low interest rate policy to end the prolonged yen depreciation that has caused massive trade deficits, making it a major variable in Northeast Asia this year.

Finding Opportunities Amid Crisis: "Need for Industrial Policy Shift"

Experts emphasize the need to continue efforts to secure advanced technological capabilities amid the upheaval in Korea, China, and Japan, and to provide policy support to overcome trade barriers such as the transition to decarbonization. Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "The current global trend should be seen not as general deglobalization but as conflict and competition in advanced technology fields. Korea needs to strive to maintain the global division of labor based on free trade for conventional trade while strengthening networks with the U.S. in technological areas."

Professor Ha added, "We must find opportunities amid the technological hegemony competition and implement innovative industrial policies. Investments in digital transformation and energy should be increased, and focus should be placed on the decarbonization transition, which acts as a global trade barrier."