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In China’s shadow

Jan 30,2020
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On Jan. 22, Park Yang-soo, head of the Economic Statistics Department at the Bank of Korea, announced that the Korean economy registered 2 percent growth ?the lowest in 10 years ?last year. [YONHAP]
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Kim Dong-ho
The author is an editorial writer of the JoongAng llbo.

The fall of the British Empire, on which the sun never set, began from the late 19th century with the rise of a new empire of America. The British decline was signaled by waning economic growth. Black Friday on May 9, 1873, when prices on the Vienna Stock Exchange crashed, triggered a selling spree across the European continent. The period from 1873 to 1896 was referred to as the Long Depression and stemmed from a supply glut as a result of improved productivity. An economic boom was followed by a bust in prices.

The shock was felt in Britain, the birthplace of the industrial revolution. Germany and the United States nevertheless kept up robust growth. Germany retreated after it was defeated in World War II, and the United States emerged as the sole superpower through economic expansion. Such accounts are found in “The Secrets of Hegemony” co-authored by Seoul National University Emeritus Professor Kim Tai-yoo.

Little has changed since 150 years ago. Japan’s growth has kept to a snail’s pace since 1990. In 2001 when China joined the World Trade Organization, Japan’s GDP was eight times bigger than China’s. Japan had gotten a swollen head. Rightist politician and author Shintaro Ishihara titled his 1989 book “The Japan That Can Say No: Why Japan Will be First Among Equals.”

Now, Japan’s economy is a third of China’s. China is taking on the United States as its equal. Beijing is vocal on most international stages. It has declared the “Chinese Dream,” the revival of Sinocentrism, and aspires to be at the top of the world in military power by 2049 when it celebrates the 100th anniversary of the founding of the People’s Republic.

It has embarked on the “One Belt, One Road” initiative to create the 21th century Silk Road. Chinese capital has invaded the South Pacific as well as American allies in Europe. It plans to connect China with Europe through rail and maritime routes. Japan, which once stood side by side with the United States, is nowhere in sight.

South Korea has squandered its rags-to-riches story. The economy last year grew by a mere 2.0 percent. Per capita GDP, which broke the $30,000 threshold in 2018, was reduced by $1,555 last year amid stagnant growth. The government handed out cash allowances of 48 trillion won ($41 billion) to youths and the elderly and managed to keep growth from falling below 2.0 percent but could not stop reductions in individual incomes.

The economy must grow at least 2.5 percent to push per capita income to $40,000 in seven years time. That threshold can be achieved in six years if the economy grows at 3.0 percent. But such a goal is far-fetched when the economy grows at 2.0 percent. Japan briefly broke $40,000 and retreated back after the economy stagnated. Korea is headed downhill if it cannot shake out of such slow growth.

When the economy grows slowly, it cannot finance hefty welfare spending, which took up a whopping 35 percent of this year’s 512 trillion won budget. The welfare budget will snowball as the country ages. Korea’s fertility rate is the world’s lowest of 0.88 and it is aging at the fastest pace in the world. Our working population has been thinning since 2018.

We will be stuck in the shadow of China if the economy fails to regain the growth of the past. Korea’s economy is vulnerable to the outbreak of the coronavirus and can also be victim of Beijing’s retaliations as in the case with the deployment of the U.S.-led Terminal High Altitude Area Defense (Thaad) antimissile system. When China’s domestic demand picks up, its economy could become 30 times larger than South Korea’s in 10 years. Korea could become a peripheral country of China. The government must withdraw its anti-market and anti-business policies and rev up our growth engine. Or the country cannot avoid doom.

JoongAng Ilbo, Jan. 29, Page 30