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Regulation distorts markets (KOR)

Mar 12,2020
CHANG CHUNG-HOON
The author is the head of industry team of the JoongAng Ilbo.

The government has come up with a new system to purchase face masks, but the complicated solution has left people even more dissatisfied. How have Koreans become so obsessed with wearing masks, a measure which is not included in the epidemic prevention guideline by the World Health Organization (WHO)?

In fact, it was the government that started the mask craze. The Ministry of Food and Drug Safety recommended KF94- or KF99-grade masks to prevent the spread of the coronavirus (Covid-19) on Jan. 29. While WHO and the Korean Medical Association (KMA) stressed personal hygiene such as hand washing and keeping distance from other people, the ministry recommended wearing masks with KF94 filters, which block 94 percent of 0.4-micrometer particles.

As the mask shortage continued, the ministry issued a joint statement with the KMA on Feb. 12. While the KF94 standard was lowered to KF80, it still maintained the guideline to wear masks. The ministry issued an emergency supply control measure on health care masks and hand sanitizer with the president’s approval and warned to punish market manipulation and cornering.

It was a typical belated administrative action. Supply of Chinese filters used by 70 percent of our mask producers was suspended in the market in early February. Melt blown, or MB, which is the material for KF80 or KF94 mask filters, skyrocketed to 40,000 won ($33) per kilogram (2.2 pounds) from 16,000 won. The Public Procurement Service purchased local masks at 900 won to 1,000 won regardless of different production costs by different makers. Some companies even chose to close — or dodged the authorities — to sell them under the table, claiming that the price does not make up for the cost.

The government declared public sales on Feb. 26 and restricted the sales channels to post offices and the government-run Hanaro Mart. As the market supply got tangled, it became harder to buy masks. The ruling party chairman said that he wore the same mask for three days without much trouble. The Blue House changed its position and said it was okay to wear a cotton mask.

I hope the Blue House and the ruling party use the opportunity to learn about the market. The market gets distorted if it is pressured by the government. The same can be applied to the stock market or the real estate market. The moment that the government got involved in the mask market, uncertainty about supply grew. When can the government stop causing people to be disappointed by the way it reacts to the Covid-19 crisis?