OPINION: Won discount reflects structural weaknesses The trauma of the 1997 financial crisis still casts a long shadow over South Korea. A rising dollar-won exchange rate evokes memories of a time when the rate surged to nearly 2,000 won per dollar and the foundations of the economy shook. Today’s rate—hovering around 1,470 won—is the highest since the 2009 global financial crisis, and its persistent climb has stirred fresh unease. Research by the Hyundai Research Institute shows that South Korea’s equilibrium exchange rate rose from 1,179 won in 2002 to 1,351 won at the end of 2024. Yet the market rate has stayed well above that level, reflecting a structural “won discount.” This is not the result of a crisis in the mold of 1997, when short-term foreign debt flooded the system. South Korea is now a net creditor country. Pension funds, corporations and individuals hold substantial overseas assets, and that outward investment has grown steadily over the years. What is driving the current rise is not foreign creditors pulling money out, but domestic investors actively buying dollar assets in search of higher returns. Still, in a highly open economy built on trade, a rapid depreciation of the won carries real costs—higher import prices, increased production costs for companies, faster inflation, reduced purchasing power and, ultimately, pressure on domestic demand just as signs of a recovery begin to emerge. Consumer prices rose 2.4 percent in November from a year earlier, the fastest pace this year, in part due to the weak won. Travelers changing money abroad now routinely face a roughly 10 percent haircut on top of the official rate. And unlike in the past, when a weaker currency could boost exports, Korea’s reliance on semiconductors and intermediate goods—tightly integrated into global supply chains—limits the traditional trade benefits of a cheaper won. With the won stuck near 1,470, the government has launched an all-out push to engineer a reversal. The National Pension Service has been urged to extend swap lines with the Bank of Korea, expand strategic hedging and adjust its overseas investment ratios. Regulators are scrutinizing securities firms’ foreign stock sales, and companies are being encouraged—directly or indirectly—to convert their dollar earnings into won. Six major government bodies, including the Ministry of Economy and Finance and the central bank, are involved in this unprecedented campaign. The effort straddles a fine line between stabilizing markets and interfering with them, and it risks signaling that authorities lack more effective tools to manage currency volatility. Expecting the National Pension Service to act as a “currency firefighter” is especially fraught. The fund’s mandate rests on profitability and stability; compelling it to intervene for short-term macro policy goals could undermine public trust, especially if losses emerge. Meanwhile, the surge of individual investors into U.S. equities—more than $30.6 billion from January to November, triple last year’s total—has prompted concern from Bank of Korea Governor Lee Chang-yong. But blaming retail investors risks misdiagnosing the origins of the won’s slide. Corporations, for their part, are holding more dollars for perfectly rational reasons: hedging exchange gains, securing liquidity for overseas investment and preparing for the roughly $350 billion in commitments stemming from U.S. tariff negotiations. Faced with such structural incentives, government carrots such as reduced policy finance rates are unlikely to meaningfully shift corporate behavior. The exchange rate has been pushed up by a combination of cyclical and structural forces: a 40-month interest rate inversion with the United States; foreign investors taking profits in Korean equities; rising overseas investments by Korean individuals; and expanding corporate foreign direct investment. Longer-term trends—including Korea’s slowing growth, weakening manufacturing base and rapid demographic decline—have also reduced the appeal of the won in global markets. International investors increasingly see the won as a structurally weak currency that trades below its equilibrium value, reflecting deeper concerns about the country’s economic fundamentals. If U.S. interest rates fall next year and Korea’s exports and stock market strengthen, the won may stabilize. Deputy Prime Minister Koo Yun-cheol has pledged to balance foreign exchange supply and demand in the short term while raising national competitiveness over the long term. But unless Korea addresses its structural weaknesses—rigid labor markets, regulatory burdens, low productivity—any relief is likely to be temporary. Dollar outflows and renewed currency spikes will remain recurring risks. The broader exchange rate debate is ultimately a judgment on Korea’s economic strength. Exports reached a record $640.2 billion from January to November, up 2.9 percent from a year earlier, yet that headline masks vulnerabilities: strip out semiconductors and exports actually fell 1.5 percent. The domestic economy remains fragile after prolonged stagnation, and legacy manufacturing sectors such as petrochemicals and steel are losing ground to intensifying Chinese competition. Concerns that parts of Korea’s industrial base may shift to the United States under new tariff arrangements also weigh on sentiment. As high exchange rates become a near-permanent feature of the economic landscape, Korea’s policy orientation must change. Inflation control—not expansionary fiscal measures—should be the government’s top priority. Stimulus spending must be deployed sparingly, and fiscal tools should be redirected toward strengthening the country’s productive capacity. Restoring confidence in Korea’s economic future is the surest path to a stable exchange rate and a fairly valued won. There was a time when earning dollars was considered an act of patriotism. That belief, it seems, is returning. About the author: Park Won-jae holds a master’s degree in business from Aalto University in Finland and has served as Tokyo correspondent, editorial writer and economic editor at Dong-A Ilbo, CEO of Dong-A.com and chairman of the Korea Online Newspaper Association. He is currently a professor at Kyungsung University. * This article, published by Aju Business Daily, was translated by AI and edited by AJP. 2025-12-12 11:11:41

OPINION: China's rise squeezing Korea's industrial heartlands Park Won-jae SEOUL, October 20 (AJP) - Yeosu, once the beating heart of South Korea’s petrochemical industry, is now a city under strain. The port, long fueled by the hum of factories and refineries, has fallen quiet as China’s self-sufficiency in ethylene production upends the regional industrial order. Roughly three years ago, Beijing achieved full domestic production of ethylene, the cornerstone of plastics and other chemical materials. The effects on Yeosu were swift and severe. Major producers such as LG Chem and Lotte Chemical have idled parts of their facilities. In August, Yeochun NCC — a joint venture between these giants — faced liquidity problems, a troubling sign for an industry that once symbolized Korea’s manufacturing prowess. The fallout has rippled across the city. The Yeosu Industrial Complex employs about 42 percent of the local workforce, but its slowdown has left small businesses gasping for air. Restaurant closures have now outpaced those seen during the pandemic. Storefront vacancies in downtown Yeosu have soared from 12 percent to 35 percent in just one year. A recent report by Boston Consulting Group even recommended closing two or three of the city’s seven ethylene plants — a prospect that has left local entrepreneurs and workers bracing for deeper economic pain. Yeosu’s struggle is emblematic of a larger story: China’s industrial ascent is reshaping Asia’s economic hierarchy. Across industries — steel, displays, shipbuilding, automotive parts — South Korea’s once-secure dominance is eroding. Even in high-tech sectors where Seoul has prided itself on innovation, such as semiconductors and smartphones, China’s rapid advances are unsettling. Fueled by the state-led Made in China 2025 initiative, Beijing’s ambitions have translated into dominance across key emerging technologies. Chinese electric vehicle maker BYD sold more than twice as many cars as Tesla last year, capturing nearly 60 percent of the global EV market. In solar panels, industrial robots, and drones, China holds commanding positions. DJI alone produces 94 percent of the world’s drones. Despite American sanctions, Huawei has secured nearly 10,000 5G patents — more than Qualcomm. South Korea, meanwhile, finds itself squeezed. Its export-dependent economy remains deeply tied to China, even as Chinese competitors eat away at its market share. BOE, a Chinese display manufacturer, now leads a sector once considered a Korean stronghold. In batteries, China’s CATL has surged ahead of South Korea’s top three producers, undermining one of Seoul’s most promising growth engines. The challenge extends to heavy industry. China now produces more than 55 percent of the world’s steel — and increasingly, with technology that rivals or exceeds South Korea’s. This has eroded profits at companies like POSCO and Hyundai Steel. In semiconductors and shipbuilding, too, China’s aggressive expansion is narrowing Korea’s once-comfortable lead. The traditional trade order in East Asia — in which South Korea and Japan exported high-end components for China to assemble and re-export — is rapidly fading. As China’s technological capacity surpasses its neighbors’, Seoul and Tokyo are exploring new avenues of cooperation to adapt to a transformed industrial landscape. China’s experience offers both a warning and a lesson. The Made in China 2025 strategy demonstrates how sustained, state-driven industrial policy can elevate an economy to global leadership. But for South Korea, simply emulating Beijing’s model is not the answer. Korea’s strengths lie in its dynamic private sector, global openness, and capacity for innovation — qualities that thrive best under government policies that foster competition, not control. To stay competitive, Seoul must rethink its economic strategy. The government should focus on building a more resilient industrial ecosystem — investing in infrastructure, digital transformation, and the ease of doing business. Companies, for their part, must leverage autonomy and creativity to innovate beyond the state’s blueprint. As U.S.-China trade tensions continue to reshape global supply chains, South Korea faces a pivotal moment. Its path forward depends not on shielding itself from China’s rise, but on rediscovering what has long been its greatest strength: the ability of its companies to adapt, reinvent, and compete on the global stage. About the author -Professor at Kyungsung University -Master's in Business Administration from Aalto University, Finland -Former Tokyo Correspondent, Editorial Writer, and Economics Editor at Dong-A Ilbo -Former CEO of Dong-A.com -Former President of the Korea Online Newspaper Association * This article, published by Aju Business Daily, was translated by AI and edited by AJP. 2025-10-20 09:11:18