First half 2018 / Vol.2018-1

The HSER is a semiannual English publication of

the Hyundai Research Institute.

Publisher

Dong-Geun Lee, Ph.D.

Editor

Won Joo, Ph.D.

Editorial Board

Soo Hyung Kim, M.A.

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please contact the respective author or:

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Contents

v

	<Executive Summary> ⅰ Ⅰ. Economic Issues Facing Korea 1 1. Economic issues for the 2nd half of 2018’ 2. Possibility of Xi Jinping’s long-term seizure of power and its implication on Korea-China economic relations 3. Current State of Korea’s Technology Financing and Suggestions Ⅱ. North Korean Issues 15 1. Diagnosis of the Two Korea’s Summit Meetings 2018 <Domestic and Global Economic Indices> 18

Hyundai Research Institute

	< Executive Summary >	Executive Summary
Ⅰ. Economic Issues Facing Korea 『Economic issues for the 2nd half of 2018』 Uncertainty underlies current economic trends. There seems to be more risks of business declining than momentum for economic upturn. Here are seven economic issues that are likely to emerge as negative factors affecting the Korean economy: Domestic issues: ① 「Business, controversy over down-cycling」, ② 「Concern about the risk of cracking domestic consumption foothold」, ③ 「Polarization and vulnerability of Korea’s exports」, ④ 「Job market, working together, seeking different goals」, Overseas issues: ⑤ 「Increasing uncertainty of direction of US dollar」 in relation to the issue of the US base rate rise, ⑥ 「Wobbly emerging economies」, ⑦ 「Step-up of international oil prices」 in energy sector largely relying on imports. 『Possibility of Xi Jinping’s long-term seizure of power and its implication on Korea-China economic relations – Preparations should be made for weakening Korea-China economic synchronization』 Following the China’s constitutional amendment allowing the third term of the state president in March 2018, Xi Jinping is increasingly likely to remain in power for a long term, and the impact of Xi’s long-term in power on Korean economy was examined to be as follows: ① China’s preferential imports of Korean high value-added products is expected to increase. ② Korea’s investment in Chinese service industry is forecast to increase with trade environment of China improving. ③ Opportunities for infrastructure cooperation are to rise through participation in Belt and Road Initiative(BRI). ④ Demand for the yuan in the Korean financial market is anticipated to increase. ⑤ The competitive advantage of Korean businesses over China’s set to be increasingly difficult to maintain. ⑥ Korea is forecast to fall behind China in the human and cultural contents exchanges between the two countries in quantity as well as in quality. Altogether, the level of Korea’s economic dependence on China is set to remain high to the extent that the 1%p decrease of China’s economic growth rate could result in reducing Korea’s economic growth rate by 0.38%p. The level of economic synchronization between Korea and China varies depending on the times; it dropped from 0.64 in the time of Hu Jintao to 0.24 following Xi’s rise to power. The Korean economy therefore needs to prepare for the dwindling economic synchronization between the two countries to cope with China’s strengthening industrial competitive edge. 『Current State of Korea’s Technology Financing and Suggestions』 Technology financing is a type of business financing that supplies funds to businesses for start-ups, R&D institutions and technology innovation through technology evaluation, and it plays a very important role in the growth of venture businesses and start-ups which are the main driving forces of ‘innovation growth’. Technology financing can be divided, depending on the style adopted, into standing security for loans, financial provision and investment, and can also be divided into private sector and public sector, depending on who the provider is. The current issues of Korean technology financing are: ① Technology-based unsecured financing is criticized as being ‘in name only’. ② The level of dependence of venture investment on the public sector is high. ③ Investment in start-ups in the early stage is very low. ④ Intermediate recovery market is narrow. The technology financing system needs to be upgraded to prevent innovation businesses with technological excellence from being killed off due to insufficient funds. Ⅱ. The North Korean Issues 『Diagnosis of the Two Korea’s Summit Meetings 2018 and Suggestions』 The two inter-Korean summits in 2018 resulted in the two Koreas agreeing to the “Panmunjom Declaration for the Peace, Prosperity and Unification of the Korean Peninsula” (hereinafter referred to Panmunjom Declaration) in a surprisingly speedy manner. The summit meeting is assessed to have not only served as a momentum for laying down the foundation stone of denuclearization and permanent peace in the Korean peninsula, but also to have laid down the corner stone of the two Korea’s economic community. It especially bears highly political significance as “the foundation of a breakthrough” for the on-coming US-N.Korea summit meeting and multilateral talks for the denuclearization of N. Korea.

Ⅰ. Economic Issues Facing Korea

Ⅰ. Economic Issues Facing Korea

1. Economic issues for the 2nd half of 2018

Summary

Uncertainty underlies current economic trends, and there seems to be more risks of business declining than momentums for economic upturn. Here are 7 economic issues that are likely to emerge as negative factors affecting the Korean economy:

Economic Issues for the 2nd half of 2018

< Economic Issues for the 2nd half of 2018 >

Issues	Background of Issues
① Business, Controversy over Down -cycling	- Controversy expected to arise over economic trends since switching from growth-oriented policy to the consumption-oriented
② Concern about the risk of cracking domestic consumption foothold	- It is important that the momentum for expanding private consumption, which has played a vital role in the recent economic growth, is continued in the 2nd half of 2018 to maintain economic upturn.
③ Polarization and vulnerability of Korea’s exports	- Structural problem of vulnerability to external shock and heavy dependence on limited number of export items are causes for concern
④ Job market, working together, seeking different goals.	- Gap between policy expecting positive effects and actual job market situation.
⑤ Increasing uncertainty of direction of US dollar	- Accelerated rise of US interest rates anticipated, and growing uncertainty regarding the direction of the US dollar.
⑥ Wobbly emerging economies	- Developing countries facing economic crisis due to the tightening global monetary policy and geopolitical risks.
⑦ Step-up of international oil prices	- Assessing the uncertainty of demand/supply and price of oil with heavy dependence on import.

① Business, Controversy over Down-cycling

With the time for seeing the effects of the economic policy switch from growth-oriented to consumption-oriented policy approaching, controversy over economic trends created by the policy shift is expected to be stirred up. Wide variation of economic growth rate makes it difficult to forecast economic flow. Considering the serious slowdown in the employment sector, the increasing number of economic units with a pessimistic view, and leading economic indicators warning business decline, it is not certain that economic recovery will continue.

② Concern about the risk of cracking domestic consumption foothold

Expansion of household debts in the 2nd half of 2018, increasing repayment burden following the rise in loan interest rate and the risk of shrinking job market are feared to reduce household purchasing. With the level of contribution of private sector consumption to the economic growth rate steadily rising since the 4th quarter of 2016, private sector consumption has lately played an important role in economic recovery. However, it remains to be seen whether or not the consumption will continue its present level in the future considering the downturn of the consumer composite sentiment index since the 4th quarter of 2017. Additionally, the worsening job market following the sharp decline in the number of the newly employed is likely to reduce household income in the future. Furthermore, the steady rise of household debts coupled with the increasing burden of repaying household debts following the interest rate rise is feared to result in declining consumption.

③ Polarization and vulnerability of Korea’s exports

Heavy dependence of Korea’s export on semiconductor, economic uncertainty of emerging economies and move for protectionism are Korea’s internal imbalance factors, and the Korean economy is vulnerable to external shocks. Korea’s export structure is excessively focused on semiconductors, and therefore Korea’s export business is highly likely to be determined by the exports of semiconductor products. Vulnerable developing nations such as Argentina, Turkey and Brazil are exposed to the risk of facing an economic crisis following the base rate rise by the US. Although the US and China settled their trade conflicts by reaching an agreement in principle to reduce the US’s trade deficit with China and to resolve infringement of intellectual property rights, the two nations still have many differences when it comes down to the details.

④ Employment market, working together but seeking different goals

The improvement of the job market is not going to be easy despite strengthened government policy support due to the increase margin of the employed sharply declining to 100,000 plus, rising employment costs, and industrial restructuring. The job market has deteriorated, showing in April 2018 a year-on-year increase of just 123,000 for the third consecutive month, although the unemployment rate and employment rate are maintaining current levels of around 4% and 60% respectively. There are some positive factors for improvement of the job market such as job creations in the public sector, execution of supplementary budget for creating jobs for young people, and recovering number of Chinese tourist visiting Korea. However, shrinking employment following industrial restructuring in the motor manufacturing industry and falling rate of the increase margin in the number of those employed in the construction industry are making the task of improving the job market difficult despite expanding government policy support.

⑤ Increasing uncertainty of direction of US dollar

Upturn of expected inflation and accelerating rise of US interest rate are expected to increase the volatility of the global financial market and growing uncertainty regarding the direction of US dollar. Expected inflation has recently reached 3% thanks to the increasing international oil price and healthy economic flow of the US. Coupled with the US interest rate on treasuries reaching over 3%, the possibility of the US policy interest rate rising four times in 2018 has risen to over 40%, which has helped the US dollar turn bullish. It is, however, difficult to forecast the direction of the US dollar due to the co-existence of factors of a strong dollar, such as expanding interest differentials between the US and major economies following the accelerated US interest rise, and factors of a weak dollar, such as the preference of a weak US dollar and expanding fiscal spending.

⑥ Wobbly emerging economies

Examination of developing nations exposed to external risks revealed that 6 nations are classified as a high-risk group. The risks facing Argentina and Turkey in particular have increased, resulting in currency depreciation. With increasing external risk factors such as a tightening global monetary policy and rising international prices of raw materials, concern about a possible economic crisis taking place in developing countries is deepening. The outcome of an examination of the possibility of the break-out of an economic crisis in developing countries indicates that fiscal balance and government debt are acting as key crisis indicators making emerging economies vulnerable. The number of high-risk countries turned out to be 6, as was the case in 2016. Out of all the high-risk countries, the risk levels of Argentina and Turkey are particularly high with warnings of an economic crisis resurfacing.

⑦ Step-up of international oil price.

Oil price has lately shown an upward trend and the upturn of oil price is forecast to continue with excess demand for oil expected in the international oil market. Oil price is showing an upward trend with its price in May reaching US$70 plus/barrel due to the geopolitical risks recently emerging in the Middle East. Future oil production is forecast to increase due to the global economic recovery in 2018, and oil producing countries not participating in the agreement of OPEC to cut down oil production are also expected to increase their production. The international crude oil supply and demand has shifted since 2017 from excess supply to excess demand. With the continued global economic recovery in 2018 and geopolitical risks in the Middle East, the excess demand situation is expected to last, resulting in higher oil price. In other words, price increase factors are stronger than decrease factors, keeping its upturn for the time being.

Policy Suggestion

The following measures are required to counter issues emerging in the 2nd half of 2018:

1. Efforts should be focused on policy enforcement and economic structure reform instead of being bound by economic assessment.

2. To maintain the economic upturn trend, government should introduce an aggressive job market policy and ease the shock coming from the interest rate rise to avoid shrinking household consumption.

3. Diversification of export items and aggressive targeting of emerging markets should continue to be promoted.

4. Policies should be focused on creating new jobs throughout industries by promoting expansion of corporate investments and strengthening industrial competitive edge.

5. Remedies should be prepared for countering the global economic and financial risks following the accelerated US interest rate rise.

6. Preemptive measures should be taken on emerging economies with increasing risk of economic crisis through close monitoring of economic flow.

7. Monitoring and risk hedging strategy should be put into place in preparation for the upturn of international oil price, while improving the economic structure which is currently vulnerable to oil price shock in the long term.

2. Possibility of Xi Jinping’s long-term seizure of power and its implication on Korea-China economic relations

- Preparation should be made for weakening Korea-China economic synchronization

Summary

An incredible happening took place at China’s 19th  National People’s Congress, held in October 2017, when the congress adopted ‘Chinese Style Socialism for a New Age’ where China’s President Xi Jinping’s was clearly named. As well as this, China’s National People’s Congress and China's Communist Party Political Consultative Conference, the two main legislative assemblies of China, amended the Chinese constitution and removed a clause forbidding three consecutive terms in office at the conferences held in March 2018. This report aims to examine the possibility of President Xi’s long-term power seizure and its impact on the Korean economy, which heavily depends on China, sector by sector.

Future Direction of Korea-China Economic Relations

Korea-China economic relations can be divided into 6 sectors: trade, investment, infrastructure cooperation, financial cooperation, corporate competitiveness and human and cultural exchanges. The future prospect of these sectors are forecast as follows:

1. (Trade) China’s predominant demand for Korea’s high value-added products is likely to increase. The level of dependence of Korea’s export on China was marked as 20.9% and 23.9% respectively in the first and the second term of Hu Jintao’s administration, and has continued to rise since Xi Jinping came into power. During Xi’s term, Korea’s dependence on China in terms of the exports of high value-added products such as electronic integrated circuit chips and liquid crystal devices has soared to 42% and 69% respectively.

2. (Investment) The Service industry is expected to grow thanks to China’s improved business environment. China’s secondary industries to GDP ratio fell from 45.5% in 2000 to 40.5% in 2017 while service industry to GDP ratio rose sharply from 39.8% to 51.6% over the same period. Accordingly, the level of foreign investment in the service industry of China out of total foreign direct investment in China rapidly increased from 49.7% in 2008 to 65.3% in 2017. However, Korea’s investment in the Chinese service industry in 2017 was marked as making up only 27% of Korea’s total direct investment in China, considerably below the 93% Korea has invested in the US service industry out of its total direct investment in the US.

3. (Infrastructure cooperation) Opportunity for infrastructure cooperation is expected to rise through participation in the Belt and Road Initiative(BRI). The BRI-related foreign projects secured by China amounted to US$64.4 billion in 2014, which increased to US$85.5 billion in 2017, and the size of foreign projects won by China doubled during the same period, although around 78% of the Korea’s total overseas construction contracts are with nations along the BRI line, but still heavily concentrated in the Middle East.

4. (Financial cooperation) Demand for the yuan is anticipated to continue to increase in the Korean financial market. The currency swap agreement signed by Korea and China amounts to US$56 billion (360 billion yuan), which takes up 45.8% and 11.8% of the total amount of the respective country’s total currency swap agreements. Financial cooperation between the two countries has lately strengthened with the yuan adopted as a settlement currency in Korea rising from 0.7% in 2012 to 5.4% in 2017.

5. (Business Competitiveness) The competitive edge of Korean businesses over China’s to be increasingly difficult to maintain. The Korean motor industry’s global market share dwindled from 7.0% in 2011 to 5.1% in 2017, and its market share in China also dropped considerably to 4.6% in 2017 after reaching its peak at 9.0% in 2014. The global market share of the Korean smart phone industry is 18.6%, second highest after the US, but it is struggling in China with a market share of merely 1.7%, falling way behind local manufacturers. Korean cosmetic manufacturers failed to register on the ranking list, apart from one manufacturer with a Chinese market share of 4.9%, falling well behind those of the French, Hong Kong and local manufacturers. Lastly, the Korean e-commerce market is also falling behind the US and China. The top 10 global businesses are mostly American or Chinese enterprises. Alibaba, in particular, has now grown to be the top company, taking 27% of the world market share.

6. (Human and Cultural Contents Exchanges) Korea is feared to be behind China in the human and cultural exchanges between the two countries in quantity as well as in quality. It is estimated that China’s annual spending for tourism is to be over US$400 billion by the year 2020 when China’s GDP per capita marks over US$10,000, and the number of high-income individual tourists visiting Korea is expected to increase more than the number of low-cost package tourists from China. The size of the Korean cultural contents market is smaller than China’s, and Korea’s export of cultural contents is highly focused on the Chinese market. Korea takes only 2% of the global contents market share, and 27% of Korea’s contents exports is to China.

To sum up, Korea’s economic dependence on China is still high. Korea’s economic growth rate falls by 0.38%p when China’s drops by 1%p. The level of economic synchronization between Korea and China varies depending on the times: It dropped substantially from 0.64 during the time of Hu Jintao to 0.24 since Xi’s rise to power. Xi Jinping’s long hold on power may pose a new risk due to the weakening economic synchronization between Korea and China.

<	Impact on Korean Economy when China’s Economic Growth Rate Falls	>	<	Korea-China Economic Growth & Syncronization Trends by Period (Increase rate, %)	>
Source : Estimated by HRI			Source : World Bank. Note 1) Based on yearly real GDP. 2) Based on yearly Correlation Coefficient between the two countries by periods.

Comprehensive Assessment and Policy Suggestions

Preparations should be made to deal with the weakening economic synchronization between Korea and China and to counter China’s strengthening industrial competitive edge with the growing possibility of President Xi Jinping’s long-term stay in power.

1. Government should seek to devise means to step up the existing specialization trade structure between Korea and China.

2. Korea must urgently endeavor to improve the existing environment to break into the Chinese service market through Korea-China FTA negotiations for service and investment.

3. Korea should try to take advantage of opportunities to take part in China’s infrastructure projects including the Belt and Road Initiative(BRI).

4. A mutual cooperation system should be built to be made available in the areas of finance and trade between Korea and China.

5. Consolidation of the competitive edge of Korean key industries should be given top priority.

6. Korean tourism, culture and contents industries should autonomously secure competitiveness and upgrade their standing in the global market in the long term by staying ahead of the competition.

3. Current State of Korea’s Technology Financing and Suggestions

Research Background

Technology financing is a type of business financing that supplies funds to businesses for technology innovation processes including start-ups, R&D and the commercialization of technology through technology evaluation, and it plays a very important role in the growth of venture businesses and start-ups, which are the main driving forces of ‘innovation growth’. It is particularly important for the successful commercialization of technology developed by venture companies and start-ups, and yet it is struggling due to a shortage of financing. Advanced countries have established excellent technology financing environments where companies with cutting edge technology can secure financing with no great difficulty, whereas Korea’s technology financing system is still at a developing stage. The level of financing availability in Korea is low compared with other OECD member countries, and Korean businesses blame insufficient funds for the failure of technology commercialization. Therefore, this research examines the current state of technology financing in Korea and its related issues, and presents some suggestions.

Current State of Technology Financing in Korea.

Technology financing can be classified, depending on the style in which it is conducted, into standing security for loans, provision of finance and investment, and can also be divided into private sector and public sector, depending on who the provider is. This report examines the representative technology financing programs according to the way in which they are provided.

(Endorsement: Technology Endorsement) Technology financing by way of endorsement is where the endorsement agency evaluates technologies and, when satisfied, issues technology endorsement certificate which facilitates businesses to secure loans. The amount of loans and number of endorsements granted breaks a new record every year. Total accumulated loans granted with an endorsement certificate amounted to KRW 21.5 trillion and the number of technology endorsement certificates issued increased to 112 thousand in June 2017.

(Loans: Financing on Technology Credit) This is a financial package available for businesses with the interest rate and size of the loan to be decided depending on the outcome of the technology evaluation. It is a typical financing program generally provided by commercial banks based on a technology evaluation report issued by the Technology Credit Bureau(TCB) designated by the Financial Services Commission. The amount of loans and number of endorsement granted on technology credit has sharply increased; the amount of loans granted on technology credit was no more than KRW 0.2 trillion in July 2014, but rocketed to 587 times as much, KRW 112.8 trillion, in July 2017, and the number of loans granted to businesses increased to four times as many from 63,203 in June 2015 to 252,295 in June 2017.

(Investment: Venture Investment) Venture investment refers to direct investment in businesses with a technological edge in the forms of shares and bonds, and venture capitals are the most important investors. Venture investment has steadily risen; the venture investment was recorded at KRW 1.4 trillion in 2013 and it jumped to KRW 2.2 trillion in 2016. Thus, the total accumulated investment reached a record-high of KRW 19.0 trillion.

Current Issues Facing Korean Technology Financing

1. Technology-based unsecured loans are criticized as being ‘in name only’. Since the ‘Appraisal of Banks Innovation’ was released by the Financial Services Commission, commercial banks of Korea have rapidly expanded the size of financing on technology credit with security or endorsement, including switching existing loans to small and medium-sized businesses from general bank loans to technology financing. Financing on technology credit requiring security or endorsement has risen to the similar level of security and endorsement level required for general bank loans.

2. The level of dependence of venture investment on the public sector is getting increasingly high. Korea’s largest investor is the Korea Fund of Funds, to which the government supplies investment resources. The ecosystem of Korean venture investment consists of the fund of funds forming syndicates according to policy objectives to attract venture capitals, and venture capitals competing to be selected as a syndicate management firm of large-sized fund of funds. Because the main revenue of venture capital is the syndicate management fee, it therefore tends to focus on chasing management fee as an agent under government control.

3. Investment in start-ups in the early stage is very low. Venture investment in start-ups in their early stage has stayed at 36.8%, which is barely more than half of the average OECD member countries’ 68.2%. The size of angel investment is also small. Korea’s angel investment is marked at US$150 million, 1/140 of the US’s and 1/50 of Europe’s.

4. The intermediate recovery market is small. The M&A market, in particular, a typical means of intermediate recovery, is very small compared with the US and Europe. The M&A to IPO ratio is only 1/9 of the US’s and Europe’s, and 1/2 of China’s. The public sector-led intermediate recovery market is still at an immature stage with insignificant trade volume.

< Key Technology Financing Programs and Their Sizes >

Section		Sector	Programs	Size	Remarks
Indirect	Endorsement	Public	Technology Endorsement	KRW 21,459 billion(Balance)	As of June 2017
	Financing	Public	On-lending financing	KRW 6,300 billion(Supplied)	Korea Development Bank Plan, 2017
			Investment	KRW 6 trillion(cap)	Bank of Korea Revised Plan, 2017
			Support funds for breaking into new market	KRW 575 billion(budget)	Plan, 2017
		Private	Financing on technology credit	KRW 112,817 billion(Balance)	As of June 2017
Direct	Investment	Private	Venture Capital	KRW 18,958 billion(Balance)	As of June 2017
			IP Fund	KRW 100 billion	As of 2014

Suggestions

The technology financing system should be upgraded to prevent businesses with excellent technological potentials from being out of business due to shortage of funds by the adopting following measures:

1. Radical reform should be brought to the current financing system to facilitate financing on technology credit to be provided on the basis of actual technology assessment.

2. Systems related to technology financing and the investment environment should be modified to create a private sector-led ecosystem of venture investment.

3. Provision of technology financing for start-ups in their early stage should be significantly expanded.

4. Ways to vitalize recovery market should be sought to increase venture capital.

Ⅱ. North Korean Issues

Ⅱ. North Korean Issues

1. Diagnosis of the Two Korea’s Summit Meetings 2018 and Suggestions

Summary

In a surprise move, the inter-Korean summits reached an agreement in 2018 in the form of the ‘Panmumjom Declaration for the Peace, Prosperity, and Unification of Korea’(hereinafter referred to as Panmumjom Declaration). These two summit talks are assessed to have not only served as a momentum for permanent peace settlement in Korean peninsula, but also to have laid the corner stone for the creation of an economic community shared by the two Koreas. The Declaration has especially great significance as a ‘foundation for a paradigm shift’ for finding a solution to the North Korean denuclearization issue, which is to be dealt with in the forthcoming US-N. Korea summit talks.

Diagnosis of the Inter-Korean Summit Meetings 2018

The Panmunjom Declaration is believed to have served as a catalyst for reconfirming existing North-South agreements in 11 years, and to have enhanced the practicality of making a breakthrough in North-South relations.

(Denuclearization of N. Korea) Korea seems to have earned a convincing reputation as ‘driver of the Korean peninsula’ and a driving force for the promotion of the ideas of the ‘North-East Asia Plus Responsible Community’ by successfully stipulating  complete denuclearization in its agreement with the North.

(Establishment of Peace Regime on the Korean Peninsula) The Declaration is significant in terms of it demonstrating to the rest of the world the determination of the two summits  to achieve a consensus between the two Koreas for the settlement of a permanent and stable peace regime in the Korean peninsula.

(Improving the North-South Relations) The stipulation in the Declaration with regard to the promotions of exchanges between the North and South in social and cultural areas, the humanitarian agreement for holding reunions of separated families on the occasion of August 15, Korea’s Independence Day,  and the implementation of the 10.4 declaration for co-prosperity are all great achievements.

Suggestions

The process and speed of implementing the agreement made between the two Koreas is as important as making the agreement, and therefore requires the following measures to enhance national support and consensus of the international community:

1. A virtuous cyclical structure of Agreement-→Implementation →Trust Building should be put into place. The two Koreas must have mutual confidence in the sustainable stability of inter-Korean relations through the building of trust.

2. Preparation of an institutional framework such as the conclusion of a new ’North-South basic agreement’ should be promoted through followed-up measures for a fundamental shift in North-South relations.

3. Phased objectives for reinstating good relations should be established for the resumption of North-South economic cooperation at an appropriate speed.

4. Publicity campaigns should be stepped up with full explanation of the contents of the North-South Agreement to create a national consensus that improvement of North-South relations and the resumption of economic cooperation between the two Koreas would make a great contribution to the settlement of peace in the Korean peninsula.

5. The agreement between the two Koreas should have the blessing and support of the international community, and the international sanction against N. Korea should be lifted first before S. Korea can resume economic cooperation with the North.

[Annex] Domestic and Global Economic Indices

[Annex] Domestic and Global Economic Indices

□ Global Growth Rate

Category	2016					2017					2018
	Annual	1/4	2/4	3/4	4/4	Annual	1/4	2/4	3/4	4/4	Annual(E)
US	1.5	0.6	2.2	2.8	1.8	2.3	1.2	3.1	3.2	2.9	2.9
Euro Region	1.8	0.5	0.4	0.4	0.6	2.3	0.6	0.7	0.7	0.7	2.4
Japan	0.9	0.8	0.3	0.2	0.2	1.7	0.7	0.5	0.5	0.1	1.2
China	6.7	6.7	6.7	6.7	6.8	6.9	6.9	6.9	6.8	6.8	6.6

Note 1) IMF figures of April 2018 for 2018 global projections.

2) Annual rates were compared with those of previous term for the US and Japan, with the rates of the previous term for Euro region, and with the same term in the previous year for China.

□ Economic Indicators of South Korea

Division		2016	2017			2018(E)
			the first half	the second half	Annual	the first half	the second half	Annual
National Account	Economic Growth rate (%)	2.8	2.8	3.4	3.1	3.1	2.5	2.8
	Private Consumption (%)	2.5	2.1	3.0	2.6	3.0	2.4	2.7
	Construction Investment (%)	10.3	9.7	5.8	7.6	1.3	0.0	0.6
	Facility Investment (%)	-1.0	17.0	12.3	14.6	5.0	2.8	3.9
Foreign Trade	Current Account (100 million Dollars)	992	357	428	785	270	380	650
	Exports Increase rate (%)	-5.9	15.7	15.9	15.8	8.0	4.5	6.2
	Imports Increase rate (%)	-6.9	21.3	14.6	17.8	13.1	7.0	10.0
Consumer Price (Average, %)		1.0	2.0	1.9	1.9	1.4	1.7	1.6
Unemployment rate (Average, %)		3.7	4.1	3.3	3.7	4.1	3.5	3.8

□ Economic Indicators of North Korea

		2008	2009	2010	2011	2012	2013	2014	2015	2016
Per capita GNI (10,000 won)		114	119	124	133	137	138	139	139	146
Amount of Trade by Year (USD million)	South-to-North	888	745	868	800	897	521	1,136	1,262	147
	North-to-South	932	934	1,044	914	1,074	615	1,206	1,452	186
	Total	1,820	1,679	1,912	1,714	1,971	1,136	2,343	2,714	333

Source : THE BANK OF KOREA, Ministry of Unification.

Hyundai Research Institute

Ⅱ. North Korean Issues

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