Tag Archive | "data"

As Chinese Tourists Continue to Drop, Korea Turns to the Middle East

By Jenna Gibson

As several KEI analyses have shown, South Korea’s tourism industry  has been one of the main casualties of China’s economic retaliation over deployment of the THAAD missile defense system. New estimates from the Korea Tourism Organization show that China’s retaliation could cost Korea up to 5 million tourists this year, five times as many as when the MERS outbreak significantly dampened tourism in early 2015.

In June 2017, Korea saw a 36 percent drop in tourist entries, due in large part to a 66.4 percent decrease in Chinese visitors compared to June 2016. At that time, Chinese tourists made up 48.8 percent of all entries into Korea – a figure that’s now down to 25.7 percent.

But the numbers also reveal some good news that illuminate an important avenue for future growth in Korea’s tourism industry. While Chinese visitors continued to drop, the number of tourists from the Middle East have jumped significantly, recording a 71 percent increase from June 2016 to June 2017.

And, perhaps more importantly, tourists from the Middle East spend significantly more during their time in Korea than those from other areas, according to a study by the Korea Culture and Tourism Institute. Their recent survey of tourists in Korea showed that Middle Eastern visitors spent an average of $2,593 each during their trip, followed by Chinese tourists at $2,059 each. The average for all visitors to Korea is significantly lower, at $1,625.

In order to cash in on this growing market, the Korean government and the tourism industry are focusing on providing more services for Middle Eastern tourists, including a push to increase the number of halal certified restaurants around the country. Just this month, 117 more restaurants received their halal certification, bringing the total to 252. In addition, many popular tourist attractions have added prayer rooms for their Muslim visitors, including Nami Island, Lotte World, and Coex Mall, as well as Incheon International Airport and Busan’s Gimhae International Airport.

MENA tourism graphic-01

Part of the drive for more tourists from the Middle East choosing to visit Korea is the explosive popularity of Hallyu across the region. Take Iran, for example. There, fascination with Korean culture started back in the mid-2000s, when the historical drama ‘Dae Jang Geum’ was broadcast on state TV and garnered 86 percent ratings nationwide. In a 2017 report of the most popular shows on Netflix around the world, Iran was only one of two non-Asian countries to put a Korean drama (2012’s Love Rain) on the top of their queues.

In June, CJ E&M, Korea’s largest media company, said it will be opening a Turkish unit to increase its presence in Turkey, where locals can’t seem to get enough Korean cultural content. Considering that the filming sites of many popular Korean dramas have become popular tourist destinations, this increase in the popularity of Korean TV shows could lead to overseas fans travelling to Korea to see the spot where their favorite drama couple fell in love.

With the Korean tourism industry continuing to focus on enticing Middle Eastern visitors as well as tourists from all parts of the world, there is certainly an opening to offset some of the losses from the drop in Chinese tourism over the last year or so. But there is still a long way to go – even with the huge increase in visitors, Middle Eastern tourists still only make up around 1 percent of entries into Korea.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Image from yadem.hayseed’s photostream on flickr Creative Commons.

Posted in Culture, Korea Abroad, slider, South KoreaComments (0)

Pyongyang’s Deficit Soars: Won Steady But for How Long?

By William Brown

ICBMs are not the only things soaring in North Korean skies.  Comprehensive second quarter data released by China Customs last week shows a huge jump in North Korea’s trade deficit with China—sharply falling North Korean exports and flat imports, a double bad combination.  And, potentially troubling to the Kim regime, the composition of trade seems to be promoting market activity rather than the decrepit, but still enormous, command economy.

China North Korea Trade Balance
*  China stopped reporting crude oil shipments in first quarter 2014 but the trade is reliably said to be continuing, probably at the old aid agreement terms which provides about 150,000 tons of crude each quarter.  The charts, above and below, have added in the value of that volume at generally declining Chinese crude oil export prices–$50 million in the most recent quarter.

Pyongyang has been able to keep a clamp on the exchange rate—won can be traded informally for U.S. dollars in markets around the country—but likely at some cost to the government’s reserves and its ability to expand money supply without sparking inflation, and perhaps with a little help from the balloons. But food and other commodity prices, meanwhile, may be on an upswing as drought followed by flooding diminishes prospects for the critical fall rice crop, and as worries about Chinese supplies may have pushed up gasoline and diesel prices.  An informal inflation index produced by DailyNK has inflation rising to a 16 percent rate in July, suggesting Kim’s signal achievement of fighting inflation may be at risk.

Officially, the Chinese data show a $174 million North Korean deficit in June and $574 million for the quarter, both at record levels. Considering China has taken its crude oil exports “off the books,” the actual North Korean deficit is probably even larger — in the graphics below we have added between $115 to $50 million each quarter to North Korean imports since 2014 to account for the oil.

China North Korea Trade exports and imports

How North Korea finances this large deficit in the face of sanctions on its nuclear and missile activities is not well understood, making policy analysis of those sanctions next to useless. Even South Korea’s Bank of Korea, which bravely estimates North Korean GDP, says it can’t guess at the country’s balance of payments or its hard currency reserves.  But for the sake of argument, and given the trade deficit with China has averaged about $200 million a quarter for the better part of a decade, it would seem reasonable to expect that about this amount of hard currency is earned or borrowed in a combination of net trade with other countries; foreign aid to North Korea including the offset for the crude oil; UN and other international expenditures inside North Korea; small amounts of inward foreign investment and loans; remittances from overseas workers and refugees or Korean immigrant families in Japan, South Korea, China and Russia; and tourism.

  • Probably to re-build domestic confidence after the country experienced a disastrous currency redenomination in 2009, followed by hyperinflation in 2010, Pyongyang’s monetary authorities appear to have fixed the unofficial won’s value at just above 8,000 won per dollar, and began to ignore the official 135 won per dollar rate.  Monetary stability since then is impressive, probably owing to some combination of market price caps, restrictions on the use of foreign currency, conservativism in expanding won credit, direct intervention using the regime’s own reserves and, most interestingly, a willingness to allow legal trading and use of dollars in the market places. And now, with five years of stability, won holders appear satisfied not to chase the dollar.
  • Still, the mystery of the day is why smart money dealers in Pyongyang aren’t taking advantage of the deteriorating export situation by buying up U.S. dollars and forcing a panic.  Either something else is happening that we don’t know about or there is trouble ahead for the country’s always-tenuous finances. One easily can imagine another breakout in favor of the dollar and panic selling of won—hugely disruptive in North Korea’s newly forming half-market economy.

North Korean Won

  

North Korean Exports Labor Intensive and Mining Products

North Korean exports to China fell to only $361 million in the second quarter, the lowest level since 2010, and even this was suppported by generally higher prices for most items.  Major export commodities included:

  • Apparel and other textiles accounted for almost half of its exports—$149 million, up from $145 million in second quarter 2016.
  • Ferrous and non-ferrous ores rose to $78 million, up from $65 million.
  • Fish product exports at $67 million, were up sharply from $31 million.
  • In contrast, mineral products, including coal, was recorded at only $2 million, down from $236 million in the same period of 2016.

None of these items would appear to be big hard currency earners for the regime, although they help provide employment.  Labor intensive textiles exports have grown in recent years as the industry makes better use of its antiquated mills, allowing exporters to pay workers directly in some cases and thus improving productivity of labor and capital alike.  Ore exports would seem problematic, given the UN sanctions against them, but Chinese firms were said to have invested heavily in the huge Musan iron ore complex on the border with China some years ago and may now be recouping investment costs by trucking the ore over into China.  This mine previously served North Korea’s largest industrial complex, the Kimchaek iron and steel mill in Chongjin, which is now dilapidated and only marginally productive. So the iron ore earnings may be coming at the expense of higher value-added steel products once exported from that plant and are likely controversial, even in North Korea, as they are thought of as a giveaway of the nation’s natural resources. China has also invested in a copper mine, and likely in other non-ferrous metals, but results from these are spotty and now largely sanctioned.  Fish products are essentially traded by fishing boats, with flows going both ways depending on the season.

Textiles lead North Korea’s imports

Imports from China also appear to be increasingly driven by consumer rather than government or investment demand.  Textiles, cell phones and television imports are growing at the expense of some industrial inputs and agricultural inputs, and cereals. Petroleum product imports, plus gasoline and diesel fuels, remain sanctioned and low.

  • Textiles and apparel imports reached $258 million, up from $198 million in second quarter 2016.
  • TV and cell phone imports totalled $50 million, up from $38 million.
  • Food products of all kinds registered $123 million, up from $96 million.
  • Diesel, gasoline, and kerosene imports were $19 million, down from $31 million, again from second quarter of 2016.

 

Selected Imports from China

 

Visibility of Chinese-made consumer products among the general public is spreading the suggestion that the economy is doing fairly well—South Korea’s Bank of Korea estimated last week that North Korea’s proxy GDP rose 3.9 percent in 2016, the fastest in well over a decade and this despite the sanctions. But a large question is how far the regime will let this go, given what is clearly a big drain on limited foreign exchange.  Grain imports also rose slightly in the second quarter but remain much lower than in the recent past, and may need to rise much more if the fall harvest turns out to be weak.  Some grain is provided by foreign aid agencies, purchased in China and shipped to North Korea, thus counting as a North Korean import in the trade accounts, but with an offsetting credit in the (unpublished)  transfers account.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. He is retired from the federal government. The views expressed here are the author’s alone.

Illustration by Jenna Gibson, KEI.

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Since Trump’s Election, the U.S.-Korea Trade Deficit Has Been Reduced by One-Third

By Phil Eskeland 

Last March, President Donald Trump directed the Department of Commerce and the Office of the U.S. Trade Representative (USTR) to prepare an Omnibus Report on Significant Trade Deficits within 90 days.  South Korea has been identified as a country that would be included in this report based on 2016 data that shows U.S. goods exports to Korea declined and the trade deficit has grown since the implementation of the Korea-U.S. Free Trade Agreement (KORUS FTA).  While awaiting completion of the report, USTR also issued a letter to Korea asking for a special meeting of the Joint Committee to discuss possible amendments and modifications to the KORUS FTA to address the “significant trade imbalance” between the U.S. and the Republic of Korea.   However, both efforts use outdated statistics with respect to the latest data in the U.S.-Korea trade relationship.

Since President Trump was elected in November, the monthly bilateral merchandise trade imbalance between the U.S. and South Korea has been less that the previous year.  Thus, the six month (December through May) cumulative goods deficit has been cut by more than one-third (or 34 percent) as compared to same six-month time period from the previous year.  One reason for this reduction is that for the months of December, March, April, and May, the U.S. has hit repeated record levels of merchandise exports to Korea – $4.27 billion in December, $4.36 billion in March, $4.43 billion in April, and $4.5 billion in May.  While trade statistics are not available from the U.S. government yet for the month of June, the Korea International Trade Association (KITA) reported that South Korea imported a record $4.8 billion in goods from the United States in June, resulting in yet another month in which the bilateral merchandise trade deficit was significantly less than last year’s level.

Trade Data 7.2017-02

This trend is even more pronounced when you include services trade.   Comparing the combined trade imbalance statistic of the 4th Quarter 2015 and 1st Quarter 2016 with the 4th Quarter 2016 and 1st Quarter 2017[1] (in other words, since Trump’s nomination for president), the trade deficit in both goods and services between the U.S. and the ROK dropped by 37 percent.

Trade Data 7.2017-01

This updated information should be incorporated in any analysis of the bilateral trade deficit and as part of any administration strategy to reduce the trade imbalance between the U.S. and South Korea.  It appears that the free market and the KORUS FTA is already working to accomplish the Trump Administration’s goal with respect to lowering the trade deficit between the two countries.

[1] 2nd Quarter 2017 data on trade in services will not be made available until early September.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.
Image from Tom Driggers’ photostream on flickr Creative Commons.      

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Chinese Tourists to South Korea Drop 40 Percent in March Amid THAAD Row

By Jenna Gibson

It’s official – new numbers from March confirm that China’s THAAD retaliation has significantly cut into South Korea’s tourism industry.

According to new data released today by the Korea Tourism Organization, the number of Chinese tourists arriving in South Korea fell 40 percent year-on-year in March 2017.

Only 360,782 Chinese visitors came to South Korea in March, down from 601,671 in March last year.

Considering that China’s alleged travel ban only took effect on March 15, about halfway through the month, it’s possible that April’s drop could be even more dire.

South Korea’s tourism industry is heavily reliant on Chinese visitors – in 2016, they made up 47 percent of all tourist arrivals and 70 percent of sales at Korean duty free shops.

According to a previous KEI article, “Chinese tourists spent an average of $2,391 per person while visiting Korea – meaning the 8 million Chinese tourists who visited Korea in 2016 brought nearly $20 billion into the local economy.” So, if the 40 percent cut in visitors results in a corresponding drop in revenue, the Korean tourism industry could lose up to $7.7 billion as a direct result of China’s THAAD retaliation.

Chinese Tourism Graph March

There is a silver lining in the March tourism data. Despite this massive 40 percent drop in visitors from China, the total number of people entering South Korea in March was down only 11.2 percent over March 2016. This is thanks in large part to a 22 percent jump in visitors from Japan, the second-largest group of tourists in Korea after China.

Other countries such as Taiwan, Myanmar, Vietnam and Mongolia also showed significant increases. This may be a good sign for the Korean government, which is heavily targeting Southeast Asia and the Middle East to diversify the industry and decrease their reliance on tourists from China.

The Ministry of Culture, Sports and Tourism is reportedly focusing more on advertising in Southeast Asia and Japan, and Seoul has started posting signs at major tourist destinations in Bahasa Indonesia, Malaysian, Thai and Vietnamese.

In addition, the KTO has been increasing their focus on tourists from Muslim-majority countries, helping local restaurants get halal accreditation and even hosting a Halal Restaurant Week at the end of last year to highlight Korean food options for Muslim visitors.

Meanwhile, just after the ban took effect, the Korean Ministry of Trade, Industry and Energy promised to provide 400 billion ($349 million) to support businesses affected by the THAAD retaliation, including those in the tourism industry.

This is not the first crisis that the Korean tourism agency has dealt with in recent years. During the peak of the Middle East Respiratory Syndrome (MERS) outbreak in July 2015, total tourism arrivals were down 53.3 percent over the year before, including a 63.1 percent drop in arrivals from China. Later that year, the Korea Culture and Tourism Institute estimated that MERS cost the tourist industry 3.4 trillion won ($3 billion) in lost revenue. The fact that the tourism industry was able to bounce back from that significantly greater drop bodes well for its ability to deal with this crisis as well.

While it remains to be seen how deep this THAAD spat will cut the Korean tourism industry over time, it is clear from these new numbers that the Chinese retaliation should not be taken lightly. As the THAAD system continues to go through the deployment process, Korea will have to keep an eye on the immediate as well as secondary effects of China’s policies.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Graphic by Jenna Gibson. Photo from Tom Page’s photostream on flickr Creative Commons.

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