Republic of Korea
LOCATION AND SIZE.
South Korea occupies the southern half of the Korean Peninsula in eastern Asia. It is bordered by North Korea to the north, the Sea of Japan / East Sea to the south and to the east, and the Yellow Sea to the west. South Korea has an area of 98,480 square kilometers (38,023 square miles), which makes it slightly larger than the state of Indiana. It has 238 kilometers (148 miles) of land borders with North Korea and 2,413 kilometers (1,499 miles) of coastline. Among its major cities, Seoul, the capital city, and Inchon are located in the northwestern part of the country, while Kwangju and Pusan are in the south, Taegu is in the southeast, and Taejon is in the center.
The population of South Korea was estimated at 47,470,969 in July 2000. It increased from 35.3 million in 1975 to 46.1 million in 1998, indicating a growth rate of 1.2 percent. At the current estimated growth rate of 0.6 percent, the population will increase to 51.1 million by 2015. In 2000 the estimated birth rate was 15.12 per 1,000 population while the estimated death rate was 5.85 per 1,000 population. The estimated migration rate was 0 percent.
South Korea's population is ethnically homogeneous. With the exception of a small Chinese community of about 20,000, the rest of the population are ethnic Koreans. Some 78 percent of the population falls within the age groups of 15-64 (71 percent) and 65 or older (7 percent). By 2015, 10.6 percent of the population will be older than 65.
South Korea is a highly urbanized society. In 1998, about 84.5 percent of its population lived in urban areas, a significant increase from 1975 when the urban population accounted for 48 percent of the total. The urban population is estimated to reach 92.2 percent by 2015. Seoul, the capital city, is the largest urban area, with a population of 10.4 million, followed by Pusan (3.9 million), Taegu (2.5 million), Inchon (2.5 million), Kwangju (1.3 million), and Taejon (1.3 million).
South Korea's tax system relies heavily on indirect taxes , which account for about 50 percent of tax revenue. Resident and non-resident individuals and corporations are liable for taxation. Real-estate rental income, business income, earned income, temporary property income, and miscellaneous income attributed to a resident are taxed progressively. Interests and dividends are subject to withholding tax. Non-residents are also taxed on income from sources in Korea. Tax rates on individual income range from 10 percent to 40 percent. Taxation applies to all corporations operating in South Korea, whether domestic or foreign. Companies that have been incorporated in Korea are considered to be domestic corporations and are liable for taxation on their worldwide income, whereas foreign corporations pay taxes on their Korean-generated income only. The corporate income-tax rates range between 16 percent and 28 percent.
Taxes, customs duties , and other government-generated revenues (assorted fees, social security contributions, and the income of public enterprises) are the main sources of government revenue. Budget deficits are financed through borrowing, either directly from domestic and foreign banks or through the issuance of bonds. In 1999, total government revenue was US$90.78 billion, of which all taxes and custom duties accounted for 70.1 percent of the revenue. Other government revenues accounted for 29.9 percent of the total revenue. The government spent a total of US$101.77 billion that year and incurred a deficit of US$10.99 billion. Better economic performance in 2000 resulted in a small surplus (about US$11 billion). Of the total revenue of US$118.18 billion, all taxes and customs duties accounted for 69.48 percent (US$82.12 billion) of the revenue, while other government revenues accounted for 30.52 percent (US$36.06 billion).
Arable land is limited in South Korea. It accounts for 21 percent of the total land (20.7 million hectares), a decrease from its share of 21.8 percent (21.6 million hectares) in the early 1950s. Growing urbanization and road building are the 2 major factors responsible for the decrease. Agriculture's share of GDP, including forestry and fishery, has declined from 6.2 percent in 1995 to 5 percent in 1999. The total output of the sector, including forestry and fishery, grew 4.7 percent in 1999, after a contraction of 6.6 percent in 1998 as a result of the 1997 financial crisis. In 1999, its share of the workforce was 10.09 percent (2,349,000 workers), a decrease from 1995 when its share was about 12.2 percent (2,534,000).
Since the 1950s, South Korea has a well-developed and highly productive agricultural sector, thanks to several factors: government financial assistance (US$8.3 billion in 2000), mechanization, and extensive use of fertilizers. To encourage growth and make the country self-sufficient in its major food item, rice, the government has prohibited rice imports under normal circumstances. It has also paid farmers higher than the world price for their rice while subsidizing consumers to make rice affordable for all. As a result, South Korea is now self-sufficient in rice production and the production of many kinds of fruit and vegetables. In 1999, rice production was 5,975,000 metric tons, a large increase from 1995 (5,060,000 metric tons). South Korea also produces significant amounts of other major items such as barley and wheat (189,000 metric tons in 1999), but it is not self-sufficient in grains. Therefore, it imports agricultural products, mainly cereals and preparations, equal to US$1.716 billion in 1998.
Although forests account for 65.7 percent of its total land, the topography makes commercial forestry difficult, so South Korea imports most of its forestry products (timber), mainly from Indonesia and Malaysia. Beginning in the 1950s, the reforestation policy of the government, combined with the rural development program of the 1970s known as the Saemaul Movement, has restored forests, which were massively destroyed during World War II. This resulted in a large increase in the production of timber from 30.8 million cubic meters in 1954 to 363.6 million cubic meters in 1998, mostly used by rural inhabitants as fuel. For its various needs, the country relies heavily on imported timber, which amounted to US$1.886 billion in 1998.
The fishing industry has been declining over the last 2 decades, with only 315,000 people so employed in 1999, down from 750,000 in the 1970s. Its role in the economy has declined along with that of agriculture in general as a result of industrialization and the growth of the service sector. In 1999, fishery products accounted for about 1 percent of exports (about US$1.4 billion), a sharp decline from its share of 5 percent in the 1970s. South Korea relies on large imports of fishery products for domestic consumption, although catches increased from 2.4 million metric tons in the late 1970s to 3 million metric tons in the late 1990s. The value of imported fishery products was about US$1 billion in 1996-97, a huge jump from the mid-1970s when they were less than US$20 million annually.
Mining and quarrying are very insignificant economic activities, accounting for only 0.4 percent of GDP (US$1.47 billion) in 1999. South Korea has few significant mineral resources, and no oil or natural gas. Its available minerals are lead, zinc, and copper, which supply only a fraction of its needs. As a result, it imports all its needs in fuel and almost all its needed minerals, accounting for 50.8 percent of its total imports in 1999. South Korea was once a major exporter of tungsten concentrate, but its output of tungsten ore stopped completely in 1993 when China flooded the world markets with tungsten, sharply decreasing its world prices. The mining industry, including quarrying, grew by 5.2 percent in 1999, a negligible growth for an industry that experienced a 24 percent contraction in 1998.
Manufacturing has been the engine of growth and development for South Korea, which has emerged as a major supplier of various manufactured products. The sector's contribution to GDP was 31.8 percent in 1999, an increase from 30.9 percent in 1998 and an improvement over the levels during the economic slowdown of 1996 and 1997.
South Korea's manufacturing sector produces a wide range of labor-and capital-intensive products to satisfy domestic needs, but mainly for export. They include light and consumer products (fabrics and clothing); electronic, telecommunication, and computer devices; and heavy industrial products (metals, automobiles, and ships). Since the 1970s, South Korea has become one of the world's major steel producers. The automobile industry began growing in the 1980s for export purposes only, but it eventually expanded to meet domestic demands too. Annual production of automobiles grew from 935,271 in 1990 to 2.2 million in 1999.
The value of South Korea's manufactured goods was US$129.5 billion in 1999, as compared to US$97.9 billion in 1998 during the economic crisis. The best-performing sectors included telecommunications, electronics, industrial machinery, and transport equipment, which grew by more than 30 percent. Heavy industry and chemicals grew by 25.9 percent, and light industry (textile, footwear and food products) by 7.2 percent.
During the financial crisis of 1997, many manufacturers, including large conglomerates, went bankrupt. Corporate restructuring, as part of the conditions for receiving IMF aid, has changed the ownership structure of manufacturing to some extent. This previously closed sector is now open to unlimited investment and acquisition by foreign investors. In 1998 Hyundai Motor, the largest South Korean automaker, acquired the troubled Kia Motors, South Korea's third largest carmaker and its affiliate, Asia Motors. In 2000, Renault, a French automaker, purchased the bankrupt Samsung Motors while Ford, a U.S. company, bought the bankrupt Daewoo Motors.
The manufacturing sector employed 4,006,000 people in 1999, a substantial increase from 1998 (2,324,000 people). The 1999 figure indicates a large increase since the 1980s (15.3 percent), but a phenomenal increase since the early 1970s (169.9 percent). As has happened in most developed economies, the growing cost of labor has forced many South Korean manufacturers to relocate large industries and/or labor-intensive ones to countries with much cheaper wages, such as Thailand, Malaysia, Indonesia, the Philippines, Vietnam, and China. Thanks to better ties between the 2 Koreas since 1998, some South Korean manufacturers have established a few electronics factories in North Korea, but extensive relocation of South Korean industries to North Korea will not be a real option until the 2 countries have further improved their relations.
Despite its decades of growth resulting from massive infrastructure projects, the construction industry has experienced a decline since 1995 when its share of GDP was 11.3 percent. With the financial crisis, its share fell to 10.1 percent in 1998 and 8.8 percent in 1999.
In the 1960s and the 1970s, construction prospered as South Korea was entering its industrialization phase. This continued until the housing boom of the late 1980s. The number of residences (houses and apartments) built averaged 196,000 annually from 1973 to 1982 and reached 750,000 in 1990. The boom continued until 1996 when the economic slowdown began. The 1997 financial crisis saw a sharp drop in construction-industry revenues from US$32.4 billion in 1997 to US$9.9 billion in 1998. The limited recovery of 1999 increased the revenues to US$16.7 billion.
Overseas projects have helped the construction industry over time, but their importance has declined since the early 1990s. Taking advantage of cheap labor, South Korean construction companies won contracts in the 1980s for road-building projects, mainly in the rich oil-producing nations of the Middle East.
The service sector has developed substantially over time, accounting for 51.5 percent of GDP in 1999, surpassing agriculture and industry. It is the largest employer, with 64.3 percent share of total workforce in 1999 (13,906,000 workers), a small increase from 1995.
FINANCIAL AND BUSINESS SERVICES.
These services accounted for 19.7 percent of GDP in 1999, an increase of 5.7 percent since 1989. A major reason for its modest growth was the collapse of the Daewoo group with more than US$80 billion of unpaid loans. The collapse damaged the bond market and led to a loss of confidence in the investment trust industry.
Under the directive of the central bank (Bank of Korea), the government-owned banks have manipulated economic activities by providing credits to those enterprises who follow the government's development strategy, while punishing others by denying them credit. The 1997 crisis forced the government to reform the financial system to receive an IMF-led rescue package conditioned on economic restructuring. To minimize its intervention in the financial sector, the government has privatized all public banks with the exception of 2 development banks: the Korea Development Bank and the Export-Import Bank of Korea. They provide medium- and long-term credit for both export industries and the heavy-equipment and chemical industries funded by the South Korean government and foreign investors. In compliance with the IMF demand for the opening of South Korea's financial sector to foreign competition, it has sold one of its privatized banks to foreign bidders, while considering the sale of some others. Banks and insurance companies are still underdeveloped and suffer from various problems, a consequence of years of government mismanagement and especially the continued tight government control of financial services. Years of continued reform will therefore be required to address its underdevelopment.
The 1997 financial crisis forced many financial and business services to consolidate. Between 1997 and 2000, government regulators closed down about 498 financial institutions, including 11 banks, 21 merchant banking corporations, 13 insurers, 16 securities firms and investment trust companies, and 437 other non-banking institutions. In 2000, the financial system consisted of 22 banks and thousands of non-bank institutions, including 5 merchant banking corporations, 43 securities firms, 36 insurers, 28 investment-trust companies, 15 leasing companies, and 7 credit-card issuers. Non-bank institutions consist of several mutual savings and finance companies, credit unions, community credit cooperatives, postal savings plans, and insurance, installment-credit, and venture-capital companies. Assets held by all domestic banks totaled US$440.8 billion in 2000.
In January 2001, there were 44 foreign banks doing business in Korea, and some Korean banks have been taken over by foreign banks. Assets held by foreign banks are estimated at US$36 billion. Foreign banks work under regulatory conditions almost identical to those of domestic banks, but they are exempted from direct control by the South Korean government. However, they are not allowed to have a branch network, and therefore their retail operations are small.
Investment trust companies (ITCs) constitute another component of South Korea's financial and business services sector. The bankruptcy of the Daewoo group in late 1999 inflicted heavy damage on the ITCs, which had purchased a large share of its bonds. This drastic event caused panicked investors to transfer about US$84.2 billion of their investments from ITCs into banks. To restore confidence, the South Korean government has injected large sums (US$25.3 billion in 2000) into the worst-hit ITCs. It has also promised another rescue package of US$41.3 billion for 2001.
The South Korean life-insurance market is the world's sixth largest in terms of premium income. The insurance industry has also suffered from the weaknesses of the financial sector, and some companies have closed as a result. The government now supervises the insurance industry, which has been opened to foreign investors. In 2000, the insurance industry included 23 life-insurance companies, including 7 foreign ones and 3 joint ventures , and 13 non-life insurance companies. In 1999, their assets were estimated at about US$47.2 billion.
With its ancient historical sites, many Buddhist temples, various opportunities for summer and winter sports, and natural beauty, South Korea has become an important tourist attraction. Government support and private investments have helped the tourist industry grow impressively in the 1990s, after it had been an insignificant industry in previous decades. The number of tourists grew on average by 7.2 percent per year between 1995 and 1999 to reach 3,921,000 in 1999, a large increase over the 2,294,000 visitors in 1995. In 1999, tourist-generated revenue was US$4.615 billion, a significant drop from 1998's figure of US$6.924 billion. The devaluation of the South Korean currency and a sharp decline in the price of many goods and services pushed down the tourist-generated revenues despite an increase in the number of tourists.
Tourists are mainly from the Pacific region. Japan has been the largest source of tourism, followed by the United States and Taiwan, with 1999 figures of 2,174,000, 473,000, and 146,000, respectively. South Koreans residing abroad form a large segment of tourists as well, sending 1,128,000 tourists that year. The tourist industry has a large and expanding infrastructure. In 1998, it included 446 hotels (nearly half of them 5-star) with 46,360 hotel rooms. The hotel industry received a boost in the 1980s with the 1986 Asian Games and the 1988 Summer Olympics. The 2002 World Cup soccer tournament, which will be co-hosted by Japan and South Korea, will give another major boost to the South Korean tourist industry.
South Korea's economic growth has contributed to the expansion of land, sea, and air transportation. The transportation industry grew significantly in the 1990s when South Korea began to emerge as a major trading nation. The industry accounted for 7 percent of GDP in 1999, a little more than its share in 1995 (6.6 percent). The South Korean marine commercial fleet has a large cargo capacity, (5,093,620 metric tons in 1999), and is expected to grow in the first decade of the 21st century. Its commercial air fleet grew rapidly in the 1990s, carrying 74,375,000 international passengers and 9,052,000 domestic ones in 1997. The slowdown in South Korea's economy in 1998 sharply reduced passengers to 55,736,000 and 6,877,000, respectively, but a likely recovery is suggested as the economy recovers.
South Korea has a very large and growing retail sector, whose share of GDP in 1999 was 10.9 percent. The retail industry, which had been dominated mainly by small-scale traditional shops and restaurants, began to diversify and include larger and modern establishments as well as various foreign retailing networks in the 1980s. Nevertheless, most retail units are still small family-run stores, stalls in markets, or street vendors, though this traditional retail network is giving way rapidly to large discount stores. Discount-store chains, including the domestic E-mart, the U.S. Wal-Mart and Price Costco, and the French Carrefour, are growing. The retail sector also includes a growing food service sector with estimated revenue of US$22.7 billion in 1999. Franchise restaurants, including American ones, accounted for about 5 percent of this sector's revenue in 1999. Like all other types of economic activities, the 1997 financial crisis damaged the retail sector in general and slowed growth of the franchised restaurants in particular, but the economic recovery has improved the situation. Retail and wholesale trade recovered 13 percent in 1999, offsetting a similar decline in 1998. Partial statistics for 2000 reflect about 6.9 percent growth of the retail industry and a sharp jump in retail sales of an estimated US$98 billion.
South Korea has no territories or colonies.
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South Korean won (W). A won is equal to 100 chun. There are notes of W1,000, 5,000, and 10,000, as well as coins in denominations of W10, 50, 100, and 500.
Electronic products, machinery and equipment, motor vehicles, steel, ships, textiles, clothing, footwear, fish.
Machinery, electronics and electronic equipment, oil, steel, transport equipment, textiles, organic chemicals, grains.
GROSS DOMESTIC PRODUCT:
US$764.6 billion (purchasing power parity, 2000 est.).
BALANCE OF TRADE:
Exports: US$172.6 billion (f.o.b., 2000). Imports: US$160.5 billion (f.o.b., 2000).