Seoul, Peking Gingerly Talk Trade

Under glass on the coffee table in the office of Lee Soo Jang, overseas trade director of Kia Motors Corp., is a map of China with six of its provinces outlined in color. It is not the kind of thing one expects to see. South Korea, after all, has been shunned by China for nearly three decades.

The map is there, Lee said recently, because Kia, the No. 3 auto firm in South Korea, has had more than 250 inquiries from the six provinces since last October. The provinces are Guangdong, Fujian, Hubei, Hebei, Zhejiang and Jilin.

So far, Lee said, Kia has made no large deals in China, but it has shipped 50 vans and trucks to China as samples. It plans to re-enter the passenger-car field with exports to the United States in 1987.

Lee said the Chinese, whose first inquiries to Kia dealt strictly with imports, are now talking about joint ventures and capital investment for an auto assembly plant in China.

With Communist North Korea reportedly still urging China to refrain from making any contacts with South Korea, evidence of Seoul-Peking economic ties is usually kept under wraps by the South Koreans. They recall that in 1978 and 1979 the North Koreans persuaded China to drop economic overtures between China and South Korea. There are no diplomatic relations between South Korea and China, whose soldiers fought on opposite sides in the Korean War.

The new interchange, however, is growing so rapidly that it is becoming almost impossible to hide. Even the United States has felt its impact.

American grain sales to South Korea declined by 21.4% in 1984, to $761.3 million, partly because of a sharp increase in Korean purchases from “others,” as trade statistics put it. This figure rose to $108.9 million, almost seven times what it had been. The “others” are largely China.

The U.S. Agriculture Department, in an issue of its Foreign Agricultural Trade of the United States magazine, reported that China sold 462,000 tons of corn to South Korea last year and is expected to export 900,000 tons there this year, meeting 26% of South Korea’s demand.

Threat to America’s Market Share

An American expert, who asked not to be identified, said overall Chinese sales of agricultural goods to South Korea, including cotton as well as grains, exceeded $300 million last year. Growing South Korean imports from China, he said, threaten to erode America’s agricultural market here.

“We all hoped that China would break out of its collective economy, and it has,” the American said with irony.

Overall trade between Seoul and Peking is also growing. In the midst of a 3.5% decline in exports that South Korea recorded in the first seven months this year, an increase of 13.1% in exports to Hong Kong stands out sharply.

Last year, exports to Hong Kong were up by 57%, “reflecting indirect sales to China,” U.S. officials said. Hong Kong suddenly became South Korea’s third-best export market, after the United States and Japan, with sales rising to $1.28 billion in 1984 from $817.7 million in 1983.

Imports from Hong Kong also more than doubled last year, to $468 million.

Hong Kong trade figures for the first half of this year show that South Korean exports that passed through the British territory to China amounted to $221 million, or 4.2 times the figure for the same period last year. And South Korean businessmen say privately that some merchandise is being shipped directly, to places like Hainan Island, a part of Guangdong province, without passing through Hong Kong.

The contacts that China has had with Kia Motors point to an even broader economic interchange and an opportunity tailored to South Korea’s capabilities.

“No matter how aggressive the Chinese government may be in its attempts to modernize China, considering the time that will be necessary to industrialize the whole country, our level of industrialization may be more appropriate for China,” Lee said.

Offer Right Kind of Technology

“For atomic power, China may have to go to the United States, Japan, West Germany or France for technology, but in the manufacture of machinery and automobiles, a highly automated system of production is not suitable for China.”

South Korea, he suggested, could offer the Chinese what they need: technology that “is not that highly automated but not wholly manual, either.”

Kia’s Bongo van, for example, can be used either as a bus or a truck and meets China’s need for a strong vehicle capable of withstanding the bumps and shocks of bad roads.

Kia, Lee said, has not reached a decision yet on China’s proposals. He said discussions are continuing through such intermediaries as South Korean and Japanese trading firms and Korean residents in the United States.

South Korea blames most of its economic slump--growth slowed to 3.2% growth in the first half of the year, compared to more than 10% a year ago--on declining exports to the United States. But the country faces other economic problems as well, and they have spurred an unusual series of conferences between government leaders and business executives.

The meetings began last month and are scheduled to continue until late this month.

A disgruntled executive complained after a meeting with Deputy Prime Minister Shin Byong Hyun that President Chun Doo Hwan’s government is “strangling” industry with a policy of controlling inflation.

“It would have been all right,” said the executive, who asked not to be identified, “to have gone from 20% inflation to, say, 17% in one year, and then gradually lowered the rate of inflation to 4% (where it is now). But to have gone from 20% to 4% was too radical.”

Investment, he said, has virtually dried up.

Chung Ju Yung, founder of the giant Hyundai conglomerate, has been using his position as president of the Federation of Korean Industries to complain loudly in public about the government’s tight-credit policies, a position the executives reiterated, though to no avail, in their meetings with Shin. Chung has accused the government of being “antagonistic” toward big business.

Earlier this year, the Korea Chamber of Commerce and Industry issued a report deploring the government’s policy of emphasizing price stabilization to the point of sacrificing investment.

“The government’s strengthening of restrictions on bank credits to big enterprises and its inflexible monetary management have discouraged enterprises from investing in equipment and technology for new business areas,” the report charged.

Evidence of economic trouble abounds. Construction firms, which saw their revenue from overseas contracts fall to $230 million in the second quarter this year from $522 million in the same period last year, reported a severe slump at home as well. Profits plummeted 29.7% for the first half of the year.

Shipbuilding and shipping companies were also in a severe slump, commercial banks were burdened with uncollectible domestic loans estimated at about $4.5 billion (5.5% of the gross national product) and the fledgling semiconductor industry was wallowing in red ink.

“This year will be a disappointing one for South Korea, one which will cause them problems,” an American diplomat said. “But it won’t undermine the faith in the Korean economy.”

Deputy Prime Minister Shin took a long-range view of the troubles.

“The hard times we are now experiencing are a painful but unavoidable process of removing inefficient factors which stand in the way of the Korean economy joining the ranks of advanced nations,” he said at one of the meetings with executives.

He asked the businessmen to start investing again but refused to promise them more credit to do so.