South Korea Finds Better Markets in the East : Trade: Sales to China and Southeast Asia are replacing those to the U.S., helping South Korea eliminate its imbalance.

After three years of trade deficits, South Korea is poised to see surpluses this year with a brand-new trade structure.

No longer is the United States--which not long ago absorbed nearly half of Korea’s total exports--a growth market for Korean products. Now it is China, which had no diplomatic relations with South Korea a year ago, and Southeast Asia that have become the outlets for Korea’s expansion.

China, which doubled its Korean imports in one year, will eventually surpass the United States as the No. 1 export market for Korea, Asia’s third-largest economy, predicted Kim Do Kyoung of the Lucky-Gold Star Economic Research Institute.

Moreover, higher priced, value-added products have replaced toys, textiles and shoes as Korea’s leading exports. Chemicals and heavy industrial products for the first time last year accounted for more than 60% of Korean exports.

“In the early 1970s, no one would have dreamed that Korea would export cars, steel, ships and chemicals,” said Ko Hyoung Kwon of the Economic Planning Board’s monitoring and research division. “I do have confidence in the long-term growth of Korean exports.”

Last year, the deficit plunged to $2.2 billion from $7 billion. Excluding Japan, a country that enjoys black ink in trade with nearly everybody, Korea scored a surplus of $6 billion with the rest of the world. And in the first two months of this year, the deficit declined nearly $1.7 billion from the same period last year.

“We’ll at least maintain a balance, if not a surplus,” the Planning Board’s Ko said. If he is right, the Korean deficit will be wiped out two years earlier than projected in the government’s 1992-96 economic plan.

Many Koreans, however, remain deeply pessimistic.

Underlying the pessimism is the fact that Korea’s newfound markets and its move into value-added exports are not sufficient to sustain a trade surplus by themselves. Rather, the biggest driving force in the dwindling red ink has been the economy’s rapid slowdown and its depressing impact on imports.

“If we tried to jack up the economy, deficits would go up again,” said Rep. Suh Sang Mok, a former government economist who is now the ruling Democratic Liberal Party’s policy coordinator. “We’ve had two years of decline in exports to developed countries and four years of decline to the United States. That means something is wrong.”

Kim Young Sam, Korea’s newly installed president, believes that what is wrong is “the Korean disease” of eroding “industriousness, ingenuity and discipline.”

Wage increases have run out of control--rising by an average of 18% a year, while productivity grew by only 8% a year over the last five years, Suh said.

Although Korea alone among Asian countries suffered a decline in sales to America last year, its exports to the U.S. market have surged in the first two months of 1993. The prevalent opinion, however, is that the days of Korea sending 40% or more of its exports to the American market are gone forever, if only because of the emergence of growing markets such as China.

Last year, the United States had a $2.1-billion trade deficit with Korea, but a U.S. official called the deficit “politically manageable.” He also noted that American trade policy is “complaint-driven”--and the list of grievances against Korea remains long.

“In Thailand, it takes 40 to 50 days to start a business. In Korea, it takes more than three years,” complained Donald P. Gregg in a farewell interview with the Korea Times shortly before he left his post as U.S. ambassador at the end of February. During his four years as ambassador, “more Americans (investors) left than came to Korea,” Gregg said.

With its competitiveness eroded in the low-tech industries because of steep wage increases, Korea has been “holding its own in middle-level goods. But the question is, how long can you keep going that way?” a U.S. official said.

Kim, of the Lucky-Gold Star institute, observed that “Korea must develop its own technology.” And in several fields, it is doing just that, he added. He cited semiconductors and autos, areas in which, he said, “we are catching up to Japan’s level.”

Korea’s new markets--themselves growing faster than the rest of the world--provide the key to the immediate future. Even as textiles have suffered in competition with China, the giant neighbor has provided a new market for Korean yarn that goes into China’s exports. As countries in Southeast Asia build new factories, exports of Korean machinery, intermediate materials and parts are growing. Last year, for example, Southeast Asia overtook Japan as Korea’s No. 1 steel market.

Despite a decline of 34.3% in the value of auto exports to the United States, global sales of Korean cars climbed 20.7% last year. The Daewoo Research Institute expects another spurt of 16% in car exports this year, to 530,000 units.

A recent sharp appreciation of Japan’s yen currency, although raising the cost of Korea’s machinery imports, also promises to improve price competitiveness with Japan in foreign markets, the U.S. official said. But he added, “I don’t see an export boom, which--to Koreans--means double-digit growth.”