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Rising Yen Spurs Korean Economy : Trade: From ships and steel to cars and VCRs, buyers look for cheaper products as Japanese goods grow too costly.

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TIME STAFF WRITER

As the yen soars to record highs against the dollar, Japanese exporters are screaming in pain. But here in South Korea, where the won tends to fall in tandem with the dollar, the rising yen is just what the doctor ordered.

Whether it is ships, steel, autos or videocassette recorders, a growing number of buyers around the world are substituting cheaper brands from Korea for costly Japanese products.

Overall, economists expect Korean exports to rise by as much as 12% this year after shrinking by 3.8% in the latter half of 1992.

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South Korean shipbuilders steamed past their Japanese counterparts for the first time ever in April by booking 528,000 tons worth of orders, triple Japan’s bookings. Even Japanese shippers, long the strongest backers of Japan’s shipbuilding industry, have begun to order cheaper Korean ships.

“We have orders booked through the end of next year,” Lee Jae Min, a spokesman for Hyundai Heavy Industries, says as he takes a visitor through the company’s shipyards in the eastern city of Ulsan, where 13 massive ships are under construction. Strips of steel the size of five-story buildings are being welded together in dry docks that look like canyons of concrete.

Korean auto makers, too, are experiencing a bonanza. They expect to increase exports by 11% this year, despite weak markets in Europe and the United States.

The economics are persuasive. Last year, the average Korean new car cost $1,400 less than a Japanese model of similar size. The gap widened to $2,600 by the end of April, according to the Korean Automobile Manufacturers Assn.

A 10-member Chinese delegation from the China Machinery Corp., a Chinese government enterprise that handles car imports, is expected to buy about 10,000 compact and subcompact cars when it visits Korea next month. The organization, which has bought Japanese and American cars in the past, has been attracted by Korea’s low prices. There are reports of Chinese entrepreneurs doing a booming business smuggling Korean cars into China on small freighters under cover of night.

The high yen is also making Korean consumer electronics products more attractive. Korea’s electronics companies expect to boost exports of VCRs by as much as 20% compared to last year as more European buyers switch from Japanese products.

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Steel and petrochemical sales are surging too. A 48% increase in Korean steel exports to China in the first three months of this year has been attributed in large part to the increasing competitiveness of Korean products as a result of the rising yen.

The growing strength of the yen could not have come at a better time. The South Korean economy grew just 4.7% last year, its lowest level in years. The nation’s economy, accustomed to growth rates of 6% or more, has trouble operating at that rate. Some 10,000 companies went bankrupt last year, a record.

Even with the yen bonus, Korea has little hope of reaching its growth target for this year of 6.2%. Korean business people hope new President Kim Young Sam’s deregulation efforts will invigorate the economy.

The reforms are necessary to make Korea more efficient, analysts say, because currency gains are short-term. In 1986, the last time the yen rose against the won, Korea experienced a brief boost in exports. But that advantage was soon lost when Japanese exporters cut costs, developed more advanced products and moved production bases to Southeast Asia.

Another major problem is that Korea continues to depend on Japan for key machinery and components. When it comes to VCRs, for example, Korea is selling more, but the costs of the parts it buys from Japan are also rising.

“We import a lot of components from Japan, so a higher yen means higher costs,” said J.H. Son, head of the Korea office of Dataquest, a U.S.-based data tracking service.

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