SUWON, South Korea — When South Korean President Park Geun-hye arrived in Washington on Tuesday, she was accompanied by 166 business representatives — three times the number she took with her during her first official visit two years ago.
The business contingent was to include the presidents of Samsung Electronics, Hyundai Motor and the head of the Korea Chamber of Commerce and Industry. Also slated to accompany the president is Chey Tae-won, the chairman of SK Group, the country’s third-largest conglomerate, whose conviction for misappropriating company funds Park recently quashed, releasing him from prison and saying that the South Korean economy needed him back.
Park’s biggest challenge is not North Korea and its nuclear weapons, or cozying up to China without alienating the United States. It’s the economy. And the fact that she has taken such a huge business delegation to the United States reflects that.
“There are still many mountains to cross for a new economic takeoff,” Park said during a meeting with her economic advisers last week, according to a Yonhap News Agency report.
Park will confer with President Obama at the White House on Friday, a meeting that was delayed when she canceled a planned visit in June to stay home and deal with the outbreak of Middle East Respiratory Syndrome — which itself became another economic challenge, deterring much-needed tourist visits.
South Korea went through several decades of astonishingly fast industrialization — propelled by exports of high-tech ships and low-cost cars, and led by Park’s father, former president Park Chung-hee — to become a global manufacturing powerhouse.
But now the economy is hitting the buffers. “This feels like an economy that’s lost its mojo,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.
Exports account for half of South Korea’s economy, with 60 percent of outbound goods heading to emerging markets. Chief among them is China, which is going through its own economic slowdown, crimping demand for Korean products. Then there’s North Korea’s saber rattling and China’s devalued currency, which is making it more expensive for Chinese tourists to come here.
These factors have coincided to bring about a fall in South Korea’s exports for nine consecutive months, including by 8.3 percent in September from a year earlier.
“Korea is a highly export-dependent economy and has been for decades,” said Neumann of HSBC. “That means that it’s at the forefront of this global trade downturn.”
Things at home are hardly rosier. Wages have remained stagnant, home prices have gone through the roof, and South Koreans continue to have exceptionally high debt levels.
This is making the central bank reluctant to cut interest rates out of fear it will encourage even more borrowing.
The International Monetary Fund last week cut its forecast for South Korean growth this year to 2.7 percent, a full point lower than it projected in January. Compare that to the more than 6 percent growth rates South Korea was chalking up five years ago.
To try to lessen South Korea’s reliance on exports, Park has been promoting a “creative economy” strategy — fostering start-ups and encouraging entrepreneurship. But the effort is moving slowly and will not provide any relief to South Korea’s 3 million small and medium enterprises.
In Suwon, an industrial city outside Seoul that is home to Samsung Electronics, the corporate behemoth that looms over the South Korean economy, the mood is depressed.
“It’s terrible. It’s really terrible. Seventy percent of our business has gone to Vietnam,” said a representative of one company that makes parts for smartphones. He spoke on the condition of anonymity for him and his company to avoid angering clients, which include Samsung and LG. “Two years ago, our orders started to fall. A lot of companies that deal with Samsung have gone bankrupt.”
In a light-manufacturing park on the outskirts of Suwon, hundreds of smaller firms produce the tiniest of parts for the electronics giants. While it is the conglomerates whose brand names are known, it is these small companies that make their products work. And they are being squeezed by the clients on one side and on the other side by Chinese and, increasingly, Vietnamese competitors who can make the same products.
“We’re now competing with Chinese companies, and the unit prices have dropped significantly,” said Chun Yong-son, the owner of Kyungsung Electronics, a small company that supplies LED lights to television makers.
“For example, if it costs $1 for a Korean company to make something, it costs only 30 cents for a Chinese company to make it,” Chun said, sitting outside his building, smoking with his workers. “So we are losing a lot of manufacturing.”
Park’s policies are not helping, he said. The minimum hourly wage will rise from $4.85 this year to $5.25 next year.
Chun said he might have to lay off some of his 20 employees next year to counteract the increase. “It’s inevitable that people will lose their jobs, because there is less work, requiring fewer people,” he said, adding that the increase in labor costs will compound that problem.
This has other repercussions. A travel company called Hana Tour has a branch in the industrial park, and it reports a decline in business trips as a result of the economic worries.
“If two people used to go abroad in the past, now only one goes,” said Yoon Jung-hwa, a travel agent there. “Sometimes we call regular clients to ask why they’re not traveling, and they say they’re making fewer trips because the economy is bad.”
Now is a time of reckoning, said Lee Kwi-son, a real estate agent who rents out units in the industrial park.
“Companies around here are reaching the point where they have to decide if they’re able to carry on,” he said, “if they will have to scale back or if they will have to wrap up their businesses.”