Chairman Ma, fellow participants, and ladies and gentlemen,
It is a singular honor for me to address this distinguished audience this morning on the occasion of the opening ceremony of the 9th Sino-Korea Intellectual Exchange Program. I ,first of all, would like to express my sincere appreciation to Chairman Ma and his delegates for hosting this conference in this city of íåÊ«Í£ which is surrounded by so many historic and scenic spots that makes our visit here even more delightful and memorable. This morning I would like to make a few remarks on the present and future perspective of economic relations between our two countries with the hope that it may provide a general background to the deliberation of various issues in this seminar for the next few days.
In a short period of 5 years since diplomatic relations between our two nations were normalized in 1992, the bilateral economic relations expanded so rapidly that we sometimes wander if this trend will persist beyond this century. Last year, two way trade between the two countries reached the $20 billion mark, a three-fold increase over 1990. In 1996, China was Korea¡¯s third largest market both for exports and imports. When Chinese trade statistics are adjusted for the restoration of Hong Kong this year, China stands out as Korea¡¯s second largest market second only to the United States for both exports and imports. Looked at from the Chinese side, Korea is its third largest export market and fourth largest import market.
In the area of investment, China¡¯s Vice Minister of Foreign Affairs noted in a seminar held in Seoul on September 11 that the Chinese government has approved about 9100 Korean investment projects in China, totaling $12 billion. Although Korean firms in China seem to be currently facing many difficulties stemming from inexperience in the different business environment of China, the rising trend of direct investment by Korean firms is not likely to falter, given the diverse business opportunities here and evolution of Chinese government policies in favor of internationalization.
The principal force behind the rapid expansion of economic exchanges between our two countries is the high degree of complementarities between the two economies in terms of natural and human resources and comparative advantages in manufacturing in the international market. In 1997, for example, Korea exported relatively more technology oriented products such as petrol-chemicals, leather goods, steel plate, machinery, artificial fiber, textiles and paper products in return for China¡¯s natural resources such as crude oil, coal, and labor intensive goods such as steel products, garments, shoes and machine parts.
Given the complementarities and geographical and cultural proximity between the two nations, the bilateral economic relationship has a solid basis for ever expanding trade, investment and technological exchange well into the next century as long as the economies of both countries maintain their growth momentum. However, there are other factors as well that will shape the future of our bilateral economic relations. Due to the limited time frame available, let me underscore only two things: structural adjustment in both countries to meet the challenges of globalization and regional economic cooperation in Northeast Asia. .
In the past few years Korea has come a long way in opening up its domestic market for goods and services. Yet the necessary structural adjustment has lagged behind the market opening with the result that Korean industries generally have lost competitiveness in the international market, contributing significantly to the deterioration of our balance of payments and to the current economic recession. In addition Korea is expected to open up its financial market soon, yet Korea¡¯s structural reform in the financial sector has not been speedy and effective enough to cope with challenges from the external liberalization of capital markets. The recent foreign exchange crisis in Thailand and other Southeast Asian countries gives us a warning that market opening without sufficient structural adjustment at home would bring about serious disruption in the foreign exchange market.
China also is facing many problems of structural adjustment. In this regard, we congratulate China on the success of the 15th Party Congress held last month in Beijing in which President Jiang Zemin made it known to the world that over the next five years, the Chinese government intends to rationalize state-owned enterprises, enhance the nation's legal framework, improve the reliability and transparency of capital markets, open its economy and join the World Trade Organization, and reform the financial system. This is indeed good news not only for the Chinese business community but also for many Korean firms operating in China because such a policy thrust certainly would improve the business environment for foreign investors.
Structural adjustment on both sides is an important condition that will shape the future of Sino-Korean bilateral economic relations. Structural reforms on both sides would make it easier to open up the domestic market for goods, services, and capital with less internal economic dislocation. And market opening on both sides will lead to expansion of trade, investment and technological exchanges between the two countries as well as with other parts of the world. Since we share common difficulties in structural adjustment, we are well advised to exchange information and experience and render assistance to each other in the arena of international relations.
Regional economic cooperation among countries in the Northeast Asia also has an important bearing on our bilateral economic relations. On August 17-21, I attended the 7th Northeast Asia Economic Forum held in Ulan Bator, Mongolia, chaired by Dr. Lee-Jae Cho who is present here today. The major topics on the agenda of the Forum were dealt with regional cooperation for national infrastructure development including regional telecommunications network, energy and electric power, the environment, and special economic zones. Listening to the deliberations by distinguished delegates from China, Japan, Russia, Mongolia, and South and North Koreas, I was led once again to believe that without closer regional cooperation on such matters, an individual country by itself cannot go very far in economic development.
To take a specific example, Dr Stanley Katz, former Vice President of the Asian Development Bank, reported in the meeting that taking account of the pressing need for building up infrastructure and the limitations in the absorptive capacity of individual countries in the region, the minimum financial requirement for infrastructure investment in the region was estimated at somewhere around $7.5 billion per annum over the next 10-15 years. On the other hand, he said, an estimate of financial resources available from all sources including the World Bank, the Asian Development Bank, and the European Development Bank, Official Development Assistance, and various private sources added up to only $2 billion annually, even though his estimate was based on highly optimistic assumptions. Based on this finding, Dr. Katz was forced to conclude that establishment of a Northeast Asia Development Bank is a logical and necessary step to take to ameliorate the financial shortfall. This is a strong case for setting up a financial institution by which to advance infrastructure development both for the region as a whole and for enhancing economic traffic between our two countries.
There is another area in which regional as well as bilateral cooperation is called for. We believe that China should be admitted to WTO as soon as possible, because it is unnatural that the 11th largest trading nation in the world remains outside of the WTO. We also believe that North Korea should be admitted to the World Bank, the ADB, and the IMF so that its economy has a better chance to recover and follow the Chinese model of economic reform and market opening. I am pleased in this regard to note that the governments of our two countries have been working closely together to realize these objectives in APEC and other international organizations.
Let me cite another area in which close cooperation on the bilateral, regional, and global level is imperative. That is the area of environmental protection. I would like to call your attention to the fact that the quantity of carbon dioxide emitted in China in 1994 was estimated at more than 18 million tons, 11 times as much as emitted in Korea, 16 times as much as in Japan, and 1.5times as much as in the EU, according to a study by the LG Economic Research Institute. It was also estimated that China will account for 42% of the total emission of carbon dioxide in the world in 2010. This is a stark warning not only to China but also to neighboring countries and the world as a whole. We urge that some preventive measures be worked out as quickly as possible on the basis of both bilateral and regional cooperation. In this connection, I am gratified to note that Korea Marine Institute and China Environment Science Institute are currently undertaking a joint study on the condition of marine pollution in the east coast of China and the west cost of Korea in an attempt to find out what could be done together to conserve a relatively clean Yellow Sea. I sincerely hope that a similar joint study will be undertaken on the conditions of air pollution across the Yellow Sea.
Let me conclude my remarks by saying that our two countries are confronting many problems, internal or external. Yet the latest projection of the IMF tells us that if things go well China will become the largest economy in the world in the next 15 years, accounting for 20% of the world output, surpassing that of the United States and the EU. At the same time the Korea Development Institute is also predicting that if things go well South Korea will become the fifth largest economy in the world in the next 10 years. This implies that if thing go well the two countries, together with Japan, will play a pivotal role in the East Asian economy with a concomitant impact on the world economy. It behooves us all to make these projections a reality by all means available. On their own, both countries must maintain a high savings rate, a rational allocation of resources, pragmatic structural reforms, economic and political stability, a disciplined and literate work force, and growing administrative capacity. Bilaterally, both countries must seek to promote cooperation wherever possible based on mutual understanding and friendship and mutual interest. This forum has come a long way toward that end, but we have miles to go.