ISSN : 2233-5609

ISSN : 2233-5609

The views expressed here are those of the authors and do not necessarilyrepresent the official views of POSCO Research Institute.Not for sale.

Copyright © 2011POSCO Research Institute All rights reserved.Production in whole or in part without written permission is strictly prohibited.

Registration number: 강남바 00092Registration date: December 16, 2010

How to contact the Quarterly: [email protected]

Publisher: Choi Jong-tae Published by POSCO Research Institute

Editing Director: Kim Chang-do Editor-in-Chief: Yoon So-jin

Printed by Jeong-Moon Printing Co., Ltd.Date of lssue: July 25, 2012

Contents Summer l 2012 l Vol. 07

ColumnPakistan is an attractive investment destination 004Shaukat Ali Mukadam

China’s high-speed growth expected to continue for ten years 009Jeong Young-rok

The Korean New Wave in ChinaThe New Korean Wave catches a tailwind of popularity in China 015C. Min Han

Entry strategies focusing on Hallyu content and target lifestyles 021Kim Pil-soo

India’s IT industry in the changingmanagement environmentGlobal affinity, leading the growth of the Indian IT industry 031Kim Yeung-ki

India seeks efficiency and transparency though e-government 037Imm Jeong-seong

The Chinese growth modelDoes China have its own economic growth model? 047Kim Si-joong

Stagnant growth of Guangdong: growing pain or limitation? 053Kim Chang-do

Made in India, loved by the worldIndia: the factory of the world for cheap, innovative products 063Imm Jeong-seong

India’s globalization, the world’s Indianization 071Kim Hyeong-jun

04

13

29

45

61

Issue AnalysesIndia’s aviation industry on the verge of crashing 079Imm Jeong-seong

Korea-China-Japan Trilateral Investment Agreement heralds the beginning of one Northeast Asia 087Choi Yong-min

Economic cooperation brings India and Pakistan closer 095Kim Mi-su

Social media fervor in China accelerates social changes 101Lee Hee-ok

Better working conditions are in the interests of the USA and China 109Li Wan-yong

India’s ruling party tumbles after state elections 115Kim Chan-wahn

CorporationsKoreabio: a bio-pesticide manufacturer succeeds in India 125Kim Yeung-ki

Apple’s success story in China 129Nam Dae-yub

CultureThe true story of Ah Q: Depiction of a Chiness archetype of the 1920s 134Cho Kwan-hee

A war over the history of the Indus Valley Civilization 138Lee Kwang-soo

77

123

133

POSRI Chindia Quarterly�Summer 2012

004

During the past one and half year since I was posted as

Pakistan’s Ambassador to Korea, I have observed the people

of Korea to be very industrious, hardworking, disciplined

and forward looking. These qualities have instilled synergy

in Korea, transforming it from an agrarian economy to an industrial giant.

Pakistan and Korea enjoy very cordial relations which are deep-rooted

in history. In the 1960s and 70s, Pakistani and Korean workers played a

pivotal role in the construction of infrastructure, such as roads and bridges in

the hot climate of the Middle East. Today, Pak-Korea relations have come a

long way as Samsung C&T built the Burj Khalifa in Dubai, the tallest tower

in the world, and Pakistani technicians and workers, participated in a

sizeable number in this project.

Pakistan and Korea have excellent bilateral relations in the political,

economic, trade, cultural, military and educational fields. We have the

strength of 36 MoU’s and agreements, which is a testimony to the solid

foundation of our relationship. Our relations, which were established in

Pakistan is an attractiveinvestment destination

Shaukat Ali MukadamAmbassador of the Islamic Republic of Pakistan to the Republic of Korea

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Summer 2012�POSRI Chindia Quarterly

005

1968 at the consular level and at the Ambassadorial level in 1983, have

progressed exponentially in the intervening years in all gamut. Our bilateral

trade, which was about USD 94 million in the 1980s has surpassed USD

1.55 billion in 2011. Pakistan’s exports totaled about USD 737 million and

Korean export to Pakistan close to USD 820 million.

Most of the prominent Korean big companies, such as Lotte Group, K-

Water, Sambu, Hyundai Motors, Daewoo E&C, Doosan, Doekjae,

Ssangyong, are participating in tenders of mega infrastructure projects,

including roads, and chemical plants, tunnels, hydropower projects, and

thermal power projects. Among the most significant investments include the

USD 500 million investment by Lotte Group in a chemical plant to produce

Pure Terephthalic Acid (PTA) used in the textile industry, and subsequent

acquisition of a food and beverage company, KOLSON Foods. Sambu has

built the 8.5-Km Lawari tunnel and is participating in the 84-MW New

Bong Hydropower project in Azad Kashmir.

A consortium of K-Water, Sambu and Daewoo E&C, has started

working on the 150-MW Patrind Hydropower Project. Korean companies

have expressed their interest to participate in numerous other hydropower

projects in Pakistan. Doosan Heavy Industries and Construction has

completed the combined cycle power plant of 175 MW. Ssangyong E&C

has completed working on reinforcing old ports and constructing docks and

subsidiary facilities at Karachi port. Currently, it is working on

reconstruction of a berth in Karachi. Deokjae Construction has nearly

completed the Mirpurkhas-Hyderabad 64-kilometer dual carriageway

public-private partnership project of the Sindh government. Steel giant

POSCO has invested USD 15 million in a USD 260 million project of

Tawariqi Steel in Karachi. It has also expressed its interest in the USD 174

million Pakistan International Bulk Terminal at Port Qasim.


006

The visit of H.E. Syed Yusuf Raza

Gilani, Prime Minister of Pakistan to

participate in the Seoul Nuclear

Security Summit from March 26-27,

2012, during which he also met

Korean conglomerates, will provide

further impetus to trade and economic activities. Pakistan will also

participate in the Yeosu Expo-2012 from May-August in the southern

coastal city of Yeosu.

There exists a Joint Ministerial Commission (JMC) which encompasses

all areas of political, economic, trade, educational and cultural relations. The

Bilateral Policy Consultation is another forum to foster our linkages. Talks

are held regularly between the Foreign Secretary of Pakistan and the Vice

Minister of Korea. The last talks were held in Seoul on November 18, 2011.

The Pakistani community in Korea numbers 10,341, and includes

workers, businessmen, professionals and students. An increasing number of

Pakistanis have been here for the last 20 years and established their own

business in South Korea. The number of workers is around 4,700 and there

are about 513 students. The Pakistani community is very active and engaged

in promoting Korea-Pakistan relations. They participate wholeheartedly in

the economic development of Korea.

Pakistan is amongst the important emerging economies of the region,

with a consumer base of 180 million plus and a prime location in the heart

of Asia. Pakistan’s ideal location gives her access to all growing markets of

the world. In order to capitalize on its strategic location, Pakistan has

adopted liberal and investor-friendly policies, broad features of which

include; proactive facilitation, guarantees of equal treatment to both local

and foreign investors, easy tariff structures, and a liberal regime on

Pakistan and Korea have

excellent bilateral relations

in the political, economic,

trade, cultural, military and

educational fields.

“

“


007

repatriation of profits. These strategies have borne results with a record

inflow of foreign investment of USD 8.4 billion. Recently, global financial

crises have affected these figures. However, the Pakistani government now

plans to undertake further structural reforms in various sectors to attract

investors.

The Pakistani government has declared the power sector as one of its

top priorities for investment. It is taking all necessary measures to build a

more conducive environment by simplifying procedures to facilitate

potential investors. At present, Pakistan’s total installed generation capacity

from Hydroelectric, Thermal, Independent Power Producers (IPP’s) and

nuclear sources stands at 19,566 MW. The existing capacity of thermal

power generation in Pakistan stands at 12,630 MW, which is almost two-

thirds (64.6%) of the country’s total generation capacity. Hydroenergy is

the second largest source of electricity, accounting for 33.1% of total power

generation in the country. The rapid economic growth over the past few

years has led to a power shortage in Pakistan. Today the country is looking

for investment in power production to meet its short- and long-term power

needs.

The financial sector is regarded as one of the best performing sectors in

the region. The banking sector has shown robust performance and so have

the stock markets. The contribution of the service sector to economic

growth has been almost 60% over the last few years. The financial sector

has also attracted significant attention from foreign investors in the recent

past and still holds sufficient potential.

The initiatives taken by the Board of Investment (BOI) to set up Special

Economic Zones (SEZ’s) and other industrial zones will further harness the

investment, and the BOI assures its full cooperation and support to investors

ready to come to Pakistan.


008

Pakistan is an investor-friendly country. We offer equal treatment to

local and foreign investors while all sectors are open for foreign investment

under the complete legal protection. Foreign companies can start their

business without any official approvals on a 100% equity basis. Moreover,

the government has established Special Economic Zones (SEZ’s) to offer

some additional benefits and facilities to foreign investors. Now, the foreign

business can freely remit technical royalties and franchise fees, capital,

profits, and dividends.

Being the sixth populous country in the world, having a young

demographic profile, abundant availability of skilled manpower, rich

mineral resources and bumper agriculture production, Pakistan is an

attractive destination for investors. Pakistan falls among the middle income

countries, and the presence of the large middle class offers the vast local

market to business.

Despite challenges in recent years, Pakistan’s economy remains

resilient. Our economy has achieved a five-year compound annual growth

rate (CAGR) of 7%. The modern banking sector, and the growing industrial

and agriculture sectors are making significant contribution to the national

economy. There are numerous opportunities for foreign investors, especially

in the engineering, power, horticulture, and manufacturing sectors. Pakistan

aims to diversify its economy, creating a favorable environment for

investors.


009

The year 2012 means more than the 20th anniversary of the

establishment of Korea-China diplomatic relations. Now is

the right time to carefully think how both countries will

prepare for the paradigm shift in bilateral relations. Eight

years from now, in 2020, China’s GDP is expected to reach about USD 15

trillion, surpassing that of the USA. Key issues that are naturally being

discussed include expansion of domestic demand, revaluation of yuan

assets, and China-North Korea economic cooperation. Another issue is

whether China’s high growth will last. This is the question I have been

asked most frequently since I came back to the South Korea Embassy in

China after working in Korea for 16 years. The bottom line is that China’s

high growth will continue for the next 10 to 15 years. I have three reasons

for my conviction.

The first is China’s urbanization plan. Just as the construction of

apartments was a major driving force for economic stimulus in Korea,

China is actively building apartments as part of urbanization. Since 1995,

China’s high-speed growth

expected to continue for ten years

Jeong Young-rokEconomic Minister Counselor of the South Korea Embassy in China

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010

15-20 million Chinese people have moved to urban areas each year. China’s

urbanization rate for 2011 was 51.3% (and the average marginal

urbanization rate was 1.4 percentage points). This means that more than 50

cities with populations of 300,000 are being created each year. Given that

China’s urbanization rate is so high, China requires not only the construction

of apartments, but also large investments in social overhead capital (SOC).

Considering that it takes ten years to complete one apartment complex,

urbanization contributes greatly to high economic growth. It is understood

that investment contributes to almost half of China’s economic growth.

Chinese authorities recently stated that urbanization was a reason for high

growth. China set out to address regional divides through urbanization.

Urbanization also helps to increase domestic demand. From the experience

of economic sanctions imposed on China after the Tiananmen Square

massacre in 1989, China understands the limitations of Asia-oriented,

export-driven growth models. China recently faced challenges in exporting

to the USA and the EU, forcing the country to focus on the domestic

market. Urbanization is at the center of the solution.

The second reason is the development of mega-economic regions.

China’s administrative division includes 31 areas: 4 municipalities, 22

provinces, and 5 autonomous regions. China’s population was 1.35

billion at the end of 2011; the population of each area (30 million on

average) is bigger than that of many countries. China is currently forming

wide-ranging and far-reaching markets by connecting its vast lands

through a national highway system, high-speed lines, and private

airways. In 2010, China completed construction of a highway network

with a maximum speed of 100km/hr. I was surprised when I visited

Northeast China in June of last year. It took only five hours to travel 500

kilometers, from Changchun to Hunchun. The construction of


011

infrastructure also plays an

important role in linking

economic territories in China

and North Korea.

The third reason is fierce

competition among local

government leaders. At a

meeting with Chinese scholars, one Chinese professor received a call from a

high-ranking local government official. The official demanded the professor

reexamine the Urban Environmental Development Index, which the

professor had evaluated. A low index could be a stumbling block for a local

government leader heading to the central government. China Daily recently

published a cover story stating that GDP of Jilin Province for 2011

surpassed RMB 1 trillion. Did it indirectly give publicity to Jilin Provincial

party secretary Sun Zhengcai (孫正才), the next next-generation political

leader? Local government GDP worth RMB 1 trillion is equivalent to

national GDP worth USD 1 trillion. It is worth publicizing for a sixth-

generation leadership candidate born in the 1960s, whose ability in local

politics must be verified. This kind of fierce competition among local

government leaders works as an incentive for forming policies for the

development of local economies.

With a combination of factors at work, such as China’s constant demand

for hardware, great potential to utilize such hardware, and cut-throat

competition among leaders, China will be able to maintain high economic

growth for quite some time. China has about 15-20% room until it reaches

its target urbanization rate of 65-70%. If this figure is divided by the

marginal urbanization rate of 1.4 percentage points, it is expected that China

will be able to enjoy high economic growth for more than ten years. It is a

Korea has enough potential to

secure its share in China’s

domestic market. What Korea

needs now is conviction

followed by comprehensive

action.

“

“


012

golden opportunity for Korea to be able to predict the future of China.

Moreover, urbanization and mega-economic regions are examples of the

many policies China is currently experimenting with, which Korea has

already experienced. Korea has enough potential to secure its share in

China’s domestic market. What Korea needs now is conviction followed by

comprehensive action.

TThhee KKoorreeaann

NNeeww WWaavvee

iinn CChhiinnaa

�The New Korean Wave catches a tailwind of popularity in China

�Entry strategies focucing on Hallyucontent and target lifestyles


015

:: The Korean New Wave in China

The fervor for Korean pop culture in China is showing no signs

of cooling down. Currently, most television dramas from

Korea’s three major broadcasting networks are broadcast

simultaneously on China’s over-the-air TV channels, as well as

on Internet TV channels. Famous Korean actors and actresses, including

Kwon Sang-woo, Jang Seo-hee, Jang Woo-hyuk, and Nam Gyu-ri, appear

on Chinese dramas.

The so-called Korean Wave, or Hallyu, started with television dramas.

Recently, however, the genre that has been leading the New Korean Wave in

China is K-pop and its idol groups. News about K-pop music and idol

groups is being broadcast in real-time via digital broadcasting and the

Internet. Among the many K-pop artists, Tiara, Girls’ Generation, Big Bang,

and Jang Na-ra are very famous in China. Almost immediately after the

release of Big Bang’s new album, the group had four new songs listed at the

top of Chinese music charts.

The New Korean Wave catches a tailwind of popularity in China

C. Min HanProfessor, Division of Business AdministrationHanyang University


016

Korean movies are also popular in China. Late Autumn, starring Hyun

Bin, ranked second in the China box office as soon as the movie was

released in March of this year.

Hallyu in China is expanding to various cultural areas, including not

only dramas, K-pop, and movies, but also food, games, fashion, tourism,

and consumer products.

○● China’s growing cultural appetite spurs Hallyu

First, the Hallyu fervor in China is attributed to the fact that the number

of middle class has increased with rising income, along with their desire for

cultural outlets. Perhaps cultural output in China is lagging behind China’s

economic and social growth and its rising international standing. Hallyu

marketing of quality cultural content has played a pivotal role in the

popularity of Hallyu in China. The fact that Chinese people feel empathetic

towards Korea, both cultures being Asian, is giving impetus to the Korean

Wave. While the Chinese receive Western cultural content as merely stories

of foreigners and their culture, they can easily relate to the themes and

values embedded in Korean cultural content. Korean stars are seen in

China as easy to emulate. This phenomenon leads to de-Westernization.

American pop music and Hollywood movies, loved by many young

Chinese people in the past, have lost their popularity of late. Of course,

Japanese cultural content is also popular in China. However, Korea is in a

more favorable position than Japan, perhaps because of the anti-Japanese

sentiment in China.

The charm of Korean stars is another reason for Hallyu’s success.

According to a survey, Chinese people think that Korean stars are beautiful,

elegant, and personable. The popularity of K-pop is largely dependent on

the charming appearance of its stars. For this reason, the fashions and hair

styles of K-pop stars are in vogue, and an increasing number of Chinese

tourists are coming to Korea for plastic surgery.


017


Third, widespread Internet

broadcasting has played an

important role. In the mid-2000s,

the popularity of Korean TV

dramas dwindled temporarily,

after the Chinese government

imposed restrictions on imported

television programs. However,

viewership of Korean dramas has increased again through Internet

broadcasting, and the number of viewers in their teens and twenties has

surged exponentially.

○● Hallyu leads to good brand images

The effects of Hallyu have been proven in many areas. Hallyu has

promoted Korea’s national image, and boosted interest in and

understanding of Korea. Hallyu also has positive economic effects. A

national image is created through indirect experiences with a country’s

cultural content, such as TV shows, movies, and advertisements, and

through direct experiences, such as traveling to a country, meeting with its

people, and using products from that country. Chinese people are learning

about Korea directly and indirectly by watching Korean dramas, listening

to K-pop, visiting Korea to see Korean stars, exchanging with Koreans, and

using Korean products. A recent study on Hallyu states that Chinese people

who have good feelings toward Korean dramas and entertainers have

favorable images of Korea.

With their increased interest in Korea, Chinese people’s interest in the

Korean language has also increased. In 1992, when Korea and China

established diplomatic relations, there were only five schools in China

offering Korean language classes; currently, more than 200 schools are

teaching Korean. The number of Chinese tourists to Korea has also surged.

The effects of Hallyu have been

proven in many areas. Hallyu

has promoted Korea’s national

image, and boosted interest in

and understanding of Korea.


018

The number of Chinese visitors to Korea rose from 340,000 in 2003 to 2.05

million in 2011. In particular, the number of Chinese tourists visiting Korea

for plastic surgery keeps rising. In 2011, the South Korea Embassy in China

issued 1,073 medical treatment visas for plastic surgery to Chinese citizens,

four times more than the previous year.

Hallyu contributes to an increasing preference for and sale of Korean

products in China. Orion, a Korean confectionery company, sold as many

Choco Pies in China as it did in Korea last year. Other Korean companies,

such as Paris Baguette, Nolboo, and Genesis BBQ, are also enjoying rapidly

increasing sales. Hallyu also has a great impact on the Korean cosmetics

industry. Korean cosmetics are very popular among Chinese women, and

are the most popular shopping item among female Chinese tourists to

Korea. The effects of Hallyu have been proven through various studies.

Korean companies are utilizing favorable images of Korea created by

Hallyu as a means of marketing. Hallyu stars are commonly hired as models

for advertisements.

As the diagram illustrates, the effects of Hallyu are created from

Korean cultural content and favorable attitudes toward Hallyu stars.

Product

image

National

image

Hallyu marketing

Favorable perception

of cultural content

Favorable attitudes

toward Hallyu stars

The effects of Hallyu on the images of Korea and its products

Source: Author


019


Preference for Korean cultural content improves Korea’s national image,

and that improved national image is passed on to the image of Korean

products. When Korean companies adopt Hallyu marketing, favorable

attitudes toward Hallyu stars can lead to good images for Korean products

through affect referral. Affect referral is a marketing term that describes the

phenomenon of existing sentiments and attitudes being transferred to a

product.

Some people argue that Hallyu stars have a greater influence on the

image of Korean products than Korean cultural content does. A series of

empirical studies shows the effects of Hallyu stars. To take advantage of

these effects, Korean companies have adopted active Hallyu marketing,

using Korean stars as models. However, not all Korean companies have to

adopt Hallyu marketing, because existing favorable feelings toward Korea

are enough to improve the image of Korean products. Companies can

expect positive effects if they can be clearly identified as Korean companies

with Korean values.

○● Mutual understanding is needed to quell rising

anti-Hallyu sentiment

Along with the Hallyu fervor, anti-Hallyu sentiment is also mounting

in China. In 2006, China restricted television programs imported from

Korea in order to protect its cultural industry. There are various reasons

for the anti-Hallyu sentiment: the sudden fleeing of certain Korean

companies from China, and Shanghai Automotive’s failed investment in

Ssangyong Motor. With Korea’s increased exchanges with the USA and

Japan, some Chinese people think Korea will disregard China, deepening

anti-Hallyu sentiment.

In order to prevent anti-Hallyu sentiment from spreading, Korea should

avoid excessively nationalistic or culturally chauvinistic content. Also,

content that has the potential to distort history should be ascertained using


020

historical evidence and verified in a balanced way. Most of all, Korea and

China must strive to respect and understand each other’s cultures.

To continue the spread of Hallyu in China, all economic players─the

government, companies, and citizens─must work together.

First, the Korean government should clearly recognize Hallyu as an

important asset that improves the country’s brand image. Hallyu can have a

great influence not only on Korea’s image, but also on the images of Korean

companies and products. The Korean government must detect anti-Hallyu

sentiment at an early stage, and devise an active management system to

quell such sentiment.

Korean companies must also take the lead in preventing anti-Hallyu

sentiment from spreading. As responsible corporate citizens, they must

endeavor to forge amicable relations with their Chinese employees and

partners. If the favorable image of Korea dissipates, companies will be the

biggest victims.

Korean citizens should be wary of excessive nationalism and cultural

chauvinism. They should have an open attitude of understanding and

respecting other cultures.

The government, companies, and citizens must all understand that their

concerted efforts are necessary to maintain the favorable image of Hallyu,

Korea, and Korean products, and subsequently increase the international

standing of Korea.


021

Entry strategies into Chinafocusing on Hallyu content and target lifestyles


Kim Pil-sooSenior Business Analyst of Hyundai Research Institute

China is the fastest growing cultural consumption market in

the world. According to PricewaterhouseCoopers (PwC),

a global consulting firm, China accounted for 6.0% of the

global entertainment and media market in 2010, and is

expected to grow by 11.6% annually on average to account for 7.9% of the

global market by 2015. This means that China will become the world’s third

largest cultural market, after the USA and Japan.

○● Hallyu’s leading role in globalizing Chinese demand

It is worth noting that the Korean Wave, or Hallyu, has emerged as a

major cultural phenomenon in China. Around the year 2000, during the

early stages of Hallyu, Southeast Asia was its epicenter. Hallyu has recently

gone global, with K-pop at its forefront. The presence of Hallyu in China is

the result of Hallyu’s global market strategy, and evidence of the


022

increasingly cosmopolitan tastes of Chinese consumers.

Currently, Hallyu presents an opportunity to attract future consumers in

China’s vast market. The majority of Hallyu consumers in China are young.

Their desire for refined, global cultural products is rising as a result of

Hallyu. Various manufactured products can appeal to Chinese consumers,

using Hallyu as a lever. It is high time to discuss a way to build a strategic

framework for entry into the Chinese cultural market, which is emerging as

one of the fastest growing cultural consumption markets.

○● Using Hallyu within the framework of strategies

for entry into China

Cultural diffusion is comprised of four stages: first, exposure to cultural

products; second, increasing cultural consumption; third, increasing

consumption of products directly related to culture; fourth, aspiration to

certain lifestyles and increasing consumption of products, even indirectly

related products. Entry strategies using Hallyu are associated with the third

and fourth stages. A matrix can be drawn for entry strategies using Hallyu,

with each axis divided into two segments. The first axis is divided into

The size of Chinese entertainment and media market

Source: Global Entertainment and Media Outlook 2011-2015, PwC

Market size (Left; USD 100M)

Share in the global market(Right, %)

2,000

1,500

1,000

500

0

8

7

6

5

4

3

2

1

02006 2007 2008 2009 2010 2011 2012 2013 2014 2015


023


strategies directly associated with Hallyu content and entertainers, and those

associated with Chinese lifestyles. The other axis is divided into first-mover

strategies and follower strategies.

○● First-mover products attracting consumers

The first strategy involves marketing first-mover products, using

cultural content and entertainers directly (A-①). A related case is iPad,

released in April of 2010. Following its release, iPad got frequent exposure

through movies, television dramas, and other TV programs. Many cultural

products utilize product placement (PPL) marketing in connection with

media. However, first-movers and leading products benefit the most from

this kind of indirect advertisement. Consumers are willing to pay for the

new utility of first-mover products. Follower products cannot benefit as

much because consumers have to replace products that they are currently

using, and bear the extra cost of replacement. Therefore, replacement cost

naturally feels more burdensome than the expense of a new product. This is

clearly demonstrated by how few people purchased GM automobiles after

watching the Hollywood blockbuster Transformers, which has many

scenes featuring GM cars.

○● Direct use of Hallyu stars and content to market

follower products

The second strategy involves marketing follower products, using

cultural content and entertainers directly (A-②). Under this strategy, a

follower product can be given direct exposure by Hallyu characters using

the product in Hallyu content. For example, Korean citron tea is a

follower product in China, which has advanced tea culture. Following the

success of the Korean TV drama Dae Jang Geum in China, Chinese

grocery stores held tasting events for Korean citron tea, dressing their

clerks in hanbok, traditional Korean costume. The tea soon became a


024

best-selling product. In this case, they used Hallyu content directly in

marketing. In addition, there is the conventional method of having

entertainers in a product advertisement. Japanese cosmetic brand DHC

used Korean stars for its advertisements in China, and the strategy was

successful. One Chinese cosmetic brand recently finished shooting an

advertisement using Korean actress Jun Ji-hyun as its model, targeting

Chinese consumers. Japanese and Chinese brands are making the most of

Hallyu. This strategy is more effective for price-competitive products or

non-durable consumer goods (with less than one year of use after

purchase), because these kinds of products require relatively low expense

for replacement, making consumers less troubled by the decision to buy

follower products. More importantly, it is significant that Hallyu fans’

desire to use products that their adored stars use can be satisfied with

relatively little expense.

○● Utilizing adoration of certain lifestyles

The third strategy involves marketing first-mover products associated

with attractive lifestyles (B-①). A good example is the American

① First-mover ② Follower

A. Directly related to

cultural content and

entertainers

- Direct exposure ofproducts within culturalcontent

- Leading product image

- Exposure of productthrough direct experienceand cultural content

- Induce market learning

B. Related to lifestyles - Strong connectionbetween product and plotin cultural content

- Blending with local culture

- Creating cultural contentbased on products

- Stimulating the hiddendesires of consumers

Source: Hyundai Research Institute

Matrix of marketing strategies utilizing cultural content


025


television sitcom Sex and the City and the brunch culture. Brunch

(breakfast + lunch) refers to a meal eaten in between the normal times of

breakfast and lunch. This Western custom has become popular among

young Korean women. Now it is regarded as a familiar consumption

pattern. Of course, brunch is not a kind of product. However, if an

American restaurant brand

released brunch items,

utilizing the popularity of

the sitcom, the brand

would become a first-

mover. Instead, small

restaurants in Korea have

made the most of brunch

culture. What is important

here is that product

consumption is well mixed with the story of the sitcom. Scenes in which

the main characters chat over brunch are frequently depicted throughout

the program. This new consumption pattern hit home with many young

Korean women, who yearn for the fabulous lifestyle of women in New

York. As this case shows, aspiration for a particular lifestyle can be

connected effectively to product consumption. In the past, Chinese and

Japanese people regarded kimchi and other Korean foods as foreign food.

With the popularity of Korean television dramas, Korean food has become

a new custom among Hallyu fans aspiring to Korean lifestyles.

○● Creating new cultural content based on products

The last strategy involves marketing follower products associated with

certain lifestyles (B-②). Within this strategy, it is not easy to succeed

without localization of products and brand flexibility. As followers, such

products have to offer different value from that of existing products, or

When entering the Chinese

market, the most important

factor to consider is respecting

the Chinese people’s pride for

their own culture. Emphasizing

only Korean characteristics can

have a negative effect.


026

target niche markets. Therefore, such products should create their own

cultural content so as to be recognized by consumers as first-movers.

Korean home shopping companies with a presence in Shanghai continue to

grow by differentiating themselves from indigenous Chinese companies

with Korean style entertainment features on their programs. Korean bakery

chain Paris Baguette established a luxury brand image in China, appealing

to the upper classes. It also added the concept of café culture to bakery

shops, growing faster than European brands in the high-end Chinese bakery

market. These are examples of followers playing the role of first-movers.

Let us take a look at Starbucks, which has entered the global market by

creating its own café culture. When Starbucks entered the Korean market,

there were many coffee shops in Korea. However, after Starbucks opened

branches in Korea, many indigenous coffee shops disappeared and were

replaced by coffee shop chains similar to Starbucks.

○● Stories with an Asian sense of kinship

When entering the Chinese market, the most important factor to

consider is respecting the Chinese people’s pride for their own culture.

Emphasizing only Korean characteristics can have a negative effect.

Cultural trade-off should be taken into account. The more Chinese people

embrace Hallyu, the more China’s value of its own culture diminishes. In

this sense, Korean companies that have already entered the Chinese market

using Hallyu must endeavor to accept local culture and seek mutual

exchanges.

Naturally, it is better to avoid a strategy of imitating the image of a

leading brand that has a strong presence in China. Chinese consumers

already have cosmopolitan cultural tastes. Even though Hallyu is popular in

China, Hallyu is not the only foreign cultural code. If Hallyu is pitted

against the image of Starbucks or McDonald’s, which have already created

their own culture in China, it cannot beat the competition.


027


In conclusion, it is important to create brand stories with Asian values.

The Asian sense of kinship is a sure path for Korean culture to become more

popular than Western culture. It is necessary to create brand stories blending

Hallyu and Chinese culture. This might be the strongest weapon for entering

the Chinese market through culture.

More than ten years have passed since Hallyu entered China, and its

ripple effect is now reaching other cultural products. I hope that more

Korean bands will prosper in China thanks to Hallyu.

IInnddiiaa’’ss IITT

iinndduussttrryy iinn tthhee

cchhaannggiinngg

mmaannaaggeemmeenntt

eennvviirroonnmmeenntt

�Global affinity, leading the growthof the Indian IT industry

�India seeks efficiency andtransparency though e-government


031

:: India’s IT industry in the changing management environment

Recently, it has become popular in Korea to attach “nationality”

to types of overseas business. One good example is the

“Korean Wave.” This newly-coined term is used for

everything, from the entertainment business─the origin of the

Korean Wave─to general trade goods. The Korean Wave is getting a lot of

attention and raising hopes, because it represents success achieved through

human capital, not through manufactured goods.

The term “Indian Wave” might be used to describe recent successes in

India, an IT powerhouse. According to a research conducted by one

economic institution, the Korean Wave was worth as much as USD 4.2

billion in 2011, its economic impact and direct sales combined. Meanwhile,

the Indian IT industry recorded USD 59 billion in direct exports in 2011.

Exports from India’s IT industry rely heavily on human resources, and little

on products such as semiconductors and cellular phones.

However, the Indian IT industry has not limited itself by calling its

success the “Indian Wave.” The industry intended to grow in the global

Global affinity, leading the growthof the Indian IT industry

Kim Yeung-ki ([email protected])

Managing Director of BTN Ltd.


032

business ecosystem, and continues to evolve. This strategy is the reason the

Indian IT industry has been able to grow despite the ongoing global

financial crisis. In fact, the Indian IT industry has expanded by 900% over

the last decade.

○● Continuing growth despite the global financial crisis

The IT industry, which originated in the USA, began being transplanted

to India in 1984 by Texas Instruments, a US-based IT firm. Since then, the

Indian IT industry, which has matured through the investment of many

foreign companies, has gone through many stages of evolution and become

the core business of India. India’s export-

oriented IT sectors, particularly the

software and service sectors, now have an

undeniably strong presence in the global

IT industry. The growth of the Indian IT

industry is a source of pride for Indians. In

the past, India introduced itself to the

West by exporting teas and spices. In the

21st Century, the IT industry is

reintroducing India to the world.

The Indian preference for IT jobs has been consistently strong, except

during the 2008 global financial crisis, when interest fell temporarily.

According to a survey conducted by Business Today, nine out of the top

twelve companies for which Indians aspire to work are IT firms. The IT

industry was transplanted into India by foreign firms, but it was the skills

and determination of Indians that led to the growth of the Indian IT sector,

which is now going global.

The ongoing global financial crisis has not stunted the robust growth of

the Indian IT industry. The industry recorded USD 89 billion in revenue in

2011. In 2012, its total revenue is expected to surpass USD 100 billion,

As a growth and survival strategy,

India’s IT industry is expanding its

business by attracting customers

in new areas, while offering new

services to existing customers.


033


including USD 69 billion in exports and USD 32 billion from the domestic

market. This estimate is twice the total revenue of 2007. The European

sovereign debt crisis that began last year did not have a significant impact

on the Indian IT industry. Even though many EU governments lost money,

liquidity of EU companies did not suffer as badly as expected, and had a

limited effect on the Indian IT industry.

Despite the global recession, the Indian IT sector’s reputation is still

growing, because global companies are continually increasing their

spending on technology innovation. Thanks to innovation in global business

models and the industry’s ever-expanding territory, the Indian IT industry is

riding high.

○● Growth rate expected to double by 2020

India lacks investment in information and technology, and has

substandard infrastructure. This signifies the potential of markets related to

the infrastructure industry to grow into mega-markets. By the same token,

India’s insufficient informatization suggests that there is room for

continuous expansion of markets related to information technology. In fact,

demand for IT in India is on the rise.

The National Association of Software and Services Companies

(NASSCOM), a trade association of India’s software industry, predicted

that the revenue of the Indian IT industry will reach USD 225 billion by

2020. This figure is twice the estimate for this year, USD 100 billion,

suggesting that NASSCOM sees growth potential in the domestic

market. Of that USD 225 billion, the revenue from the domestic market

is expected to reach USD 50 billion. US-based market research firm

Forrester’s Research released a similar forecast. Suggesting that India

will become the world’s fastest-growing IT country by 2015, Forrester’s

Research predicted that the Indian IT industry will grow by 14% this

year.


034

Promising sectors in the Indian domestic market include building

infrastructure (medical and healthcare, resident informatization, and utility)

and the entertainment sector (movies and games).

Despite the global recession, global companies are not reducing their

investment in technology innovation and informatization. Rather, they are

increasing investment to improve their corporate competitiveness.

Meanwhile, India’s contribution to the global outsourcing market rose from

55% in 2010 to 58% in 2011.

Some people worry about the loss of global competitiveness of the

Indian IT sector due to fast-chasing late-comers. This is an issue that has

been raised over the last decade. However, India maintains its competitive

edge in the IT sector, proving that such worries are unfounded.

○● Heralding change through super-advanced expertise

As information technology spreads to new areas, rapid innovation and

advancement can be seen in certain high-tech sectors. Major Indian IT firms

are capable of responding to the demands for change. These companies

develop technology and offer their services with super-advanced expertise.

Based on their abundant experience, they are producing excellent results,

unmatchable by any late-comers.

The Indian IT industry continues to transform externally as well. Its

adoption of the Hub and Spoke Model is a good example. With India as its

main hub, the industry has created offshore hubs to handle requests from

various customer sites nearby. By doing so, it is increasing access to

customers and improving response effects.

More importantly, this system is opening communication between

Indian hubs and offshore hubs. India’s main hubs, located primarily in six

Indian cities, are operated in conjunction with sub-regional hubs.

India’s top twenty IT firms account for 60% of the total revenue of the

IT industry, while the next thirty IT firms account for another 17%. Putting


035


the numbers together, the top fifty IT firms represent 77% of the total

revenue of the IT industry. These representative IT firms are achieving both

economies of scale and specialization.

○● All-out efforts to expand business to Japan and China

As a growth and survival strategy, India’s IT industry is expanding its

business by attracting customers in new areas, while offering new services

to existing customers. While maintaining market share in the USA and

Europe, India’s main export destinations, Indian companies have made

efforts to diversify export markets. As a result, they have achieved great

success in Eastern Europe, and secured a bridgehead to Africa. The Indian

IT sector continues to grow in China and Japan, too. With the abundant cash

accumulated from these efforts, Indian IT firms are seeking M&A’s to

secure a stronger foothold in these markets.

Indian IT firms have demonstrated aggressive movement in the Asian

market, particularly in Japan. They have also made rapid progress in

China, despite receiving lower returns on their investments than they do

in the American and European markets. This shows how Indian IT firms

are actively expanding their business. Unlike the American and European

markets, the Asian market has language barriers and differences in

corporate culture. Indian IT firms have reason to be disappointed by slow

growth, and by high investment with low profit in the early stages of their

entry into the Asian market; however, they endeavor to succeed in the

Asian market in the long run. Acknowledging that language and

exclusive corporate culture are barriers to growth, some Indian

companies offer language and culture classes to their engineers. In the

meantime, African entrepreneurs and public officials invite Indian

companies to take part in various exchanges, and Indian companies are

actively acquiring African companies in order to establish a bridgehead

to Africa.


036

○● Global affinity is the answer

From the start, the Indian IT industry has been largely dependent on

overseas markets. Clinging to the Indian way in responding to customers

would not have allowed the Indian IT industry to become the global IT

powerhouse it is today. It would not have prepared the industry for the

changing global environment, allowing it to attain innovation and growth.

Indian companies are doing their best to satisfy customers: offering re-

education programs to teach their employees American English to better

attend to American customers; adopting quality control guidelines on par

with those of competing countries; changing their work environment to

match those of their customer companies. One Bengaluru-based Indian

company doing business with Japan offers sushi at its company cafeteria.

The success of Indian companies in the global market lies in these customer-

oriented measures.

Currently, approximately 2.8 million people are directly employed in the

IT industry in India. About 40,000 of them are foreign professionals, and

this number is expected to rise. This is proof of the global affinity

demonstrated by the Indian IT industry.

Despite the economic recession in advanced countries, including

European countries and the USA, the Indian IT industry will continue to

grow, based on its strong growth fundamentals, including robust domestic

demand, and its commitment to exploring future markets.


037


People often ask me, “Is there no identity card in India? Then

how can you verify the identity of 1.2 billion people?” I answer,

“India is not some backward country without any means of

identification. Passport, driver’s license, permanent account

number (PAN), ration card, and voter ID card are all publicly recognized as

proof of identity.” Fortunately, I will no longer have to give such a lengthy

reply. In January of 2009, the Indian government established the Unique

Identification Authority of India (UIDAI) to implement a project for

providing all Indians with unique electronic identity cards. Prime Minister

Manmohan Singh appointed Nandan Nilekani, the founder and former CEO

of the prominent Indian software company Infosys, as the chairman of

UIDAI. Having left Infosys, Nandan Nilekani is now leading the public

project, determined to devote his life to country and people.

○● Easy access to public services through NeGP

In 2003, the Indian government launched the National e-Governance

India seeks efficiency andtransparency though e-government

Imm Jeong-seongSenior Business Analyst of POSCO Research Institute


038

Plan (NeGP). Realizing the limitations of a project implemented by a

single state or government agency, the Indian government launched the

e-government project on the national level.

In the past, Indians had to wait in a long line to receive even simple

administrative services. They had to visit a public office several times to

deal with the same affair. Postponement was a daily event. It often took

days or months from submitting requisite paperwork and filing

applications to getting a copy of a land registry, receiving a passport or

driver’s license, receiving certificates of birth, death, income, caste, and

residence, or receiving pension benefits or other social services. However,

it is becoming increasingly easy to receive public services in India. Thanks

to the e-government project, public services are available 24/7 online,

whenever and wherever Indians want. The Indian government is actively

implementing the e-government project by utilizing its globally competitive

IT-BPO (Business Process Outsourcing) companies.

SDC Operational Gujarat, Tripura, Rajasthan, Tamil Nadu, Puducherry, WestBengal, Andhra Pradesh, Meghalaya, Karnataka, Manipur,Orissa, Sikkim, Haryana, Kerala

Implementation in progress Nagaland, Maharashtra, Uttar Pradesh, Andaman andNicobar Islands

Bid process completed Mizoram, Madhya Pradesh, Bihar

Bid in progress Jharkhand, J & K, Himachal Pradesh Uttarakhand,Chhattisgarh, Lakshadweep

Request for Proposal (RFP) Goa under preparation

Source: Department of Electronics and Information Technology under the Ministry of Communicationand Information Technology

SDC Implementation Status (As of September, 2011)


039


The NeGP vision is to “Make all Government services accessible to the

common man in his locality through Common Service Delivery Outlets and

ensure efficiency, transparency and reliability of such services at affordable

costs to realize the basic needs of the common man.” This vision can be

realized by implementing various programs and building infrastructure.

NeGP infrastructure is comprised of four main components: the Statewide

Area Network (SWAN), State Data Center (SDC), the National e-

Governance Service Delivery Gateway (NSDG), and Common Services

Center (CSC).

First, SWAN is a backbone system, connecting 27 States and 6 Union

Territories of India. The Indian government approved the SWAN scheme in

2005, and earmarked INR 33.34 billion for it. If the SWAN project is

completed, 50,000 government agencies across the country will be

connected to one another. Second, the SDC’s are data centers being built by

state governments to offer G2G, G2C, and G2B effectively, and INR 16.23

billion has been earmarked for five years. The SDC service will be

connected to the core infrastructure, such as SWAN and CSC’s, and

expanded to the village level. As of September of 2011, SDC’s were in

operation in 14 states, and in test operation in 4 more states. Other states

are building SDC’s. Third, the NSDG is a project to share and consolidate

100% operation Arunachal Pradesh, Chandigarh, Gujarat, Kerala, MadhyaPradesh, Manipur, Puducherry, Sikkim, Tripura

70% operation Assam, Bihar, Himachal Pradesh, Jharkhand, Maharashtra,Meghalaya, Mizoram, Nagaland, Uttarakhand, West Bengal

50% operation J & K, Orissa, Rajasthan, Uttar Pradesh


CSC Implementation Status (As of April, 2012)


040

information among the central, state, and local governments. Fourth, CSC’s

are part of the Common Minimum Program (CMP) of the current

government for introducing e-government on a massive scale. The

objective of CSC’s is to provide services of education, public health,

remote healthcare, and entertainment. Moreover, CSC’s also offer remote

rural citizens web-based e-government services, including issuance of

various applications and certificates, and payment of utilities. The CSC

project was approved by the government in September of 2006 and INR

57.42 billion was earmarked for four years. The private sector and non-

government organizations are playing an important role in implementing

the CSC project. As of April of 2012, 97,558 CSC’s were in operation

across India.

Based on these four components, the Indian government is planning

various e-government programs. Among them are 27 Mission Mode

Projects (MMP) approved in May of 2006. Mission Mode implies that “the

objective and the scope of the project are clearly defined, that the project has

measurable outcomes and service levels, and the project has well-defined


The structure of NeGP infrastructure


041


milestones and timelines for

implementation.” Currently,

10 central MMP’s, 10 State

MMP’s, and 7 integrated

MMP’s spanning central and

state governments are in

operation. If all of these 27

MMP’s are completed, India’s

notorious bureaucracy and slow administrative processes will be improved

significantly.

○● Rising IT demand in the transport and power sectors

India’s transport and power sectors, among others, are recently

drawing significant attention from system integration companies. Under

the aegis of international organizations, such as the World Bank and UN

Development Programs (UNDP), the Indian government is building an

Intelligent Transport System (ITS) in order to improve its out-of-date

transport infrastructure. Since December of 2005, the Indian government

has implemented the Jawaharial Nehru National Urban Renewal Mission

(JNNURM) with a price tag of USD 20 billion. JNNURM includes plans

to develop public transport infrastructure and offer basic transportation

services to the poor in 61 cities. In addition, the Indian government

introduced the National Urban Transport Policy (NUTP) in 2006 to

replace old buses and increase the convenience of public transportation

by introducing the ITS. Moreover, with a fund of USD 170 million from

the central government, World Bank, and state governments, the Ministry

of Urban Development is planning to invest in the Urban Traffic Control

System, e-Ticket System, and Electronic Tolling System for medium and

small cities.

State electricity agencies of India are actively implementing smart

It is natural for Korean companies

to have interest in India’s massive

e-government project because the

e-government market is huge, and

has great potential.


042

grid projects to modernize facilities and systems. A smart grid is an

electricity grid that adds information technology to a one-way grid (from

power generation to transmission and sale) to maximize energy efficiency

by exchanging real-time two-way information between power providers

and users.

○● Technology and cost competitiveness

It is natural for Korean companies to have interest in India’s massive

e-government project because the e-government market is huge, and has

great potential. The Korea Business Center, New Delhi, under the Korea

Trade-Investment Promotion Agency (KOTRA), advises Korean

companies that intend to participate in various IT projects led by the

Indian government as follows: First, it usually takes 12-18 months just

for the bidding process. Korean companies must respond flexibly to

10 State MMP’s

�Agriculture

�Commercial Taxes

�e-District

�Employment Exchange

�Land Records

�Municipalities

�Gram Panchayats

�Police

�Road Transport

�Treasuries

10 Central MMP’s

�Banking

�Central Excise & Customs

�Income Tax (IT)

�Insurance

�MCA (Ministry of Company Affairs) 21

�National Citizen Database

�Passport

�Immigration, Visa and ForeignersRegistration& Tracking

�Pension

�e-Office

7 Integrated MMP’s

�CSC

�e-Biz

�e-Courts

�e-Procurement

�EDI for e-Trade

�National e-GovernanceService DeliveryGateway

�India Portal


NeGP 27 MMP’s status


043


various requests for change made by the Indian government before

making a successful bid, while taking a responsive approach to

negotiation suggestions. Second, any project ordered by the Indian

government has a long period of implementation; therefore, Korean

companies must manage project schedules by phase according to a

timeline. Third, Korean companies should have strong determination to

address challenges and difficulties that may arise during the project.

Fourth, they should bear in mind that payment even of government-led

projects can be overdue. Fifth, they must target important figures in each

stage, taking into consideration the importance of building a strong

network of decision-makers. Sixth, it is necessary to clarify the scope of

available services, target projects, and target areas. Seventh, Korean

companies must establish taskforces, given that India’s public projects

are as difficult as explained above.

However, an increasing number of Korean companies are succeeding in

the Indian market. Samsung SDS has built an automatic fare collection

system for the Delhi Metro. XeLine, a Korean Programmable Logic

Controller (PLC) company, has received an order for a pilot project of the

government of Assam for a high-speed telecommunications-based remote

inspection and Internet network system, funded by the Asian Development

Bank (ADB). Suprema, a leading Korean biometrics company, has

concluded a contract to provide Fingerprint Live Scanners for a project for

unique electronic identity cards. KBT Technology has entered into an

agreement to provide 800,000 smart cards. Presidents of these Korean

SME’s point out that the most important factors for successful public bids

in India are advanced technology and cost competitiveness. Their advice is

worthy of note for Korean companies with interest in the Indian IT public

infrastructure.

TThhee CChhiinneessee

ggrroowwtthh mmooddeell

�Does China have its own economicgrowth model?

�Stagnant growth of Guangdong:growing pain or limitation?


047

Does China have its owneconomic growth model?

:: The Chinese growth model

Kim Si-joongProfessor, Graduate School of International StudiesSogang University

In 2010, China finally overtook Japan to become the world’s second

largest economy. This was the result of China maintaining an

average annual growth rate of 10% for more than 30 years since its

economic reform. With advanced countries such as the USA, Japan,

and EU countries recently suffering from economic downturn, China’s high

growth is at the center of global attention.

China’s astonishing economic growth naturally leads to a discussion of

how China was able to achieve such an outcome. In particular, whether

China’s economic growth model is different from that of mainstream

economics and those other countries, and whether this model could be an

alternative for other countries.

This discussion started in 2004 when Joshua Cooper Ramo, a former

editor of Time magazine, suggested the concept of the “Beijing Consensus”

in contrast to the “Washington Consensus.” However, the discussion at that

time was not clear or concrete. Since then, more advanced discussions on

the “Chinese model” have been raised in China. Jeon Sung-heung, Professor


048

of Political Science at Sogang University in Korea, who has studied this

subject, defined the Chinese model as “strategic ideas that are the basis of

various measures implemented by China in order to meet its target

economic growth, and certain patterns generated from the results of such

strategic ideas.” The discussion on the Chinese model has been gaining

momentum globally because the American free market economy lost trust

after the 2008 global financial crisis.

It is difficult to explain the process of China’s economic growth over

the past three decades by one typical pattern. In particular, there are

issues of regional diversity and variables of time. Economic growth

models differ region by region, and economic growth models of the

1980s-1990s are different from those of the 2000s. Despite such

challenges, it is meaningful to define the economic growth patterns of

China under economic reform.

There are four key questions related to this theme. First, is there a

unique Chinese growth model that has led China to economic success?

Second, if such a model exists, what are its key components? Third, can the

model be sustainable in the future? Fourth, is the model adoptable by other

countries? Research has been conducted to answer these questions, but no

consensus has been reached and there is heated debate. This article focuses

on what lies at the core of this debate, rather than offering answers to the

questions.

○● Differing patterns of decentralization and FDI in China

and East Asia

The simplest explanation for the Chinese economic growth model is that

the combination of strong communist government leadership and practical

economic policies has been a driving force of high growth. In other words, a

country with a strong ability to mobilize resources has put the highest

priority on economic growth and ensured political and social stability─the


049


prerequisites of economic growth. From there, it has effectively

implemented measures for growth. This explanation emphasizes the

government’s role, which is powerful, consistent, and effective. Under such

a system, the durability of the

government is guaranteed, free

from the pressures imposed by

various interest groups. Reaching

political consensus in the policy-

making process is simple, therefore

measures for maximizing economic

efficiency can be implemented in a

timely manner. For example, China adopted a massive economic stimulus

package worth RMB 4 trillion in the wake of the 2008 global financial

crisis, and implemented the stimulus package swiftly by mobilizing

resources from the National Treasury and banks. By doing so, China was

able to reverse the economic downturn in a short period of time. Only China

was capable of this.

This explanation leads to the conclusion that the economic growth

model led by Korea, Taiwan, and Singapore (the so called East Asian model

of development) is similar to China’s. They are similar in that governments

encourage the expansion of investment through low interest rates and bank

control, and promote exports with currency undervaluation.

However, China’s model is different from that of East Asia: Chinese

local governments vying against each other have led economic growth

under the government’s decentralization policies; and China has increased

exports by attracting foreign direct investment (FDI), rather than nurturing

domestic industries. Moreover, adopting the East Asian model would not

have been advantageous for China because of its status as a large country

and the changing economic conditions of globalization. Therefore, this

explanation successfully describes one aspect of China’s high economic

Clearly, China has not followed

a particular growth model. It

has responded to different

situations flexibly based on

their unique conditions to

achieve high growth.


050

growth, but it is overly simple and fails to truly explain China’s economic

breakthroughs.

○● China’s market economy differs from the Washington

Consensus

There is another explanation that is contradictory to the explanation

above: China has achieved high economic growth rates based essentially on

the Washington Consensus, the neoliberal economic policy. Over the last

three decades, China’s economic policies have focused on macroeconomic

stabilization, fiscal soundness, marketization of pricing mechanisms, trade

liberalization, and attraction of FDI. China has also made breakthroughs,

though gradual and partial, in privatization of state-owned companies and

institutional protection of property rights. The bottom line is that free market

policies based on liberalization, marketization, openness, and privatization,

have been a major growth engine for the Chinese economy. This

explanation pays close attention to the fact that China was a transitional

country, trying to achieve economic growth through reform. This

explanation is rather satisfactory in explaining the economic growth of

China up to the early 2000s.

However, there are some factors that are incompatible with the

Washington Consensus: selective government intervention widely

witnessed across the Chinese market; limited privatization of state-owned

companies, and a large number of state-owned companies controlling core

industries; limitations on doing business for private companies; and

limited access to financial markets for private companies. These factors

clearly show the limitations of the explanation. A policy encouraging the

expansion of investment through low interest rates, and promoting exports

with yuan undervaluation, is a good example of selective government

intervention. In response to increased demand for lending due to low

interest rates, the central and local governments have adopted a credit


051


rationing system, in which they intervene in the decision-making process

for lending.

In addition, the Chinese market economy has other limitations: local

governments work as market players directly or through public companies

under their control; some major public companies are market players and

are closely related to the central government. For these reasons, some

experts define the Chinese economy as “State capitalism.” Moreover, some

people interpret the recent trend of “the state advances, and the private

sector retreats (國進民退)” as a fading sign of market reform.

○● The Chinese Way

China has achieved good results by operating a system with elements of

socialism and capitalism working together, and openness and closedness

existing together, and by continuously seeking change in response to the

changing environment inside and outside of China. For example, China’s

industrial and trade structures had maintained a dual system with an open

export sector led by foreign affiliates, and a relatively closed domestic

demand sector led by state-owned companies. However, since China opened

its doors more widely following its accession to the WTO, the barrier

between the two sectors has gradually lowered.

Putting the highest priority on economic growth, China has achieved

high growth. However, this in turn led to various social and economic ills.

Many people wonder whether the existing Chinese model is sustainable.

From the perspective of demand, China has maintained high growth rates

for a long time, led by investment and export. As a result, contraction of

domestic consumption has reached severe levels. Such an imbalance in the

demand structure is threatening China’s continued economic growth.

Overinvestment can lead to a burst bubble and other financial crises. With

advanced countries expected to enter a long recession, China is in a bad

situation to increase its exports. In addition, excessive use of energy and


052

other resources, and severe environmental pollution are stumbling blocks

for economic growth. Income disparity between urban and rural

populations, and among regions and classes, as well as growing social

discontent have become so severe as to threaten stability. Without

addressing these issues, economic growth will be unlikely to continue. For

these reasons, China is shifting its growth model to address or alleviate its

social and economic issues.

○● Flexible responses for each country

In conclusion, China’s high growth has proven to be complex and

changeable. In other words, China’s economic growth model is not static,

but amorphous, changing under various circumstances. Clearly, China has

not followed a particular growth model. It has responded to different

situations flexibly based on their unique conditions to achieve high growth.

In the process, a variety of Chinese characteristics have been witnessed.

Some of these Chinese characteristics are expected to remain in the future.

In this sense, it is impossible and undesirable for other developing

countries to blindly imitate and follow the Chinese model. They can,

however, learn lessons from China’s experience in economic development.

One of these lessons is that there is no standard package of policies for

economic development that is applicable to every country. The most

desirable development strategy is to create capital and increase productivity,

the basic path to economic development, in a manner suitable for each

country and in response to the changing domestic and overseas

environment.


053


Stagnant growth of Guangdong:growing pain or limitation?

Kim Chang-doSenior Business Analyst of POSCO Research Institute

China’s reform and opening-up have been gradual and

progressive, as points form lines, and lines form shapes. The

four initial Special Economic Zones (SEZ) in China are

Shenzhen, Zhuhai, Xiamen, and Shantou. Three of these are

located in Guangdong Province. It is fair to say that China’s reform and

opening-up started in Guangdong. The Chinese government selected

Guangdong as a test bed for its reform and opening-up policies, intending to

finance economic development by absorbing Chinese capital and

management knowhow from nearby Hong Kong and Macau.

In the last three decades, Guangdong has lived up to government

expectation to become the largest export base in China. In 2011, Guangdong

accounted for 28% of China’s total exports. While Guangdong represented

7.8% of China’s total population, and only 1.9% of its total land area,

Guangdong held the lion’s share in exports. Guangdong’s actually-used


054

foreign direct investment stood at USD 21.8 billion, accounting for 18.8%

of total FDI in China.

○● Stagnant growth from the 2000s

In terms of productivity, Guangdong’s manufacturing sector had

remained above the Chinese average until the early 2000s. However,

growth has lost momentum since 2003, because the manufacturing sector

was dominated by simple processing in pursuit of exports, and its

industrial location in the region was undesirable. The manufacturing

sector in Guangdong soon began to gradually lose its footing due to

wasted resources, environmental pollution, and reduced value. Moreover,

increased wages have dragged down the profitability of manufacturing

companies. The gap in economic development within the region has also

been widening. Among the four economic regions in Guangdong─the

Pearl River Delta (PRD), East, West, and North─the Pearl River Delta’s

GDP in 2007 amounted to almost 80% of the total GDP of the province,

and its per capita GDP was nearly four times higher than those of the other

three regions.

Another reason for slowing growth in Guangdong is that the priorities of

the central government’s development policies have shifted north. In the late

1990s and 2000s, the Chang Jiang Delta and the Bohai Bay regions were

developed extensively, causing relatively slow development in Guangdong.

Many talents left Guangdong to seek opportunities in other areas. Even rural

laborers left for other regions, leading to shortages of rural labor.

Guangdong Province began to lose its charm as an icon of China’s reform

and opening-up. As these issues became sticking points, the central

government appointed Wang Yang (汪洋), then-Secretary of Chongqing

City as Secretary of Guangdong Province in December of 2007 to resolve

these issues.


055


○● Wang Yang’s projects for industrial transformation and

upgrade

Secretary Wang Yang is a self-made man who rose to be a high-ranking

official through his ability, with no political connections.

In 1988, Wang Yang, age 34, was sworn in as Mayor of Tongling, Anhui

Province. After three years of thorough investigation, Wang contributed an

essay, titled Wake up, Tongling, to the Tongling Daily. In his essay, he

pointed out five reasons, with

evidence, that Tongling has a

backward economy, including

a lack of will to reform and an

insufficient sense of openness.

He boldly pleaded the

necessity of reform and

opening-up policies for the

economic development of

Tongling. His essay sent China into a storm and drew attention from the

central government. In 1992, Deng Xiaoping (鄧小平), an advocate of

reform, visited young mayor Wang on his way back to Beijing from a

Southern Tour. Since then, Wang has emerged as a new icon of China’s

reform, and made his way into the central political arena.

After being appointed Secretary of Guangdong Province, Wang Yang

formulated a development strategy for the transformation and upgrading of

industrial structures after a series of investigations into the status of the

province. In September of 2010, he established a comprehensive long-term

plan for Guangdong Province Modern Industry, and presented a detailed

blueprint for six major industries, including knowledge services, heavy

industry, high-tech industry, modern agricultural industry, infrastructure, and

traditional industry. The medium- to long-term plan is to build modern

industrial structures on par with those of advanced countries by 2020. Wang

The Guangdong development

model is highly likely to be a

leading model for the future of

China. This will provide Korean

companies with new business

opportunities.


056

also proposed a plan to integrate the PRD, the first developed region in

Guangdong Province, with Hong Kong, Macau, and the nine provinces of

Fujian, Jiangxi, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou,

and Yunnan to develop a Pan Pearl River Delta.

Guangdong Province plans to promote balanced growth by relocating

labor-intensive industries to regions adjacent to the PRD, selecting 500

projects in modern industries, and focusing its support on the banking,

Guangdong ChinaGuangdong/

China (%)

Note: USD 1 to RMB 6.3009 (As of December, 2011)Source: National Bureau of Statistics of China (www.stats.gov.cn),

Guangdong Statistical Bureau (www.gdstats.gov.cn)

Major economic indicators of Guangdong and China

Land size (10,000km2) 17.8 960 1.9

Population (10,000) 10,505 134,735 7.8

GDP (USD 100M) 8,360 74,841 11.2

Per capita GDP ($) 7,958 5,555 -

Commodity CPI (%) 5.3 5.4 -

prices PPI (%) 3.7 6.0 -

Unemployment (%) 2.5 4.1 -

Fixed asset investment (RMB 100M) 16,933 311,022 5.4

Consumer goods sales (RMB 100M) 20,247 183,919 11.0

Foreign trade (USD 100M) 9,135 36,421 25.1

Export (USD 100M) 5,319 18,986 28.0

Import (USD 100M) 3,815 17,435 21.9

FDI (USD 100M) 218 1,160 18.8


057


finance, taxation, and education sectors. It has devised a plan for tax cuts for

companies and RMB 15 billion in investments. Guangdong Province plans to

implement financial reform, which will include increasing loans by financial

institutions, allowing them to participate in the capital market, and supporting

the hiring and education of highly-educated professionals and professional

managers. In addition, the Guangdong government is seeking a shift from

“Made in Guangdong” to “Created in Guangdong.” To this end, it plans to

hire about 300,000 R&D professionals by 2012, and nurture 50 high-tech

companies, each with a sales target of RMB 10 billion. Ultimately, it plans to

boost the share of its service sector from 46% to 55% by 2020.

○● Attracting global companies

With shared medium- to long-term visions, the Guangdong government

and the community are rushing toward their goals with pride and

enthusiasm as pioneers of China’s reform. They are actively seeking

investment from global companies, focusing on the fact that the introduction

of advanced technology and experience is necessary to improve

Guangdong’s backward industrial structures. As part of this effort,

Guangdong Province held the Guangdong and Global 500 Companies Co-

op Conference with grand fanfare on September 29-30, 2011. About 400

foreign industrialists, including executives from Siemens, POSCO, and

ABB; 500 representatives from Chinese companies and institutions; and 100

central and local government officials participated in the conference.

The government of Guangdong is attracting multinational companies to

build their China headquarters in Guangdong, and hastening existing

projects. It has also streamlined administrative processes and offered

various benefits to companies. It is even utilizing visits by central

government officials to foreign countries to attract investment from foreign

companies. Global companies naturally prefer projects guaranteed by the

central government.


058

○● The Guangdong model: the future of China?

Guangdong’s per capita income in 2011 was nearly USD 8,000.

Guangdong is now facing the same growing pains that Japan and Korea

experienced in the process of their development, including a gap between

the rich and poor, and intensifying labor disputes. Currently, there are many

cases of rural labor unrest. About a thousand rural laborers attacked police

offices and patrol cars in Zengcheng, Guangzhou, in June of 2011. The riot

was sparked by the government’s excessive use of force against a pregnant

street vendor.

For three months from September of 2011, locals took to the streets in

Knowledge

servicesHeavy industry

High-tech

industry

Traditional

industry

Modern

farmingInfrastructure

Source: The Comprehensive Long-Term Plan for 2010 Guangdong Province Modern Industry

Guangdong’s development plan for six industries

-Globalcompanies’localheadquarters

-Finance,logistics,tourism,education

-Informationservice

-Entertainment

-Carmanufacturing

-Equipmentproduction

-Petrochemical

-Steel

-Shipbuilding

-Electronicinformation

-Bio

-New andrenewableenergy

-New materials

-Environ-mentally-friendlyindustry

-Marine &Aerospace

-Homeappliance

-Foodprocessing

-Spinning

-Paper-making

-Constructionmaterials

-Color metal

-Cropcultivation

-Horticulture

-Modern stockfarming,fisheries, andforestry

-Agriculturalproductprocessingservice

-Energyproduction andtransmission

-Transportationnetworkconstruction

-Waterwayexpansion

-Irrigationfacilitiesconstruction


059


the southern Chinese village of Wukan. The siege of Wukan by angry

villagers, which drew global attention, was triggered by officials selling

land jointly owned by the villagers to real estate developers without the

villagers’ consent, and embezzling more than RMB 700 million. Rather

than suppressing the riot, the Guangdong government established an

investigative committee to examine the riot thoroughly and punish

involved officials. The villagers have democratically formed an

autonomous committee, demonstrating Wukan’s political and institutional

possibilities.

There are still many challenges, such as land compensation. However,

the way Guangdong has addressed the siege of Wukan has significant

implications for similar events that may happen in other areas in the future.

The riot shows that China has now entered an era in which the Chinese

government can no longer overlook public complaints.

The Guangdong model is changing due to sustainable qualitative

growth, business-friendly trends, and flexible politics based on popular will.

If Guangdong overcomes its challenges, it will be able to escape the middle

income trap, and it will become a model for other areas in China’s second

wave of reform.

Taking into consideration Secretary Wang Yang’s strong foothold in

central politics and other developments, the Guangdong development model

is highly likely to be a leading model for the future of China. This will

provide Korean companies with new business opportunities. Because Korea

successfully overcame similar hardships in the late 1980s and early 1990s to

those that Guangdong now faces, investments by Korean companies will be

welcomed. Now is the right time for Korean companies to make the most of

business opportunities with high potential in Guangdong.

MMaaddee iinn IInnddiiaa,,

lloovveedd bbyy tthhee

wwoorrlldd

�India: the factory of the world for cheap, innovative products

�India’s globalization, the world’sIndianization


063

India: the factory of the world for cheap, innovative products

:: Made in India, loved by the world


The phrase Made in India sounds somewhat unnatural, perhaps

because we have become quite familiar with the words Made

in China. However, the number of products manufactured in

India is rising like never before, and the world is becoming

increasingly accustomed to seeing products made in India. Although India

cannot yet compete with China, the world’s largest exporter of consumer

goods and electrical and electronic products, cheap and innovative Indian

products, which reflect the distinctive lifestyles and characteristics of the

Indian people, are spreading from the Indian market to other developing

countries, and making inroads in advanced countries.

○● The Tata Nano, the origin of the low-cost compact car

furor

Recently, many products claiming to be the world’s cheapest have hit

the Indian market. The list of cheap Indian products goes on and on:


064

personal computers for USD 75, released in 2005; cell phones for USD 20,

released in 2008; Android smart phones for around USD 200, released at the

end of 2010; the Aakash Tablet PC for USD 50, released in October of

2011, and Oorja stoves for USD 23. In 2009, cheap water purification

systems were introduced by Tata Chemicals in India, where water is scarce

and has poor quality. The cheapest water purification system costs only INR

499 (USD 11). The Indian conglomerate Godrej Group has developed a

small and portable cooler-type refrigerator called Little Cool, which sells for

USD 70. For Little Cool, Godrej reduced the number of parts used for the

refrigerator from 200 to 20. Instead of a compressor, Little Cool runs on a

cooling chip and a fan, similar to those used to cool computers.

Among all of the cheap, innovative products being made in India, the

Tata Nano is surely the most well-known. The Nano, at only USD 2,200

(INR 100,000), stunned the world when it was first introduced by Tata

Motors at the Delhi Auto show in January of 2008. People were fascinated

by the Nano’s sleek and cute design, which was as splendid as that of cars

produced in advanced countries. In 1998, Tata Motors developed and

launched the Indica without any help from global carmakers, and the

company’s innovation continues. At the Geneva Motor Show held in early

March, Tata Motors unveiled the Megapixel, with a fuel economy of 100

kilometers per liter, fueling the fervor for made-in-India products.

Bajaj Auto, an Indian conglomerate that used to specialize in two- and

three-wheelers, ended its alliance with Renault-Nissan and went its own

way. Inspired by the Tata Nano, Bajaj released the world’s cheapest car, the

RE60, at the Delhi Auto Show in January of this year. The exact price of the

RE60 was not disclosed, but it is expected to be lower than that of the Nano.

In fact, the Nano was a shock to global automakers with a presence in India.

Automakers including Hyundai Motors, Ford, and Toyota rushed to develop

compact cars in order to enter India’s low-end market, which is the largest

market in the country. Hyundai Motors released the 800cc EON late last


065


year. Ford began to sell the Figo in 2010, after two years of development.

Toyota India, which had had no compact car line, completed four years of

research and development to introduce its first cheap compact car model,

the Etios, in 2010.

○● Indian innovation, bringing joy to the world’s

low-income population

Low-end products developed in India are exported to other countries

through Indian and multinational companies. Their main export destinations

are developing countries, including those in Southwest Asia and Africa;

however, they began recently to be exported to a new niche market,

targeting low-income populations in advanced countries in the West.

In 2009, Tata Motors began selling the Nano in Africa, including South

Africa and Kenya, as well as in Asia. The company plans to develop an

upgraded model, the Tata Nano Europa, for export to Great Britain and

other European countries. Hyundai Motors, Ford, and Toyota have similar

strategies, to develop small cars in India and sell them in the Middle East,

Africa, China, and other developing regions.

Interestingly, companies focusing on developing cheap, innovative

products in India are not small and medium-sized enterprises, but

conglomerates, such as Tata, Godrej, and Bajaj. Big companies saw

business potential in the sheer size of India’s low-end market. Tata Group, in

particular, has been developing passenger cars, purification systems, and

housing for the poor as a social contribution. This phenomenon was greatly

influenced by Professor C.K. Prahalad, who put emphasis on the Bottom of

the Pyramid (BOP) market. Born in India, Professor Prahalad studied at

Loyola College, Chennai, and the Indian Institute of Management,

Ahmedabad (IIM-A). Thanks to his background, he was able to ascertain

the potential of the world’s low-income market. According to Professor

Prahalad, the BOP market has characteristics totally different from those of


066

advanced countries; therefore, a

company should take a totally

different approach across all

processes of operation, from

design and production to pricing

and distribution. Hindustan

Unilever Limited (HUL), an

Indian subsidiary of Unilever, was

the first to jump into the BOP

market. After four years of research, HUL developed the USD 43 Pureit

portable water purification system.

With R&D costs lower than those in advanced countries, the Indian

market has been a good test bed for technology innovation for multinational

food and beverage companies. McDonald’s McChicken and McAloo Tikki

(potato croquette burger), developed in India, are now sold in the Middle

East, as well as in Europe and other advanced countries. Nestlé first

developed Maggi instant noodles to target housewives and young people in

Indian cities, but they are now sold as affordable health food in other

countries, including Australia and New Zealand.

○● Attracting the world with Jugaad spirit

Price is not the only reason the world is paying keen attention to cheap,

innovative products made in India. India has succeeded in reducing costs

through innovation in design and manufacturing, identified customer

needs, and sought innovation in pricing and distribution. In these ways,

manufacturing strategies in India are different from those in China, where

mass production systems seek the maximum production at the lowest labor

costs.

U.S. consulting firms and management academia point to the Jugaad

spirit as the reason for the success of cheap, innovative products made by

There are an increasing number of

cases in which global companies

are utilizing India’s excellent

engineering technology and cheap

production costs to manufacture

inexpensive, innovative products

in India


067


Indian companies. They have praised the Jugaad spirit as the source of

Indians’ ability to find solutions by creative means in order to survive in an

unfavorable environment. Surprisingly, some Indians regard the Jugaad

spirit as a last minute quick-fix─a shameful characteristic of Indians. In

remote villages with no proper transportation, people make a kind of

passenger car by taking steel sheets from obsolete jeeps and joining them to

wooden planks to make a chassis, using a water meter motor as an engine.

The resulting car costs less than USD 400, but satisfies in essence the

requirements of a vehicle as well as passenger cars that cost more than USD

10,000. The Jugaad spirit has risen to remarkable prominence as an

innovative management technique, as has the Japanese idea of Kaizen

(practices focusing on continuous improvement of manufacturing processes

in order to make perfect products).

The Jugaad spirit is alive not only in India’s manufacturing, but also in

its software and service sectors. Hospitals are one example. Aravind Eye

Hospital, one of the world’s largest ophthalmological hospitals, performs

about 200,000 cataract surgeries a year, but the surgery costs only USD 50-

300, between one-tenth and one-sixtieth of the cost in the USA. At the

heart of the Hospital’s cost competitiveness is the McDonald’s system. The

Hospital has introduced an assembly line system, in which eye surgeries

are performed in an operating room with many beds, so that the surgeon

can perform surgeries one after another. The result of this process

innovation is a higher turnover rate; one surgeon can perform more than 50

surgeries a day. Such an innovation was possible because Avarind Eye

Hospital was founded as a social organization for the well-being of the

Indian population, a large portion of which is going blind and has no

money to pay for eye surgery.

Cheap, innovative products are made not only by Indian companies, but

also by multinational companies having a presence in India. GE Healthcare

has used Indian engineers to develop a portable electrocardiograph machine


068

that costs only USD 1,000, one-tenth of the standard price in the USA. This

model is currently sold in 50 countries, including the USA. As this example

suggests, there are an increasing number of cases in which global companies

are utilizing India’s excellent engineering technology and cheap production

costs to manufacture inexpensive, innovative products in India, and selling

those products in their own countries or in third countries. This

phenomenon, called reverse innovation, is contrary to the past practices of

developing new products in advanced countries, and then selling them in

developing countries.

On the “2010 Global Manufacturing Competitiveness Index,” Deloitte

Consulting ranked India second, after China, acknowledging the strengths of

India. With world-class software development and engineering, India is

evaluated highly in research and development, which is a crucial factor for

innovative manufacturers. Moreover, the vast size of India’s low-end market

makes the country more favorable than any other developing country, for

the design, development, and manufacturing of innovative products.

○● Indian strategies for Korean companies

Korean companies always face a dilemma when making strategies for

entering developing countries such as India. They do not believe that they

can successfully compete with local companies in the low-end market,

which represents the majority of the entire local market. Many focus on

high-end markets, despite their small size, and stay away from local

competitors. In high-end markets, however, Korean companies are lagging

behind Japanese and Western companies with advanced technology, high

quality, and high brand awareness. Trapped between the two ends of the

market, Korean companies are having a difficult time with market

positioning, unable to grow or make profit.

Sticking to the Korean way is no longer advantageous for Korean

companies. The chances of success are slim for Korean companies that


069


value only their own experience and judgment, develop products based only

on the Korean sense of beauty and benefit, and sell products using the same

strategies they used in Korea. It is the right time for Korean companies,

which have already entered India and secured local sales networks, to make

efforts to discover and take advantage of the strengths of the Indian people.

Making the best use of the Jugaad spirit, Korean companies should pursue

cost competitiveness, which will enable them to outcompete local

companies. Localization is essential, wherein full understanding of the

characteristics of the low-income market precedes developing and

marketing appropriate products. Korean companies will benefit greatly from

listening attentively to experts who advise that one of the biggest secrets to

the success of localization strategy is delegating authority to locals who

know local conditions.


071

India’s globalization, the world’sIndianization


Kim Hyeong-junResearcher of the Institute of South Asian StudiesHankuk University of Foreign Studies

When two different cultures meet, a cultural shock is the

first thing to happen. Then the shock develops into

either an extreme cultural clash or coexistence. Neither

an individual nor an organization can continue to exist

without addressing cultural differences in one way or the other.

Cultural clashes often take the form of conquest by war or other violent

means. By transplanting their own culture, the conqueror causes the demise

of its counterpart’s culture. Examples can be easily found in the process of

colonization by the West during the Age of Exploration in the 15-17th

century. It also occurred during the Japanese colonial rule over Korea from

1910 to 1945, when Japan tried to destroy Korean culture under the pretext

of “Oneness of Japan and Korea.” As history suggests, and it remains true

today, conquest has been the easiest option for a privileged class or

individual to obliterate another’s culture.


072

When two cultures choose the path of coexistence, there might be an

initial period of conflict. Relationships of coexistence can be either vertical

or horizontal, but the two parties ultimately find a way to live together.

Among the various methods of coexistence, India’s is quite unique. More

precisely, India has blended various methods of coexistence.

○● The Indian melting pot

Since ancient times, India has adopted generous policies to accommodate

foreign cultures. Although, whether they were generous, accommodating, or

indifferent is subjective. A fusion of cultures began in India with the

cohesion between nomadic cultures

that originated from Aryans who

moved to India in 1500 BCE, and

sedentary agrarian cultures. This is

a good example of “Indianization”

─people immigrating to India

blend together into one Indian

culture.

Indianization could be defined

as “unity in diversity,” where different cultures do not simply combine

together, but develop a new culture, with distinctive characteristics,

through convergence. Interestingly, this resulting new culture is highly

magnetic, and another foreign culture can enter and assimilate into the

culture easily. Indian culture not only readily accepts other cultures, but

also spreads easily.

The magnetism of Indianization has always been, and still is, powerful.

Sarvepalli Radhakrishnan, a renowned Indian philosopher, states in Eastern

Religions and Western Thought that Indian culture has had traces of

exchanges with the Arabian Peninsula and the West since the Indus Valley

Civilization. He also claims that after Alexander the Great reached the

Traditionally, distinctive Indian

culture formed and morphed

naturally, as foreign cultures

entered and blended into the

Indian culture through the

process of Indianization.


073


northwestern region of India in 327 BCE, Indian thought, mainly Buddhism,

which was prevalent at that time in India, spread as far as Alexandria. In

addition, under the Persian Islamic culture of the Mogul Empire, Indian

books were translated into other languages and spread to the West,

triggering the curiosity of Western Europeans. Later, during the Western

European colonization period, Indian thought and religion became

important themes of study for many Western scholars. The impact of Indian

thought, especially Buddhism and Buddhist thought, on the East, including

China and Korea, is undeniably massive.

However, since the colonization of the West, and the First and Second

World Wars, the world has been riding on massive waves of Westernization

under the names of capitalization and democratization. This movement was

accepted by the masses because of the most instinctive human reaction. The

phrases “History is written by the winners,” and “The powerful benefit from

justice,” suggest that justice naturally leans toward the powerful. However,

the West began to turn its eyes to the East, reaching the limit of its tolerance

for the influence of science and capitalization, and India’s true character

slowly became known to the world.

For example, the hippie culture of the 1960s was derived from the

actions of young Westerners seeking escape from established institutions.

The Beatles were eager for a musical breakthrough when they came across

Transcendental Meditation (TM). Through the Beatles’ music, Westerners

took interest in India directly or indirectly. In particular, this served as an

opportunity for the globalization of yoga.

Hindu temples are ubiquitous in Western society. Recently, Tibetan

Buddhism has found its way to the West, offering spiritual sanctuary to

Western people who have been stuck in empiricism and rationality.

Tibetan Buddhism has influenced various cultural sectors, including

Hollywood. Some people denounce this phenomenon as a drawback of

New Age. However, one can also argue that this is a natural course for


074

modern people who are spiritually depleted in disproportion to their

material abundance.

○● Integration of economics and ethics

Demonstrators have taken to the streets around Wall Street to protest

predatory capitalism based on free economy. Amartya Kumar Sen, who was

awarded the Nobel Prize in Economic Sciences in 1998, and was the first

Asian to win the prize, examined the Occupy Wall Street movement using

welfare economics. He concluded that inequality and poverty ultimately

come from the difference between the purposes of economics and ethics. He

claimed that economics has a thorny relationship with ethics from the

moment they meet. In other words, the purpose of economics is the pursuit

of profit, and that of ethics is the revelation of human nature and

consideration for one another.

In the process of pursuing profit, however, ethics often becomes

lethargic, and even ostracized. Distrust and denial between economics and

ethics often result in the defeat of ethics by the power of huge capital. The

problem in reality is that even in cases where ethics is relevant, it ends up

merely playing a role as a means to pursue profit.

Amartya Kumar Sen tried to set the stage for self-examination, to lay an

ethical foundation again through new reflection on the origin and

achievements of economics. Amartya Sen’s idea, of integrating economics

and ethics, is greatly influencing the field of economics, and other related

fields, on the academic front. This idea is influencing regions all over the

world, including developing countries.

As one of the axes of the Asian economy in the 21st century, the other

being China, India is emerging as a country at the center of the international

community. Accordingly, the world is paying attention not only to India’s

spirituality and culture, but also to the Indian economy and society. Korea is

becoming increasingly exposed to the Indian culture through an influx of


075


foreign workers from South Asian countries, including India, Bangladesh,

Pakistan, and Nepal, and an increasing number of multicultural families.

Following the Comprehensive Economic Partnership Agreement (CEPA)

concluded between Korea and India in 2009, the two countries have formed

bilateral relations by enhancing economic exchanges.

○● Westernization as a process of Indianization

Borrowing from traditional Indian thought, Indianization is a natural

point of arrival within the cycle of the universe. In other words, if India is

the starting point as well as the ending point in the spirituality and culture of

mankind, turning to India in a time of confusion and difficulty is tantamount

to people returning home after years of wandering. People who have

returned home might leave home again, but Indians believe this is as natural

a process as space goes through in the processes of creation, maintenance,

and extinction.

Despite the pride Indians convey, India today seems to be moving

toward globalization, in the mold of Western capitalism. In fact, India is

undergoing rapid Westernization across the culture, including movies and

the food service industry. In the past, Indian movies showed distinctly

Indian characteristics, using subjects and methods unique to India. Since

the 2000s, however, Indian movies have become rapidly westernized, and

have lost their distinctive charm. These movies sometimes look like

Hollywood movies in Hindi. In addition, fewer Indians wear traditional

costumes, and chai tea, India’s national drink, is being increasingly

replaced by coffee. This reality comes as a shock to many people. In

particular, Westernization in India has spread rapidly among young people,

creating severe new social ills. An Indian newspaper column expressed

concerns for the fate of Indian traditions, stating that Indian students are

more fluent in English than in Hindi.

There are many examples of India’s Westernization. India and the


076

Philippines are often cited as Asian countries in which satellite television

broadcasting has been successful. The reason for this success is that English

is an official language of these countries. The advancement of the IT

industry, which has created borderless networks, has played a role in

facilitating India’s Westernization. The concern over Westernization is

shared by many countries, but it does not seem to be a threat to India.

Traditionally, distinctive Indian culture formed and morphed naturally, as

foreign cultures entered and blended into the Indian culture through the

process of Indianization. India’s globalization, or Westernization, is perhaps

another example of Indianization. It is unclear whether the Westernization of

India is simply this quintessentially Indian process, or an unprecedented

occurrence. Either way, history will likely define this phenomenon as

another example of Indianization.

IIssssuuee AAnnaallyysseess

�India’s aviation industry on the verge of crashing

�Korea-China-Japan TrilateralInvestment Agreement heralds thebeginning of one Northeast Asia

�Economic cooperation brings India and Pakistan closer

�Social media fervor in Chinaaccelerates social changes

�Better working conditions are in the interests of the USA and China

�India’s ruling party tumbles afterstate elections


079

:: Issue Analyses

SSince February 18, Kingfisher Airlines, India’s second largest

airline, has cancelled more than 200 flights, causing chaos in

India. The gravity of this event is significant, as Kingfisher had

cancelled flights before, in November 2011. Kingfisher claimed

it cancelled flights because the Indian Revenue Service had frozen its bank

accounts. Currently, Kingfisher owes tax arrears of INR 1.8 billion to the tax

authorities. Kingfisher was founded in 2005 with the expectation that it

would turn a profit shortly. However, its dream of “dominating the sky” was

shattered after the world was struck by two rounds of financial crisis in 2008

and 2011. Kingfisher Airlines accumulated losses of INR 64.1 billion and

debts of INR 70.6 billion from 2005 to the third quarter of 2011.

Opposition parties, including the Bharatiya Janata Party (BJP), are

opposed to any move by the government to bail out the debt-ridden

Kingfisher Airlines. Civilian Aviation Minister Ajit Singh said that private

companies should find ways to rescue themselves. On February 22,

however, the Indian government put pressure on banks to support the airline,

India’s aviation industry on the verge of crashing



080

for fear that the bankruptcy of the company would break connections to

small and medium cities, compromising the convenience of the public, and

drive up flight fares overall. However, sixteen creditor banks are opposing

further bail-out packages to the ailing airline, claiming that they would not

consider providing additional financial support or extending the maturity

period unless Vijay Mallya, the chairman of Kingfisher Airlines, capitalized

an extra INR 15 billion, and offered collateral. In the worst case scenario,

Kingfisher will go bankrupt.

The banking sector, political circles, and the public are all seemingly

hostile toward Chairman Mallya, because he is the owner of UB Group, a

spirits company, and a billionaire with a net worth of USD 1.4 billion

(according to the 2010 Forbes list of billionaires). Chairman Mallya has

often been in the spotlight for his flamboyant lifestyle─luxurious parties,

grandiose mansions, high-end cars, and yachts. He also owns professional

teams in F1, cricket, soccer, and other sports.

○● The expansion of India’s aviation industry after doors

opened to private operators

In 1953, the Indian government nationalized eight private airlines,

including Tata Airlines, to form Indian Airlines. For the next forty years,

Indian Airlines dominated the domestic market, but the Indian people were

not happy about its high fares, frequent delays, and substandard passenger

services. The competition landscape changed in 1994 when Jet Airways and

Air Sahara entered the market, after the government opened the sky to the

private sector. However, all seven new companies, including ModiLuft,

created in the 1990s, were nudged out of the market by 2001.

From the government’s deregulation of the aviation industry in 2003

until 2006, five low-cost carriers (LCC), including Air Deccan, were

created. As a result, the market share of Indian Airlines fell from 100% in

1994 to 40% in 2003, and to 20% in 2007, while the share of private airlines


081

:: Issue Analyses

continued to grow, to 83% in January 2012. Private funds entered the Indian

aviation industry with the anticipation that demand for air travel would

increase, considering the number of India’s middle class, which is higher

than that of the USA, and its vast land, within which a train trip typically

takes at least twelve hours.

In fact, domestic demand has surged since the opening of the aviation

industry. There are many reasons. Potential demand has been realized,

income has increased rapidly due to India’s high economic growth since the

mid-2000s, and the number of business trips has increased. The number of

passengers on domestic flights increased 3.8 times, from 13.7 million to 52

million, over the ten years from 2000 to 2010. In 2011, this number was

reported to exceed 60 million. The number of regular passengers, excluding

duplicate passengers, is estimated to be about 20-30 million, which is less

than 10% of the 300 million middle class in India. According to Airbus,

Europe’s leading aircraft manufacturer, domestic air traffic in India is

estimated to increase to 160-180 million passengers, while international

passenger traffic is expected to reach 80 million passengers by 2020.

○● Poor performance due to oversupply and low-cost

competition

India’s aviation industry, which seemed to be sailing smoothly, was

impeded by two global financial crises in recent years. The Indian aviation

industry lost USD 500 million in 2006-07, USD 700 million to 1 billion in

2007-08, USD 2.2 billion in 2008-09, and about USD 3 billion in 2011-12.

Indian carriers had accumulated billions of dollars in losses and debts as of

September 2011: Air India (INR 790 billion), Jet Airways (INR 185.3

billion), and Kingfisher Airlines (INR 136.3 billion). Low-cost carrier

IndiGo is known to be the only Indian airline in the black with no debts.

The Indian government has injected USD 618 million into state-owned

Air India over the last two years. As the company was again at risk of


082

bankruptcy in February of this year, the government allowed Air India to

raise INR 74 billion by issuing bonds. Creditor banks approved a INR 180

billion debt restructuring plan, and decided to provide the ailing airline with

cash credit worth INR 22 billion. Currently, some airlines, including

Kingfisher, Air India, and Jet Airways, are unable to pay their employees,

and many pilots have moved companies. Since last October, approximately

80 pilots at Kingfisher, 40 pilots at Air India, and 50 pilots at Jet Airways

have left for IndiGo or foreign airlines.

What ails India’s airlines? First, too many airlines have been created in

optimistic anticipation of the future, resulting in an oversupply of airlines.

Since 2000, five Indian airlines have gone bankrupt. Oversupply of airlines

is gauged by the passenger load factor (PLF), the passenger load divided by

the seating capacity. The PLF in the Indian market, which was only 55.5%

in 2001, improved gradually until 2008, when it fell to 63.7%. The number

recovered in 2009, but only to 72.0%, far below the 2008 global average of

77%.

Second, aggressive low-cost competition played a role. LCC’s entered

the race, and lowered the fares for flights from Delhi to Mumbai to INR

721. Indians, known to be savvy price-checkers, flocked to LCC’s, and

2000 2006 2007 2008 2009 2010(e) AAGR

Source: The Directorate General of Civil Aviation (DGCA)

The number of passengers and cargo traffic of Indian airlines

(Unit: 1 Mil. people; ’000 ton)

Domestic 13.7 35.8 44.4 39.5 43.8 52.0 14.3%

International 3.8 7.6 9.1 10.0 11.6 13.1 13.2%

Domestic 167 266 303 278 328 430 9.9%

International 101 124 143 174 219 261 9.9%

No. of passengers

Air cargo traffic


083

:: Issue Analyses

network carriers had to cut their fares dramatically. Network carriers started

to launch their own LCC’s: Jet Lite (Jet Airways), Air Deccan (Kingfisher

Airlines), and Air India Express (Air India). Kingfisher Airlines, which has

implemented differentiation strategies and was conferred 5-Star Airline

status, also joined the low-cost competition and soon had the highest market

share.

Third, the Indian government’s policies emphasizing free trade and free

competition influenced the Indian aviation industry. The Indian government

made agreements with other countries, as part of its open sky policy, to

allow foreign private airlines to operate domestic flights in India. This led to

oversupply in the domestic market. Indian airlines lost their international

routes to foreign carriers.

○● Limits of integration and cost-saving

India’s aviation sector seems to be passing the buck to the government.

It is citing many reasons for the poor management of Indian airlines: high

raw material costs, which account for about half of total costs; a steep sales

tax rate (24%) on aviation turbine fuel for domestic use; and high airport

Air IndiaJet

Jet Lite*Kingfisher

IndiGo* SpiceJet* GoAir*Airways Airlines

Source: The Directorate General of Civil Aviation (DGCA)Note: 1. * refers to LLC. Figures of Air India and Kingfisher include those of their own LLC’s.

2. PLF is a ratio of passengers actually carried versus the total passenger seating capacity of an airline

Indian carriers’ market share and passenger load factor

(Unit: %)

M/S (2010.12) 17.1 17.7 7.7 18.6 18.6 13.8 6.4

M/S (2012.1) 17.1 20.9 7.9 11.3 20.8 16.3 5.8

PLF (2012.1) 71.2 76.8 80.1 70.2 85.9 75.6 77.4


084

tax. As a result of incessant

requests by Chairman Mallya, who

is also a Member of Parliament

(Council of States), it was finally

decided at a recent ministerial

meeting that Indian airlines would

be allowed to import jet fuel

directly. Some anticipate the

decision will bring a 10-15% cut in

fuel costs, while others point out that the plan is unrealistic, citing problems

such as having to set up fuel storage.

Indian airlines are demanding that the government lift a ban on foreign

airlines investing in Indian airlines. Currently, foreign investors are allowed

to acquire up to 49%, but only if they are not in the airline business (100%

for non-resident Indians). At a recent ministerial meeting, the Indian

government decided to allow foreign airlines to acquire as much as a 49%

stake in domestic airlines. A final decision was to be made in the Cabinet of

India after the results of elections held in March of 2012.

India’s airlines have been preparing measures to save themselves. The

first of such measures was integration. In January of 2006, Jet Airways

announced its plan to acquire Air Sahara. (The agreement was made in

April of 2007.) The Indian government announced a plan to merge Indian

Airlines (domestic) and Air India (international) under the name Air India.

In 2007, latecomer Kingfisher acquired Air Deccan, which had been

operating international flights. In October, 2008, Jet Airways and Kingfisher

Airlines formed a strategic alliance to save costs, increase revenues, and

expand networks. However, such M&A’s did not help ailing Indian airlines

address management troubles. Air India, Kingfisher Airlines, and Jet

Airways have remained in the red.

In order to address management risks, Indian airlines have pushed up

Companies having a presence

in the Indian market also need

to respond to ever f iercer

competit ion fol lowing the

opening of the Indian market

to the world.


085

:: Issue Analyses

their flight fares one after another since 2009. Fares on certain routes

increased two-fold, but their revenues did not rise, because Indians tightened

their purse strings during the global economic recession, reducing their use

of flights. Before the economic downturn, Indian carriers had raised salaries

significantly as incentive for their employees to stay with their companies;

the average pilot’s salary at Indian airlines once surged to INR 50-60 million

(USD 0.93-1.12 million). Eventually, financially-distressed Indian carriers

were forced to lower salaries.

Even though India is a developing country, its policies prioritize

unlimited competition. Therefore, private companies must find their own

ways to survive. This is true not only for the aviation industry, but also for

other industries, such as the automotive and steel industries. If a foreign

company wants to enter the Indian market, it must gear up to increase

competitiveness. Companies having a presence in the Indian market also

need to respond to ever fiercer competition following the opening of the

Indian market to the world.


087

:: Issue Analyses

Leaders of Korea, China, and Japan announced auspicious

news at the Great Hall of the People in Beijing in the presence

of economists and government officials from the three

countries at 11:00 a.m., May 13, 2012. They agreed to sign a

Korea-China-Japan Trilateral Investment Agreement (TIA) and

emphasized that it would become the cornerstone of an economic

integration organization in Northeast Asia, on par with the European Union

and the North American Free Trade Agreement (NAFTA). Even though the

Trilateral Agreement is not particularly detailed, the three countries should

be praised for reaching a consensus for mutual prosperity for the first time.

Northeast Asia, which has been marginalized from regional economic

integration organizations, is finally standing at the starting line of one Asia.

The three nations also agreed to give impetus to a Korea-China-Japan Free

Trade Agreement (FTA) later this year. They decided to take the steps

necessary for concluding an FTA, and to declare the beginning of talks on

Korea-China-Japan Trilateral

Investment Agreement heralds

the beginning of one Northeast Asia

Choi Yong-minHead of the FTA & Regional Studies Department Korea International Trade Association (KITA)


088

an FTA within the year. Some people argue that it will be difficult to attain

swift and tangible results in the FTA negotiation process, due to conflicting

interests among the three countries. However, the recent meeting stood out

from those in the past, which reached no consensus. This article will deal

with the significance of the signing of the TIA, and its impact on a Korea-

China FTA.

○● TIA is necessary for expanding trade in the region

Korea, China, and Japan are culturally similar. Sharing Confucian values

within the Chinese character cultural sphere, the three countries have

emphasized nurturing talents, which is the growth engine for the three

countries to prosper in the international arena. The three nations have all

adopted open growth strategies, which have led them to advocate free trade,

promoting rapid economic development. Economic development in this

region has followed the flying geese model: Japan joined the ranks of

advanced countries first, by opening its economy to the world, followed by

Korea and China. The three countries have not limited exchanges to trade,

investment, and industries, but have also facilitated exchanges of culture and

human resources. Person-to-person exchanges between each of the countries

have reached 5 million, and student exchanges are also numerous: recently,

the number of visitors between Korea and China has surpassed 6.4 million;

person-to-person exchanges between Korea and Japan have reached 5

million; and China and Japan are also enjoying an increase in person-to-

person exchanges.

The three countries have promoted intra-trade through division of labor:

Korea and Japan provide intermediate goods, and China produces final

products. However, intra-trade and investment among the three countries

have not reached satisfactory levels. While the combined gross domestic

product (GDP) of Korea, China, and Japan has increased from 17.0% of

gross world product in 1990 to 21.9% in 2011, far higher than that of the


089

:: Issue Analyses

USA and the EU, their intra-trade is still low, suggesting that regional

integration is necessary. Intra-trade accounted for 19.8% of all trade by

Korea, China, and Japan in 2011, far lower than 40.0% within the NAFTA,

and 62.0% within the EU. These numbers demonstrate the importance of the

TIA and an FTA among the three Northeast Asian countries. While the most

unfavorable balance of trade rests with China, a trade deficit country,

investment among the three countries is focused in China.

○● A positive outlook for a fair competition environment

The Korea-China-Japan Trilateral Investment Agreement is the first

economic agreement signed by the three nations. When the three countries

complete the necessary processes in their respective countries to effectuate

the TIA, the agreement is expected to provide a strong pillar of support,

promoting investment among the three countries. Since the beginning of

discussions on this agreement in 2007, it has taken five years for the three

Korea-China Korea-Japan China-Japan

Korea → China → Korea → Japan → China → Japan →

China Korea Japan Korea Japan China

Source: Korea International Trade Association (KITA), General Administration of Customs of the People's Republic ofChina (GAC), Japan External Trade Organization (JETRO), Korean Ministry of Knowledge Economy (MKE), andKorea Eximbank

Trade and investment among Korea, China, and Japan

(Unit: USD 100M)

Export 1,342 864 397 683 1,473 1,944

Investment 48.8 6.5 4.2 22.9 1.1 126.5

Remarks

Korea has a trade surplusand investment deficitwith China.

Korea has a trade deficitand investment surpluswith Japan.

China has a trade deficitand investment surpluswith Japan.


090

nations to witness tangible results. The agreement lends a positive outlook

to China’s role in the trilateral relations. With improved investment

environment in China, tens of thousands of Korean and Japanese

companies will be able to invest in China and enjoy robust business

activities. The agreement is also expected to have a positive impact on

China’s investment in Korea. While China’s outbound investment has

been rising, its investment in Korea accounts for less than 1% of its total

investment.

The TIA consists of 27 Articles and one supplementary protocol, and

includes provisions for the protection of intellectual property rights,

transparent policy management, national treatment, etc. Although the TIA is

not as comprehensive as the Bilateral Investment Treaty (BIT) between

Korea and Japan, it is expected to create a fair competition arena for the

three countries. In particular, it is expected to facilitate significant progress

in the protection of intellectual property rights, which has emerged as a

serious issue in doing business in China. Concerns have been mounting over

this issue within Korean and Japanese companies building state-of-the-art

plants in China. The TIA is expected to ease their concerns to some extent.

The TIA is also expected to improve the transparent policy management of

the Chinese government. Until now, “Rule of Man” has been more prevalent

than “Rule of Law” in China─hence the saying, “In China, nothing is

possible, and nothing is impossible.”

The TIA prohibits increases in investment regulations. This will greatly

help the activities of Korean companies in China, where protection of

investments has been relatively inadequate. The TIA also includes

provisions for allowing investment in accordance with laws and regulations

of the Contracting Party; fair and equitable treatment, and full protection

and security of investors; national treatment and Most-Favored-Nation

(MFN) treatment; fair, swift, and just compensation for losses incurred due

to expropriation.


091

:: Issue Analyses

The TIA will have a positive influence on cultural exchanges among the

three countries. The so-called Korean Wave, or Hallyu, is sweeping China

and Japan with TV dramas and K-pop. In Korea, the food service industry is

leading the Japanese Wave, with Japanese-style pubs called Izakayas,

Japanese ramen noodles, and Japanese bento box lunches. The Chinese

Wind is also blowing in

Korea. About 130 four-year

universities in Korea (73% of

four-year universities) offer

courses related to China. In

addition, Chinese language

institutes are mushrooming

in Korea. Koreans account

for more than 70% of

applicants for the Hanyu Shuiping Kaoshi (HSK), a standardized test of

Standard Chinese language proficiency for non-native speakers. If a Korea-

China-Japan FTA takes effect following the TIA, barriers in the service

industry and investment will be further lowered, promoting industrial

cooperation, cultural exchanges, and person-to-person exchanges.

○● Reaching consensus is a prerequisite of a Korea-China

FTA

A China-Korea FTA, for which negotiations began in May of this year,

is expected to proceed faster than a Korea-China-Japan FTA. This is

because Korea and China are on the same page regarding the bilateral FTA.

China is Korea’s largest trade partner, far larger than its second largest trade

partner, the USA. China has a vast market, which consumes one-fourth of

Korea’s exports. Last year, Korea became the world’s ninth country to cross

the USD 1 trillion threshold in trade, thanks to China. China is the world’s

growth engine, expanding by more than 8% each year. The size of the

The Korea-China-Japan Trilateral

Investment Agreement is the first

economic agreement signed by the

three nations. It is expected to

create a fair competition arena for

the three countries.


092

Chinese market is seven times bigger than that of Korea’s. One cannot

emphasize too much the importance of China.

However, uphill battles are expected in negotiations for a Korea-China

FTA. Agricultural and fisheries products are expected to be the most harshly

affected by the bilateral FTA. China has a competitive edge not only in the

manufacturing industry, but also in the food industry. With just a one-hour

flight, fresh and processed foods produced in China can reach dining tables

in Korea. Some people point out that there is no difference in the quality of

the fisheries products of Korea and China; therefore, the difference in price

is easily translated into a difference in competitiveness. All things

considered, the first round of the FTA negotiations is expected to have a

bumpy start in setting negotiation guidelines by sector, such as goods and

services, and investment. To resolve sensitive issues in the trade of goods,

the two sides have formed a list of general products and a list of sensitive

products, and divided the list of sensitive products into sensitive products

and highly-sensitive products. Based on these lists, the two nations have set

a modality for tariff reduction, including long-term tariff abolition and

exclusion from concessions. However, it seems difficult for Korea and

China to reach a consensus. If a bilateral FTA enters into force, it is

expected to provide great opportunities for the petrochemical, automotive,

auto parts, machinery, and electronics sectors, as well as for consumer

products bolstered by the Hallyu fervor, such as cosmetics and

pharmaceuticals.

The degree of liberalization of investment is also high on the bilateral

FTA agenda. Korea and other countries have complained of China’s high

barriers for investment. Therefore, sector-specific investment restrictions

and restrictions on share ownership that are widely applied across China

will likely be discussed first. Moreover, requests for improvement in

performance of duties, both tangible and intangible, will be included in a list

of improvements. This is attributed to the fact that China often requests


093

:: Issue Analyses

technology transfers when investing in state-of-the-art sectors such as the

automotive sector. It is worthy of note that there have been major

differences between the investment-related FTA clauses proposed by Korea

and those proposed by China. At this time, Korea is likely to demand that

China lift all restrictions and conditions on national treatment, performance

of duties, management and boards of directors, and investor-state dispute

systems (ISD). For continued economic cooperation, Korea must actively

persuade China to improve and amend investment-related policies and

clauses on investment previously agreed upon for a bilateral FTA.

If the two countries agree that a Korea-China FTA will not only promote

bilateral economic cooperation, but also lay the foundation for a Korea-

China-Japan FTA and the economic integration of East Asia, they will be

able to reach consensus on a Korea-China FTA.


095

:: Issue Analyses

On April 28, 2011, India and Pakistan made a joint press

statement vowing to normalize bilateral trade ties. Since

then, Pakistan’s Commerce Minister visited India last fall,

and India’s Commerce Minister visited Pakistan earlier this

year. On April 13, 2012, India’s Home Minister, P. Chidambaram, and

Pakistan’s Commerce Minister, Makhdoom Amin Fahim, inaugurated an

integrated check post (ICP) at the Attari (India) and Wagah (Pakistan)

border. As the first ICP along the India-Pakistan border, the Attari ICP is

expected to boost exchanges in trade and human resources between the two

countries.

In November of last year, Pakistan’s Cabinet approved granting Most

Favored Nation (MFN) status to India. Fifteen years ago, in 1996, India

granted MFN status to Pakistan. In May of this year, Pakistan switched over

from a positive list regime to a negative list regime in trade with India. Also,

the Indian government has recently allowed foreign direct investment from

Economic cooperation bringsIndia and Pakistan closer

Kim Mi-suBusiness Analyst of POSCO Research Institute


096

Pakistan by amending the Foreign Exchange Management Act. As these

cases show, India-Pakistan relations are improving through economic

cooperation.

○● Better economic cooperation to overcome recession

Since the partitioning of India and Pakistan in 1947, the two countries

have been confrontational with each other. Why have the two countries

begun cooperating economically?

The first reason is the poor economic conditions of the two countries.

Pakistan, which suffered from chronic deficits, formulated supportive

policies for its export industries in the

mid-2000s in order to boost exports.

Thanks to these policies, Pakistan’s

GDP growth rates in FY 2004, 2005,

and 2006 were 9.0%, 6.2%, and 5.7%,

respectively (Pakistan fiscal year stars

on July 1st and ends June 30th).

However, this number dropped to 2.7%

in 2007. Since Pakistan declared a state

of emergency in 2007, and experienced

a massive earthquake and the global financial crisis in 2008, its GDP

growth rates have not recovered.

Pakistan received a bailout loan from the International Monetary Fund

(IMF) in 2008, but the IMF later suspended disbursements to Pakistan after

the country failed to meet required conditions. Pakistan received economic

assistance from the USA thanks to its active support for anti-terrorist

measures. However, the relationship of the two countries has recently

become icy, and economic assistance from the USA to Pakistan has

decreased, hurting Pakistan’s economy even more.

India has achieved high economic growth rates since 2005, and enjoyed

Experts expect that the

liberalization of bilateral

trade between India and

Pakistan will boost bilateral

trade to USD 12 billion and

bring about signif icant

economic effects.


097

:: Issue Analyses

steady and robust economic growth despite the global financial crisis.

However, the economic outlook is becoming increasingly pessimistic due to

high double-digit inflation, chronic fiscal deficits, and lack of central

government leadership in implementing economic reform.

○● Bilateral trade expected to increase to USD 12 billion

India-Pakistan bilateral trade in 2010 was about USD 2.6 billion.

Experts expect that the liberalization of bilateral trade between India and

Pakistan will boost bilateral trade to USD 12 billion and bring about

significant economic effects.

Due to high trade barriers, India-Pakistan trade has largely been via third

countries, such as the UAE (mainly Dubai), and informal and illegal trade

represent a lion’s share of bilateral trade. If India-Pakistan bilateral trade is

made through official channels after normalization, the two debt-ridden

countries will benefit from increased tariff revenues.

In order to maximize synergy from economic cooperation, it is

imperative for India and Pakistan to expand infrastructure for smooth

merchandise trade, and to ease business visa requirements. Also, it is

necessary to open bank branch offices in each other’s countries, as is

requested by many businessmen.

○● Power supply to India and Pakistan in the pipeline

As the two countries grow closer through economic cooperation, they

are also cooperating in the energy sector. Earlier this year, India and

Pakistan vowed to accelerate cooperation in the oil and natural gas sector

through joint energy initiatives. This will help restart the TAPI

(Turkmenistan-Afghanistan-Pakistan-India) pipeline project, which has

been stalled for some time for a number of reasons, such as Afghanistan’s

terrorism and lack of security, and Pakistan’s tribal issues. Supported by

the Asian Development Bank (ADB), the goal of this project is to build a


098

1,680㎞ pipeline to supply gas from the Dauletabad gas field in

Turkmenistan, via Afghanistan, to Pakistan and India. In 2010, the project

was officially endorsed by the participating countries. With this pipeline,

India and Pakistan’s dependence on energy imports from Iran is expected to

be reduced. Pakistan’s Power Minister has recently stated that the country

needs 27% more power. In order to address its energy shortage, Pakistan is

limiting the duration of power supply in each region, and operating only half

of its streetlights. The situation is bad, and public complaints are mounting.

The power shortage directly affects industrial development. For example,

some textile and fertilizer plants have stopped operating. With the World

Bank’s support for building infrastructure, the Indian government is

expected to supply power to Pakistan in a few months.

○● Bilateral cooperation to reduce political and diplomatic

risks

Since the partitioning of India and Pakistan, the two countries have had

a thorny relationship, going through three rounds of war, political and

India-Pakistan trade volume

2500

2000

1500

100

500

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports

Imports

(USD 1 Mil.)

18764

14465

206

45

287

58

521

95

689

180

1350

323

1944

288

1420

363

1573

275

2308

333

Source: Bank of India


099

:: Issue Analyses

diplomatic conflicts both big and small, and terrorist attacks. If the two

countries improve bilateral trust through economic cooperation, they will be

able to ease security risks and reduce terrorism by sharing information.

Due to active participation in anti-terrorist measures since 9/11, Pakistan

has received huge economic and military assistance from the USA.

However, as relations between the USA and India have thawed, and as

Pakistan had troubles with the USA during the hunt for Osama Bin Laden,

Pakistan’s relationship with the USA has deteriorated. Moreover, Pakistan is

in competition with India over Afghanistan. Therefore, Pakistan was

unhappy with the Afghan President’s visit to India last year, and with the

signing of a strategic partnership between the two countries.

In the meantime, China is actively offering economic and military

assistance to South Asia, under the banner of its “pearl necklace strategy,” in

1947 The partition of India and Pakistan, the first Kashmir War

1965 The second Kashmir War

1971 The India-Pakistan War, East Pakistan (now Bangladesh) gainsindependence, with support from India

1974 India begins nuclear tests

1998 Pakistan’s nuclear tests end successfully

1996 India grants MFN status to Pakistan

2001 Pakistani terrorist groups attack Indian Parliament

2004 India-Pakistan peace summit

2008 Pakistani terrorist group attacks Mumbai

2011 Pakistan grants MFN status to India

2011 Pakistan President visits India

Source: Author

The history of India-Pakistan relations


100

order to increase its influence over the region. In particular, China is forging

close relationships with Pakistan, Bangladesh, Sri Lanka, and other South

Asian countries through investment and economic cooperation. China offers

economic support for road repairs, redevelopment of obsolete ports, and

projects for developing hydrogen power plants. Such moves by China pose

a significant threat to India, which had taken the lead in South Asia’s

economy, politics, and culture. India is determined to maintain its lead in the

region by improving relations with South Asian countries. For China,

improving relations with Pakistan, the second largest economy in the South

Asian region, is important for maintaining hegemony in the region.

Economic cooperation between India and Pakistan is expected to have a

positive impact on the development of South Asia. The South Asian Free

Trade Area (SAFTA) has produced no noticeable results since its

effectuation in 2006, and one of its biggest hurdles has been icy relations

between India and Pakistan. Therefore, improved bilateral relations will

positively influence the development of SAFTA.

India and Pakistan are finally seeking shared prosperity through

cooperation, after more than 60 years of conflict and confrontation. For their

new policies to be implemented successfully, India and Pakistan will have to

focus on building trust for each other.


101

:: Issue Analyses

In July of 2011, two high-speed trains collided in the suburbs of

Wenzhou, Zhejiang Province. The Chinese government wanted to

clean up the train accident quickly and close the case as quietly as it

could. However, new media platforms, including social networking

services (SNS), totally altered the government’s plan. Only four minutes

after the train crash, one of the passengers onboard reported the crash to

Sina Weibo (微博), China’s version of Twitter, which has about 250 million

users. That day, Sina Net (新郞網), a portal site offering Sina Weibo

services, attracted more than 3.29 million posts in one day, and 10 million

posts within a few days.

○● Cover-ups becoming more difficult

This case vividly shows that China’s traditional way of covering up a

story no longer works. Fourteen minutes after the train crash, a passenger

trapped in a train car asked for help through Weibo, and the post spread to

Social media fervor in Chinaaccelerates social changes

Lee Hee-okProfessor, Political Science and DiplomacySungkyungwan University


102

100,000 users instantly. Two hours later, the passenger was rescued safely.

In addition, calls for blood donations were made and a website was created

to find missing family members through Weibo, showing the power of SNS.

State-owned media belatedly entered the reporting competition. Local

officials actively used SNS to report the status of the rescue effort in real

time. The rail crash clearly shows that social media overwhelm traditional

media. Influenced by this event, People’s Daily created a rule of “four

golden hours” that prescribes reporting, investigation of causes, and

development of all events within four hours.

This phenomenon is not limited to incidents witnessed by the public.

If the dismissal of Bo Xilai (薄熙來) as mayor of Chongqing, the hottest

news of April, had happened in the past, only a handful of people would

have known about it, or the public would have learned about this incident

only from the government’s public announcement, receiving no

explanation of the process of the event and being left to make all kinds of

presumptions. However, this incident spread in real time though social

media across China and even to Korea and other foreign countries. At

that time, there were plenty of blog posts about the events that became

the causes for the Bo Xilai incident: Chongqing Police Chief Wang

Lijun’s (王立軍) trial to seek exile (420,000 posts) and Justice Chief Wen

Qiang’s (文强) execution during a corruption crack-down (1.9 million).

Even though Chinese authorities shut down some websites and censored

social media, it was not enough to cover up event after event. Rather, the

Bo Xilai incident was magnified and spread as photos proving that the

wife of Bo Xilai had overlooked the poisoning of a foreigner, and that his

son had lived a flamboyant life while studying overseas, were replied to,

retweeted, and recommended through SNS. In the end, the Chinese

government disclosed all developments, whenever requested, and

avoided any distortion of the incident in order to avert blame.


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:: Issue Analyses

○● SNS expedites information sharing

In China, cyberspace represented by social media is developing while

forming close relationships with Chinese politics and society. China’s online

environment entered the e-mail phase between 1986 and 1992, and the

information highway phase between 1992 and 1995. It is currently in the

popularization and commercialization phase. At the end of 2011, China had

970 million mobile phone users and 513 million Internet users. Its Internet

penetration rate was 38.2%, higher than the global average. In addition,

there are approximately 200 million blogs and websites, 150 million of

which are being updated more than once a month. More than anything else,

Sina Weibo, which is used to send short messages swiftly, the mobile instant

messaging service Weisin (微信), and QQ, an Internet messenger with more

than 600 million subscribers, are leading the social media phenomenon in

China. Chinese netizens are communicating in real time not only within

China, but also across the world. It has become an everyday practice that

researchers of China in Korea download mobile phone applications to watch

real-time news from China, and communicate with friends in Korea and

China through Weisin. Social media help users feel familiar with one

another and share information quickly without the formality associated with

e-mail or phone calls.

Bolstered by the social media fervor in China, many social media

services have been commercialized. A Chinese version of Facebook,

Renrenwang (人人網), went public on the New York Stock Exchange earlier

than Facebook, which has 750 million users and a corporate value of USD

96 trillion. Conversely, Facebook and Twitter entered the Chinese market,

but failed to operate effectively under the Chinese government’s strong

control. Now they have practically withdrawn their business, and indigenous

Chinese social media services have filled the vacuum. QQ, started as an

Internet messenger, has constantly expanded its supplementary services to

become China’s Cyworld, the Korean social networking service. Given that


104

QQ has a small number of foreign users, most Chinese netizens would

appear to be QQ users.

Amidst the rapid development of social media in China, the SNS market

is expected to expand ten times, to a worth RMB 10 billion, by around 2014.

Social commerce services, such as Jiuhuasuan (聚劃算), Lashou (�手網),

and 24 Quan (24券), are expanding exponentially. In the meantime, People’s

Daily, the ruling Communist Party’s newspaper, is also putting effort into

preoccupying the online market. It has a good reason for doing so: its

circulation number is 2.8 million, but the number of visitors to its website,

People’s Daily Online, totals 300 million a day. People’s Daily plans to list

on China’s stock market, and get paid for all content it creates in the future.

With its strategy of going abroad online, People’s Daily created a branch

office in Korea in March of this year, and opened its website to offer news

in Korean (http://kr.people.com.cn)

○● Increased transparency in politics

The social media frenzy is shaking the foundations of China’s politics

and economy. First of all, something new is happening in policy-making.

Democracy and patriotism spontaneously generated through social media,

and questioning of the government’s unchecked power, are not simply

someone’s opinions. Social media users often join forces to make things

happen. Therefore, the government is increasingly acknowledging their

complaints. In the process, a new set of regulations is taking hold in Chinese

society, and doors are opening wide. In the flood of information, the era of

experts has disappeared, and the era of the mass microphone has opened a

new chapter. Chinese netizens who are actively discussing politics on

popular portal sites, including Sina Net, 163.com (網�), and sohu.com (搜

狐), in-depth news sites, online community sites, and online discussion

forums, have emerged as a new class of contributors. Influential figures of


105

:: Issue Analyses

the Chinese government are appearing on the Qiangguo Forum (强國�壇)

of People’s Daily Online to have heated discussions with netizens.

The popularization of social media has also led to a new writing trend.

At Sina Weibo, it has become popular to write poems or deliver key

information using a maximum of 140 characters. Sina.com even invited

Internet users to participate in

a contest for the best 140

character novel. In addition,

140-character messages sent

by Chinese actress Yao Chen,

(姚晨) who has millions of

followers, and Lee Kaifu (�

開復), the former president of

Google China, often send

China into a storm. This

phenomenon has changed the way knowledge was lopsidedly delivered

by groups of experts, and has bridged the cultural gap between classes,

which has been handed down from generation to generation for a

thousand years. Influenced by this phenomenon, China’s illiteracy rate

has dropped to 4.08%.

Social media also increases transparency in politics and society. About

two-thirds of important issues in China are brought to public attention via

the Internet. Indeed, the Internet is increasingly becoming an epicenter

where reporting starts. Of course, the Chinese government rapidly deletes or

blocks politically sensitive material online. However, as information and

telecommunications have advanced and the number of users has surged, it

has become increasingly difficult to initially block negative comments.

After Sina Weibo reported the oil spill in Bohai Bay in June of 2011, the

Chinese government censored and deleted the word Dalian (大連) and

refused to report anything about the accident. However, after a series of

The social media frenzy is

shaking the foundations of

China’s politics and economy.

Chinese netizens who are

actively discussing politics on

popular portal sites have

emerged as a new class of

contributors.


106

exposés by social media services, the Chinese government found itself

acknowledging the accident within a month. With such cases happening

more frequently, transparency in politics is increasing.

Social media have brought changes to communication methods.

Recently, it has become common for the public security authority, a strong

hand in the past, to be tipped off by Chinese netizens and commence

investigation. Social media has changed the top-down pattern in politics,

and strengthened the bottom-up pattern. Candidates in local elections often

declare their candidacy and run campaigns through SNS. At the National

People’s Congress, which is equivalent to Korea’s National Assembly, and

the National Congress of the Communist Party of China, something

interesting is happening these days. Policy priorities are decided through

polls on social media. Party representatives collect opinions through Sina

Weibo and disclose them during meetings. This sometimes makes them

heroes. At the National People’s Congress held in March of 2012, Cai Qi

(蔡奇), the head of Zhejiang Province’s Organization Department,

emphasized that the biggest challenge facing Chinese society was offering

affordable housing to low-income families, and demanded the enactment of

a related law. He said grandly that his suggestion was the result of having

gathered 15,000 policy suggestions from 6.3 million followers. He stated,

“I always keep in mind Chinese people’s opinions on Sina Weibo. I

sincerely consider their opinions, and do my best to address their opinions in

policymaking.”

○● Be wary of unfounded opinions

There are negative opinions of the social media frenzy: it generates

populism and has a deadly impact on regime stability. With mounting

rumors about the Bo Xilai incident and Chen Guangcheng (陳光誠), a blind

human rights lawyer, the Chinese government is working with the public

security authority to solidify its back-end system for remotely controlling


107

:: Issue Analyses

social media. Some people expect that the Chinese government will stop

SNS services temporarily in preparation for the 18th Chinese Communist

Party Congress, scheduled to be held in October of this year. SNS, part of

life in China, is at a turning point politically.

For sure, the social media fervor in China has drawbacks. First, social

media is inundated with inaccurate information, partly because the public

always responds to interesting and shocking information. Despite the real

name system implemented to sift out inappropriate information, anonymous

misinformation still makes its way into public opinion.

Second, social media breaks the barrier between the public and private

spheres. Some netizens disclose others’ personal information, just because

of a difference of opinion. This is an era in which information easily

gained through short messages and the Internet overwhelms wisdom. As

the public responds instantly to SNS messages, they read fewer books and

become less creative.

The social media frenzy in China contains lessons for Korea. Korea

should not fail to distinguish true information and intelligence from rumors.

It should be wary of judging China based on information obtained through

social media, which mixes facts and opinions. Recent false rumors about

China, such as power struggle in the Chinese military and street warfare,

have all come from SNS. Korea must take an objective stance on China by

comprehensively taking into consideration China’s mainstream media;

critical opinions on Sina Weibo and Tianya (天涯社區), the largest Chinese

BBS discussion forum; and the everyday lives of the Chinese people.


109

:: Issue Analyses

In March of this year, the US Fair Labor Association (FLA) released

its report on the labor conditions at Apple supplier Foxconn. The

FLA audit found several cases of labor rights infringement at all the

three Foxconn factories in China. The FLA harshly criticized the

three factories for labor violations, citing breaches of the FLA Code

Standard and the requirements of Chinese labor law. Apple and Foxconn

quickly promised to comply with the FLA Code Standard and Chinese labor

law, and solve their problems. Apple CEO Tim Cook recently visited a

Foxconn plant in China and demanded improved working conditions.

With state-of-the-art mobile devices from iPod to iPhone and iPad,

Apple has emerged as a front-runner in the industry. Design, R&D, and the

management of distribution networks for Apple products are controlled by

its headquarters in the USA, while most of its products are produced by

Foxconn in China. Though it may sound unfamiliar to the general public,

Foxconn is a company fully invested by Taiwan’s Hong Hai Precision

Better working conditions are in the interests of the USAand China

Li Wan-yongBusiness Analyst of POSCO Research Institute


110

Industry (鴻海精密), the world’s largest contract electronics maker. With

more than 1.2 million employees, Foxconn has many multinational

companies as clients: Apple, Dell, Motorola, HP, Nokia, Sony, and Toshiba.

For the ten years since 2002, Foxconn has remained the top foreign-owned

enterprise in China. Therefore, the case of Apple and Foxconn is

representative of working conditions in global manufacturing, and has

significant meaning in initiating changes to industry standards.

○● Foxconn’s harsh working conditions

It has been a while since Foxconn gained global attention. In just two

months in 2010, 13 workers at Foxconn’s Shenzhen plant killed themselves.

In 2011, an explosion at Foxconn’s Chengdu plant killed seven workers and

injured dozens more. Poor working conditions were pointed to as the main

reason for this series of unfortunate events. According to the FLA report,

some Foxconn workers had no days off in a week, and many of them

worked for more than 60 hours a week. Employees of Foxconn worked on

conveyor belts, reminiscent of scenes from the early 1920s movie Modern

Times by Charlie Chaplin. No chatting was allowed during working hours,

and even the time for using the washroom was strictly monitored. Such

military-style management was also applied to their living environment. All

Foxconn workers lived in dormitories─the so-called “Foxconn Model.” It

was problematic that many people had to live crammed into small rooms,

but more problematic was the blurred distinction between work and private

life. Moreover, Foxconn workers had excessive and forced overtime work in

cases of sudden changes to designs or in preparation for the release of new

products. Foxconn managers woke up workers in the middle of the night to

work on the production line.

The audit revealed that Foxconn workers’ wages were so meager that

they were hard to get by on. Before the series of suicides in 2010, the


111

:: Issue Analyses

average monthly wage of Foxconn workers was only RMB 900 (USD 130),

far below Shenzhen’s minimum wage of RMB 1,100. In reality, their actual

salaries were lower than stipulated, because they had to pay for excess

inventory and damage to materials that might happen by mistake under the

more than twelve working hours a day.

○● Low margin and institutional insufficiency

As the global division of labor has taken root, China has emerged as the

“factory of the world” through contract processing business at cheap labor

costs. Ironically, production has the least added value in the manufacturing

value chain. China is being pressured by global financial capital in the first

half of the value chain, and by global industrial capital in the second half of

the chain. This is clearly demonstrated in the performance of Apple and

Foxconn. In 2011, Apple had an operating profit margin of over 30%, but

Foxconn had a mere 1.5% margin. Foxconn earned 1.5% profit from one

iPhone sold and 2% profit from one iPad sold. In contrast, Apple’s profits

from iPhone and iPad were 58.5% and 30%, respectively. Under this kind of

profit sharing scheme, it is a distant ideal to improve the working conditions

of contract manufacturers.

Chinese authorities’ policies that disrespect workers, based on Getting

Rich First (先富論), are also to blame for the system’s inadequacy. A series

of policies, which have been implemented for industrialization on a national

level since China’s reform and opening-up, drove rural workers to urban

areas. Some experts liken the rural exodus in China to the Enclosure

Movement that happened in Great Britain during the early industrial

revolution more than 500 years ago. In the process of the rural exodus, a

new class called “rural migrant workers” has emerged. About 310,000 out

of the 420,000 workers at Foxconn’s Shenzhen plant are rural migrant

workers. Income adjustment through price mechanism has widened the


112

income difference between urban and

rural areas by three times since China

adopted reform and opening-up policies.

The urbanization rate is rising in China,

suggesting that the rural exodus is still

going on. In the household registration

system and its linked welfare system,

voices are being raised to end institutional

discrimination against rural migrant workers. Unfortunately, however, there

has been no major progress.

The labor union, which represents the interests of workers, plays a very

minor role. Chinese law stipulates that every company must have one labor

union executive per 1,000 employees, but in reality, this is not working well.

In the case of Foxconn’s Shenzhen plant, the number of employees was

420,000 at the end of 2010, but the number of full-time members of the

labor union was only 15. Taking into consideration concurrent posts, the

number of labor union members totaled fewer than 300. What is worse, the

president of the labor union was the secretary to the Chairman of Foxconn,

demonstrating that the Foxconn labor union has structural problems in

representing the interests of workers.

○● Shared interests of the USA and China

There is one interesting point in the joint statement on the US-China

Strategic and Economic Dialogue, which marks its fourth anniversary this

year. China showed its determination to improve the living standard and

enhance the welfare of its citizens by adding clauses to the joint statement.

The inclusion of these clauses is exceptional, because China has been

sensitive to intervention by other countries in its internal affairs. This is in

line with measures taken by the USA and China to improve the working

Improving working conditions

at Apple and Foxconn, a poster

child of global manufacturing,

will have ripple effects on other

multinational companies.


113

:: Issue Analyses

conditions at Foxconn, suggesting that the two countries have shared

interests.

From the American perspective, with the next presidential election

around the corner, President Barack Obama has been actively trying to

increase exports, as he pledged to do in the wake of the financial crisis.

Under these circumstances, China has become a central problem, as the

USA’s largest trade deficit is with China. In the past, in order to put the

brakes on China’s export policies, the USA continuously demanded that

China appreciate the yuan in the name of balanced trade, but the result was

insignificant. Since China adopted a managed float of the yuan in July of

2005, the yuan has appreciated against the dollar by only 3% annually, far

below the level the USA had expected. Rather, the US trade deficit with

China has been ballooning. Therefore, the USA is pointing out the more

fundamental problems of the Chinese economic structure. The USA

considers it a more effective means of realizing its target trade balance for

China to shift from an export-oriented foreign demand-driven economy to a

consumption-oriented domestic demand-driven economy. In order to open

wider the purses of 1.4 billion Chinese consumers, the USA feels it

necessary to increase China’s purchasing power to a degree suitable for the

world’s second largest economy.

From the Chinese perspective, it is worrisome that the structural

problems of the current method of economic development have led to a

growing social imbalance, and China is desperate to address social unrest. In

this sense, China can no longer postpone the improvement of the working

conditions of its workers.

○● China’s rising labor costs: a double-edged sword for the

global economy

In February of this year, Foxconn decided to raise worker wages by 16-


114

25% and reduce working hours. This is the third wage increase since the

first of the Foxconn employee suicides. Currently, the monthly salary has

increased to about RMB 2,200. Foxconn is also offering life-long education

to nurture the talent and improve the capability of its employees. Other

multinational companies are following suit. Foxconn’s recent move is well

matched to China’s domestic demand-driven growth. With China’s

increasing income and purchasing power, global exports to China will rise

and China’s role as a new growth engine will become stronger in the global

economy.

With mounting concerns over the diminishing premium of China’s large

population, wage hikes are likely to result in inflation. The global economy

in the early 2000s, the so-called “Goldilocks economy,” had relatively low

inflation rates, despite rapid growth rates. This was all attributed to China’s

cheap labor costs. China’s rising labor costs mean the end of an era.

Improving working conditions at Apple and Foxconn, a poster child of

global manufacturing, will have ripple effects on other multinational

companies. First, foreign companies, which have entered the Chinese market

mainly due to China’s cheap labor costs, are expected to hit a wall, and join

the growing exodus. Around the time when the Labor Contract Law and the

Corporate Income Tax Law were enacted in China in 2008, foreign

companies left China one after another. In particular, the improvement in

working conditions will have a lethal impact on labor-intensive industries,

such as the clothing and toys industries, and the assembly of electronic

products. It is urgent that Korean companies involved in labor-intensive

industries in China act quickly to adjust their business models to adapt to the

changing business environment in China.


115

:: Issue Analyses

“Rahul Gandhi, the crown prince of the Nehru-Grandhi

family, is missing in Delhi.” Many people complained

that Rahul Gandhi, the general-secretary of the Indian

National Congress, was nowhere to be seen during the

elections held in February and March across five states: Punjab,

Uttarakhand, Manipur, Goa, and Uttar Pradesh. Of these five states, Uttar

Pradesh is politically the most important, and it was for this reason that

Rahul Gandhi risked his political career pouring all his energy into the Uttar

Pradesh election campaigns.

Now that the assembly elections are over, people are complaining again

that Rahul Gandhi cannot be seen in Delhi. After humiliating defeat in the

Uttar Pradesh assembly election revealed the severe limitations of his

politics and popularity, Rahul Gandhi stopped making regular appearances

at important political events.

India’s ruling party tumblesafter state elections

Kim Chan-wahnProfessor of the Graduate School of International and Area StudiesHankuk University of Foreign Studies


116

○● INC and BJP’s crushing defeats

The five state assembly elections in 2012 served as a mid-term review of

the current government, which is led by the United Progressive Alliance

(UPA), and as a barometer for the results of the upcoming 2014 general

elections. There was heavy anti-incumbent sentiment in Uttar Pradesh and

Goa, while the ruling party won the elections in Punjab and Manipur. In

Uttarakhand, a coalition government took office through strong anti-

incumbent sentiment and other factors working together.

Of the five state elections, all eyes were on Uttar Pradesh, the window

on Indian elections. Voter turnout increased by 14%, from 46% in 2007.

This is not the only record that Uttar Pradesh state elections broke. As many

as 223 parties vied for the 403 seats of the legislative assembly. The number

of parties has almost doubled from 131 in the 2007 election. However, only

six parties managed to take seats. Independents took 14 seats.

What is notable in this election is that the opposition Samajwadi Party

(SP) has taken seats from the Bahujan Samaj Party (BSP), the former ruling

party. The BSP lost 126 seats from the 2007 election, while the SP won 127

new seats. As a result, political power in Uttar Pradesh has shifted from the

BSP to the SP. Yadav Akhilsh Yadav, son of Samajwadi Party chief

Mulayam Singh was sworn in as the chief minister of Uttar Pradesh,

Uttar Pradesh Punjab Uttarakhand Manipur Goa

Ruling partySP (224) SAD (56) INC (32) INC (42) BJP (21)

in 2012

Ruling partyBSP (206) SAD (48) BJP (34) INC (30) INC (19)

in 2007

Note: SAD (Shiromani Akali Dal), BSP (Bahujan Samaj Party)

India’s 2012 five state election results


117

:: Issue Analyses

beginning a hereditary succession of politics in Uttar Pradesh.

Following the Uttar Pradesh election, a two-party system with region-

based parties, the BSP and the SP, has been established in Uttar Pradesh. On

the other hand, the nation-wide Indian National Congress (INC) and the

Bharatiya Janata Party (BJP) have suffered disappointing results. The INC

gained six seats in this election; this is clear evidence of the INC’s

limitations, considering that Rahul Gandhi orchestrated the election

campaign from start to finish, and used all the resources of his party. The

INC found itself agonizing over what stances it would take in the most

important political state, Uttar Pradesh.

The situation is worse for the BJP. The party lost four seats in this

election. It now seems difficult to believe that the BJP once held the reins of

Uttar Pradesh. The BJP, which took power under the banner of Hindu

fundamentalism, has lost ground with recent failures in a series of elections,

indicating that a platform based on Hindu fundamentalism is not enough to

win the hearts of the Indian public. With no alternative plan in the works,

the BJP has reason enough to worry.

○● Small parties with a big say

As a result of the last elections, the INC’s political power and legitimacy

have deteriorated. Moreover, the success of local parties in the Uttar Pradesh

and Punjab elections has re-empowered small local parties, laying the

foundation for these parties to grow into a third political force. The

Trinamool Congress (TMC), with the second largest number of seats in the

UPA-led government, after the INC, left the UPA government, and sought

cooperation with other political powers. This is one factor that is

intensifying worries about the potential fall of the UPA government.

Following the recent election, Railway Minister Dinesh Trivedi, who

belongs to the TMC, alluded to the possibility of early general elections. He

underpinned early elections, saying that if he were SP chief Mulayam Singh,


118

he would prepare for early

elections. If early elections take

place, the SP is very likely to

secure the largest number of

seats in Uttar Pradesh. The

TMC also expects that early

elections would help secure

more seats in West Bengal,

which is currently under its control. The TMC worries that if the general

elections are held in 2014 as scheduled, it would be difficult to secure more

seats under stronger anti-incumbent sentiment.

If the TMC leaves the UPA government and the SP withdraws its

support, the INC-led UPA government will likely collapse. If this possibility

becomes greater, small local parties will gain more collective power, making

early elections feasible. The current situation is similar to the one between

1996 and 1998, when central politics were unstable and leaders of small

local parties vied for the prime ministerial post.

If early elections are not realized, it is important for the INC to make

wise decisions in running the government until 2014, having already lost

popularity. Even if the INC secures the majority of seats in the next election,

the ruling party will have to govern while keeping a constant eye on small

local parties.

○● UPA’s scenarios for retaining power

Given current circumstances, Indian politics could unfold in one of two

scenarios:

The best-case scenario for the INC is if the TMC leaves the UPA

coalition government, and the SP maintains its support for the UPA; the INC

would be able to operate the government stably until 2014. In this case, the

INC would have to concede major central government posts to the SP in

As a result of the last elections, the

INC’s political power and legitimacy

have deteriorated. Moreover, the

success of local parties in the Uttar

Pradesh and Punjab elections has

re-empowered small local parties.


119

:: Issue Analyses

return for its support, and would have to accept that its policies must not

oppose those of the SP, even in Uttar Pradesh. It would also have to support

comprehensive measures for Yadavs, part of the Shudra caste, and Muslims

─the two main pillars of public support for the SP. With state elections

2007 2012

No. of seats + / - No. of seats + / -Party

Samajwadi Party 97 ▽55 224 ▲127

Bahujan Samaj Party 206 ▲139 80 ▽126

Bhartiya Janata Party 51 ▽32 47 ▽4

Indian National Congress 22 ▽3 28 ▲6

Rashtriya Lok Dal 10 ▽5 9 ▽1

Nationalist Congress Party - - 1 -

Rashtriya Parivartan Dal 2 - - -

Akhil Bhartiya Loktantrik 1 - - -

Congress (ABLC)

JD (U) 1 - - -

UP United Democratic 1 - - -

Front (UPUDF)

Bharatiya Jan Shakti 1 - - -

Jan Morcha 1 - - -

Rashtriya Swabhimaan Party 1 - - -

Independents 9 - 14 ▲5

Total no. 403 - 403 -

Source: Election Commission of India, 2012

2012 Uttar Pradesh elections results


120

around the corner, the UPA government announced on December 22, 2011

that it would include Muslims in the Other Backward Classes (OBC) and

allocate 4.5% of jobs to them. The Hindu-fundamentalist BJP was

stringently opposed to this decision. However, the SP offered pledges

favorable to the poor, as did the UPA: job allocation for minorities,

including Muslims; prohibition of land expropriation opposed by farmers;

and provision of low interest rates, about 4%, to small farmers.

The worst-case scenario is if the TMC leave the UPA government, and

the SP wants to have early elections. If this happens, the current UPA

government is highly likely to collapse. In order to prevent this situation, the

INC is meeting all requests from the TMC, even the most baseless requests.

For example, when the government announced the railway budget, which

included an increase in passenger fares, TMC chief Mamata Banerjee

demanded the withdrawal of the fare hike and the resignation of the Railway

Minister, and Prime Minister Manmohan Singh acquiesced.

For the time being, the TMC will likely remain in step with the UPA

coalition government, and the SP will implicitly cooperate with the INC,

and the current UPA government is expected to last at least until the end of

2012. However, if the INC, which leads the UPA coalition government, is

completely defeated by opposition parties in the Gujarat and Himachal

Pradesh state assembly elections, which are scheduled to be held at the end

of 2012, the UPA government will very likely collapse.

○● Difficult land expropriation for development

With the political season around the corner, many parties are advocating

grassroots policies. Therefore, India’s economic policies will become even

more grassroots-friendly, seeking inclusive growth for the poor.

Due to the outcome of the recent elections, the possibility is high that

expropriation of land owned by farmers at the declared land price will

become more difficult. Oppressive land expropriation was an important


121

:: Issue Analyses

factor in the complete defeat of the BSP in the recent Uttar Pradesh

election. The BSP-led government forcibly expropriated lands from

farmers in keeping with the Land Acquisition Act of 1894, which was

enacted under British colonial rule. In one case of land expropriation, three

people died and many others were injured. This event emerged as one of

the key issues in the election. The INC also used this issue as a main focus

during the campaign.

The situation is worrisome for the government, because it must

inevitably expropriate lands from farmers for the development of industrial

complexes. The SP, having recently taken power in Uttar Pradesh, has

reiterated its stance that it will prohibit forcible land expropriation, and that

it will not develop farming land into industrial complexes against the will of

farmers. For this reason, some people criticize that excessive democracy is

hampering economic development.

CCoorrppoorraattiioonnss

�Koreabio: a bio-pesticide manufacturersucceeds in India

�Apple’s success story in China


125

:: Corporations

“We produce bio-pesticides for organic farming. We

sell our products in Korea, as well as export them

to India,” said Dr. Nam Myeong-heun, the head of

the overseas sales department and R&D center of

Koreabio.

Koreabio was barely known in the global market until it appeared at the

Annual Biocontrol Industry Meeting (ABIM) held in Luzern, Switzerland,

in October of 2010. At the ABIM, Koreabio attracted keen attention from

global companies related to organic pest control and pesticides because of

its success in the Indian market. India's arable land area is the second largest

in the world, after the United States.

○● Finding an opportunity in the organic market in rural

India

Koreabio is the largest manufacturer of organic bio-pesticides in Korea,

Koreabio: a bio-pesticidemanufacturer succeeds in India

Kim Yeung-ki ([email protected])

Managing Director of BTN Ltd.


126

with KRW 8 billion in revenue in 2011. It is a technology-based company

that has been growing by more than 30% each year. Including the

company’s president, Kim Young-kwon, Ph.D. in microbiology, many

employees with doctorate degrees have worked together in developing

products from the company’s very start.

Despite its success in Korea, however, Kim was not complacent. Even

though its revenue continued to grow each year, he could see limits in the

growth of his company within the Korean agricultural environment. Like

any other Korean company facing market limitations, export was a strategy

for growth and survival. At first, Koreabio focused on China. After entering

the Chinese market, however, Koreabio found that the Chinese market was

already marred by pseudo-organic Chinese products that disguise the fact

that their efficacy comes from chemical components.

While looking for export destinations, Koreabio heard very interesting

news about the Indian market from its German strategic partner. After years

of perseverance, the German company had finally entered the Indian

market, and the sales of its organic plant growth regulators for fruit trees had

risen by more than 150% for three years.

Until then, Koreabio had been unaware that India even had an organic

farming market. Therefore, hearing that German products that were too

expensive to be widely sold in Korea were selling in India, with a high

growth rate, was shocking.

○● India’s rapid shift to organic farming

India is the world’s largest bean producer, and the second largest

producer of rice, wheat, and vegetables. Despite its scale, most of the Indian

agricultural sector remains backward and outmoded. However, Indian

agriculture is changing, and its output increase is especially notable.

Even though about half of the Indian population is engaged in

agriculture, agriculture’s share of GDP is only 15-17%. Despite low


127

:: Corporations

productivity, consumption of fertilizers and chemical pesticides is increasing

substantially. Indian farmers who used to hesitate to spend money on

fertilizers have learned that they can create more output and make more

profit by investing in these products. Currently, Indian farmers consume the

largest amount of fertilizer after Chinese and American farmers. Sales of

chemical pesticides have doubled in the last five years.

Innovation in agriculture has resulted in the advent of mechanized

farming. The farming machinery market in 2010 was worth USD 8.1

billion, and it is growing fast, with a 10-25% growth rate each year,

depending on the sector. One small Korean company has exported over 500

grain sorting machines to India over the last five years.

Quantitative growth is leading to qualitative growth. The Indian

agricultural sector is shifting to environmentally-friendly agriculture, and

further to organic agriculture. Organic agriculture in India, which started in

export agriculture, has spread to the rapidly expanding domestic market, and

the market for organic farming materials is opening up. In 2011, India’s

organic agriculture increased 18% by size, and 20% by output, year-on-year.

Koreabio wasted no time in taking advantage of the rapid changes occurring

in Indian agriculture.

○● 60% of revenue reinvested in marketing

Small and medium-sized companies that have succeeded in India have

something in common: the presidents of these companies have taken the

lead in marketing. After obtaining data from Indian experts, Mr. Kim

Young-kwon of Koreabio took his samples to every nook and cranny of the

country to establish a foothold in India. Unlike in Korea, multiple cropping

is widespread in India, providing the advantage of having multiple seasons

for pesticide sales each year. In 2009, after Koreabio conducted a series of

laboratory tests, the company received orders worth USD 85,000 from

farms wanting to test the new products. This amount is meager, considering


128

the variety of crops, the number of different diseases and pests, and the scale

of application. Nonetheless, Koreabio was able to increase its exports to

USD 1 million the following year. The company’s success did not come

without effort. It was the outcome of a bold decision to reinvest USD

50,000, or 60% of its total revenue, into marketing. Exports to India worked

as a stepping stone for the company to expand its exports to other countries,

increasing the company’s global market share.

○● India as a stepping stone to the global market

Having gained confidence from its experience in India, Koreabio is

expanding into the global market. This Korean company has been

researching other countries that have adopted organic farming for producing

agricultural exports, and has expanded its markets to include Turkey, Jordan,

Saudi Arabia, Spain, and Brazil. Being still in the early stages, Koreabio’s

performance in these countries is limited, with sales of only about USD

300,000. Although small, these sales are meaningful in that it usually takes

three to four years from sample ordering to actual exporting, given that sales

of pesticides are seasonal, and the organic farming business requires

compliance with laws and regulations that differ from country to country.

Currently, Koreabio is targeting Tirupur in the Southern Indian state of

Tamil Nadu, a city famous for tea-growing, and also Nasik in Western India,

which exports grapes to Europe. The markets for organic pesticides in both

Tirupur and Nasik are 1.5 times larger than that of Korea.

The Korean market is also becoming favorable for Koreabio. Since

elementary schools in Seoul began providing organic produce in their meals,

related markets have been expanding. While keeping an eye on the domestic

market, Koreabio will not neglect potential export markets, for the Indian

market is providing a springboard into the global market.


129

:: Corporations

Adisturbance occurred in front of the Sanlitun Apple Store in

Beijing at 7:00 a.m., January 13, 2012. More than a

thousand people gathered outside the store to buy Apple’s

new gadget, iPhone 4S, only to end up scuffling with

policemen. The Apple Store postponed the launch of iPhone 4S for safety

reasons, causing an angry crowd to throw eggs at the store.

○● China was once a low priority market for Apple

Apple was not loved by the Chinese at first. Since Apple opened its

office in Beijing in 1993, its president has changed several times, and none

have performed particularly well. In 2006, the post of president of the

Beijing Office was abolished, and the vice president of the Asia Pacific

headquarters, located in Singapore, took over duties in China. In Apple’s

global strategy, China was one of the least important markets. According to

the global priority levels for iPhone 3, released in 2008, China was not

Apple’s success story in China

Nam Dae-yubBusiness Analyst of POSCO Research Institute


130

among the first priority markets, to which the USA and Europe belonged,

nor the second priority markets, which included Argentina and Uruguay.

China was categorized as a third priority market.

Apple became serious about the Chinese market after it reached a

deal with China Unicom for the exclusive sale of iPhone 3 in China in

2009. Apple had negotiations with China Mobile which had a 69.7%

market share, but after conflicts over profit sharing and the introduction

of App Store, Apple finally selected China Unicom as its distributor.

Before the deal, Apple established a sales network through indigenous

Chinese electrical appliance shops, such as Gome and Dazhong

Electronics. However, the Apple fervor that swept the world seemed to

pass by China.

Apple’s initial sales in China were lower than expected. For 40 days

from its release, iPhone 3’s accumulated sales in China totaled only 100,000

units. This is in stark contrast to Korea where 65,000 units were sold within

three days. This lackluster performance in China was the outcome of

iPhone’s excessively high price, unreasonable profit sharing scheme, and the

suicides of Foxconn workers. Apple’s iPhone 3GS 32GB was sold for RMB

2009 2010 2011

7.6

27.6

124.7

Apple’s revenue in China

(USD 100M)

1.8%

4.2%

11.5%

Source: Maeil Business Newspaper


131

:: Corporations

6,999, more than twice the average price of smart phones in China. Upon

release, a series of events unfavorable to Apple occurred. At the end of

February of 2009, about 100 workers at one of Apple’s Chinese suppliers

were poisoned by hydrocarbon. In the middle of July, a series of suicide

cases involving Foxconn made headlines.

China’s major media, including The Economic Observer (經濟觀察報),

criticized Apple’s unreasonable profit sharing scheme, damaging Apple’s

image in China. According to a survey on iPhone’s value chain in 2011,

Chinese assembly plants received 1.8% of profits, while Apple’s gross profit

margin was 58.5%. Unfavorable public opinion ran counter to Apple’s

expectations for the Chinese market.

○● Skyrocketing sales of iPhone 4

The release of iPhone 4 has totally changed Apple’s business in China.

With the smart phone fervor sweeping China by word of mouth and through

social networking services, over 200,000 pre-orders were placed for iPhone

4 within five days of its release on September 25, 2010. In the second

through fourth quarters of 2011, more than 5.6 million units were sold. App

Store for China was launched in October of 2010, and iPhone White and

iPad 2 hit the market concurrently in April of 2011. An incident where

angry customers broke the windows of the Beijing App Store shows the

height of the Apple frenzy in China.

Apple is riding high in China, propelled by sales of its wildly popular

iPhone 4S. In FY 2011 (October-September), Apple’s revenue was USD

12.47 billion, 15 times higher than USD 760 million in 2009. This

represented 11.5% of total revenue, far higher than 4.2% in 2010. China is

now the only country with more than 10% of global market share, except

the USA with 38.6%.

Apple’s market share in China recently fell from 13.3% in the second

quarter of 2011 to 7.5% in the fourth quarter, and its ranking dropped from


132

3rd to 5th. This is attributed to the fact that some consumers waited for the

release of iPhone 4S, and there is a growing number of local companies

with low cost smart phones, including Huawei (12.6%) and ZTE (11.1%).

However, Apple’s growth in China seems to be strong given that

China’s smart phone market is growing explosively, with accumulated users

surpassing 100 million in the time from the launch of 3G service in 2009 to

the third quarter of 2011, and that Apple recently formulated a plan to

diversify its public distributors in China.

○● Wrangling between Apple and China

On March 9, 2012, Apple started selling iPhone 4S through China

Telecom, China’s third largest mobile carrier. Apple is expected to conclude

a distribution agreement with China Mobile, the country’s immovable

number one mobile carrier.

Apple CEO Tim Cook said that he would put a higher priority on the

Chinese market in the future at the Goldman Sachs annual tech conference

on February 15, 2012. Last year, Apple stated that it would increase the

number of Apple Stores in China from six (including Hong Kong) to 20 by

the end of 2012, and actively employ all marketing strategies that it has used

in the USA, such as online support and product advertisements. In Korea,

there is no official Apple Store, and Japan has only seven official Apple

Stores.

In the meantime, the biggest obstacle to Apple’s success in the Chinese

market is not competitors such as Nokia and Samsung, but the Chinese

government. How the Chinese government will respond to Apple, which is

treating China as merely an assembly base and consumer market, and how

Apple will defend itself, will be a good case study for many companies

intending to enter the Chinese market.

CCuullttuurree

�The true story of Ah Q: Depiction of a Chiness archetype of the 1920s

�A war over the history of the IndusValley Civilization


134

It is said that a novel is a story created in the imagination of an

author. A novel reveals human nature and an image of society

through the actions and ideas of its characters. An author’s thoughts

are reflected clearly in a novel.

A novel representative of an era is particularly intertwined with history,

and there are many such novels within contemporary Chinese fiction. The

novel discussed in this article explores the reality and issues of an era in

China, and the authors’ solutions to those issues.

○● Faltering people in an era of turbulence

From the Chinese perspective, Chinese contemporary history, which

started with the Opium War with Great Britain in 1840, is filled with

extreme self-contempt. Until the People’s Republic of China was

established in 1949, not a day passed in China without internal troubles,

including the Taiping Rebellion, and external troubles, such as imperialist

The True Story of Ah Q: Depiction of a Chinese archetype of the 1920s

Cho Kwan-heeProfessor, Department of Chinese Language and LiteratureSangmyung University


135

:: Culture

military intervention for influence over China.

In 1911, the Xinhai Revolution spearheaded by Sun Yatsen (孫文) led to

the end of Chinese feudalism, which had lasted for more than 2000 years,

since Emperor Qin Shi unified China. Even after the establishment of the

People’s Republic of China, however, troubles persisted. In order to prevent

civil war, Sun Yatsen gave up his presidency to Yuan Shikai (袁世凱), the

strongest military figure of the time. Yuan aspired to become emperor, and

Japan spared no effort in aiding him, offering financial backing and

cooperation. Japan submitted a list of 21 demands to Yuan Shikai’s

government, and Yuan, desperate for outside help to maintain his power,

accepted these demands. On January 1, 1916, Yuan finally declared himself

emperor. The Western powers that had been implicitly supporting him

turned their backs on his anachronistic return to imperialism. Warlords who

had been Yuan’s trusted followers betrayed him and declared independence.

Forced into a corner, Yuan Shikai retracted his declaration in March of

1916, only two months after he took power as emperor. He died in June of

the same year, disappointed and angry. Following his death, warlords in

various parts of the country controlled their own territories, and China fell

into a state of anarchy. The warlords sought horizontal and vertical alliances,

dividing the country at whim to satisfy their interests. Failing to comprehend

the state of affairs, the people of the country were left bewildered and

helpless.

○● An outcry by Lu Xun from the “iron house”

Lu Xun (魯迅), a prolific Chinese writer, was a young man with pent-up

anger about this era of turbulence. He went to Japan to study medicine,

determined to become a doctor to alleviate the suffering of the Chinese

people. He soon realized that the suffering of the Chinese people came not

from their bodies, but from their minds. He quit studying medicine and

returned to China, but he failed to make a breakthrough in his cause for


136

some time. When a friend suggested writing, he responded as follows:

“Imagine an iron house without windows, absolutely indestructible, with

many people fast asleep inside who will soon die of suffocation. But you

know since they will die in their sleep, they will not feel the pain of death.

Now if you cry aloud to wake a few of the lighter sleepers, making those

unfortunate few suffer the agony of irrevocable death, do you think you are

doing them a good turn?”

My friend’s reply was decisive.

“But if a few awake, you can't say there is no hope of destroying the iron

house.”

- Excerpt from the Preface to Call to Arms

Lu Xun ended up bending to his friend’s will, and his first story, A

Madman’s Diary, was published. The new writing style and shocking plot of

this novel made Lu an instant celebrity. He later joined the ranks of

contemporary Chinese writers.

○● Ah Q, the embodiment of typical Chinese self-hypnotism

After the success of his first short story, Lu Xun released one novel after

another. The True Story of Ah Q (阿Q正傳) was first published as a series in

the Beijing Morning News from December 4, 1921. Lu stated that he

wanted to disclose the general weakness of the Chinese people. Intellectuals

in a country that has been devastated by a more powerful country face the

law of the jungle, where only the fittest survive. According to social

evolutionists, this is the underlying law of history and development. Lu also

had this idea in the beginning. The problem was that the general public did

not try to understand the real issues, nor were they even aware of them. To

make this point, Lu published a series about a fool, Ah Q, whose exact name


137

:: Culture

is not given, who lives in a rural farming village.

In addition to the uncertainty regarding Ah Q’s surname, personal

name, and place of origin, there is even some uncertainty regarding his

“background.” This is because the people of Weichuang only made use of

his services or treated him as a laughing-stock, without ever paying the

slightest attention to his “ background.”

- Excerpt from The True Story of Ah Q

Ah Q is a day laborer with no home or regular job. He lives on odd jobs,

from cutting barley and pounding rice to paddling a boat. However, Ah Q

cannot put himself in anyone else’s shoes, and believes himself to be better

than others, when actually he is being ridiculed. Ah Q represents the

common man in rural China at that time. This fact made many readers of the

Beijing Morning News feel uneasy. They were moved, as the story of Ah Q

was a story about them. Ah Q, a common man in an unremarkable

environment, is certainly as unimportant as a grain of sand, but despite his

trivial existence, truth is revealed through his connection to the world. There

is a saying, “To see the world in a grain of sand.”

Before the old social institutions are abolished and a new society is

created, the public must be awakened to build the power that can change

society. Perhaps Lu Xun’s message in The True Story of Ah Q was this: a

revolution that fails to awaken the public is false; the true goal of revolution

is to awaken the public, not to topple autocracy.

The Indus Valley Civilization (IVC) was one of the world’s

greatest civilizations. It flourished in the Indus River basin

between 2500-1500 BCE. This is one of the regions where

mankind first achieved a state of civilization.

○● Who were the people of the Indus Valley Civilization?

During the British colonial rule over India in the 18th century, Britain

studied India to control the country effectively. In the process of this study,

Britain categorized Indians into two races: Aryans and Dravidians. Based on

these categories, Britain divided and reined in the Indians. Britain even

broke up the history of India into the history of Aryans and that of

Dravidians. They divided many things in this manner, including culture and

customs. Aryans are known to have arrived in North India around 1500

BCE, to have built the IVC, and to have used one of the Indo-European

languages. On the other hand, Dravidians lived in South India and used a

A war over the history of theIndus Valley Civilization

Lee KwangsuProfessor, Division of Russian and Indian Business StudiesBusan University of Foreign Studies


138

Dravidian language.

For these reasons, Western people have described Aryans as a lost wing

of the advanced European Civilization, and made Aryans out to be the

masters of the world’s greatest civilization, the IVC. Dravidians were

reduced to ugly ducklings. At around this time, the IVC was found to have

no relation to Aryans. However, this does not mean that Dravidians from

South India were found to be the owners of the IVC.

Today, various relics have revealed the fact that the prototype of the god

Shiva, the Great God of Hinduism, originated in the IVC. The Bodhi tree

that is associated with Buddha’s enlightenment and the ritual bathing, which

is a widely practiced form of worship in India, also came from the IVC.

Based on the fact that the script on the relics of the IVC is in Dravidian, the

hypothesis that the founders of the civilization were actually the Dravidians

of South India has emerged as the most feasible hypothesis.

○● Three reasons for the demise of the Indus Valley

Civilization

Where did the real owners of the IVC go? Why did their civilization

collapse? And how did they come to reside in the southern part of India? An

Aryan invasion was the first suggested reason for the demise of the IVC,

because Aryans entered the Indian continent about 1500 BCE through the

region of the modern Sindh province of Pakistan, the center of the IVC. If

the Indus Civilization had been destroyed by war, the ruins of some fortress

or the widespread skeletal remains of war would surely have been found.

However, there has been no such discovery. The hypothesis that the demise

of the IVC was caused by an invasion of Aryans was soon abandoned.

Another explanation is the flooding of the Indus River. The Indus

River is prone to flooding. At historical sites along the Indus River, it has

been found that ancient residents fled to other places due to the frequent

flooding and then returned to rebuild wells and clean up their cities. In


139

:: Culture


140

addition, people at that time actively traded with areas inland and other

areas along the river. They were good enough at astronomy and geology

to trade with the Mesopotamian region along the coast of the Indian

Ocean. The general opinion in academia is that even if there were

flooding on a massive scale, people would have returned to their homes

and continued their lives along the Indus River.

Another explanation is environmental changes. In 1983, I had an

opportunity to conduct a field survey in Mohenjo-Daro, the largest city of

the IVC, and Harappa, a typical historical site of the IVC. Viewing the many

relics, I was struck with a question: Mohenjo-Daro is a complete wasteland.

How could people make fired bricks in a place without rivers or trees? Here

is a key to this riddle.

The brick making of the Indus Civilization was far more advanced than

that of the Egyptian and Mesopotamian Civilizations. People from the

Egyptian and Mesopotamian Civilizations dried their bricks before using

them; however, people from the Indus Civilization fired their bricks.

Naturally, there must have been extensive woods. One can easily surmise

that the environment has changed dramatically, though it is unclear when

this happened. In this region, evidence of dried-up rivers has also been

found, giving strong support to the theory that this region has experienced

great changes.

○● A dispute over history in a whirlwind of politics

The Indus Valley Civilization, one of the world’s greatest ancient

civilizations, is the origin of the Hindu Civilization. However, the

birthplace of the IVC is currently located in Pakistan. Since the 1980s,

the Pakistan government has publicized that the IVC was the birthplace

of the world’s greatest civilizations, and that it is also the lifeline of the

Hindu Civilization. This rhetoric by Pakistan has made India uneasy. Any

time Hindu Civilization is glorified, it glorifies Pakistan. India’s pride has


141

:: Culture

been greatly damaged.

In light of these circumstances, India’s Hindu nationalist scholars

have devised a new theory on the IVC. They claim that the original

birthplace of the IVC was not Mohenjo-Daro or Harappa, currently in

Pakistan, but now the dried-out Saraswati River basin, located in India.

This theory was actively expanded and propagated in the 1990s, when

Hindu fundamentalism was at its peak. At that time, Indian politics were

reactionary, dominated by Hindutva Hinduism, and led by conservatives

under a banner of anti-Pakistan, anti-Islam, and a return to Hinduism.

History shows that the movements of reactionary forces usually spread

like wildfire. Hitler’s Nazism and Mao Zedong’s Great Leap Forward are

good examples.

As a result, India was swept up by Hindu nationalism in the 1990s. A

good number of scholars and archaeologists desperately fabricated the

Saraswati River Civilization. Influenced by Hindu nationalism, anti-Islamic

Hindu fanatics persecuted and attacked Muslims, even leading to a

massacre. Conscientious scholars stepped forward to declare a war against

Hindu nationalists, because such matters are too big to be dealt with within

the boundaries of history and academics.

Conflicting interpretations of facts are natural in dealing with history.

However, history has degenerated into the fabrication of facts that match

fixed interpretations. History is often used as a tool of politics, outside the

boundaries of academics. When history, especially ancient history, meets

with certain ideologies, it comes to have a profoundly explosive power.

With nationalism at the center of many national ideologies, history is at the

center of the politics governing countries and their people.

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