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2012 4th Issue: Jon Li: Emerging Market Potential on Sino-Korea Industry Cooperation

Time: Apr. 24, 2012      Source: IEEPA

Jon Li, Secretary-General of IEEPA, was invited to attend Sino-Korea Forum on Economic Cooperation and Prospect in remembrance of the 20th anniversary of the establishment of Sino-Korea diplomatic relation on April 17, 2012, in Seoul, South Korea, which was co-organized by the Ministry of Commerce, PRC, and the Ministry of Knowledge Economy of Korea. Zeng Peiyan, former Vice Premier of the State Council, Chairman of CCIEE, delivered a keynote speech, South Korea's Knowledge Economy Minister Hong Suk-woo gave a welcoming speech.

Secretary-General Jon Li was invited to attend the meeting, and give a speech in the Special Forum--"Sino-Korea Future Industry Cooperation Pattern and Solution". His speech focused on strategic cooperation of Chinese and Korean enterprises, described the conditions on how Korean enterprises access to Chinese market against the backdrop of increasingly important energy conservation and environmental protection industries in China during the 12th Five-Year Plan (FYP), five-provinces and eight-cities selected as low-carbon pilot zones, active cyclic economic construction, expanding renewable energy and environmental protection industries.

This following article is adapted from his speech:

Mr. Li indicated: the strategic cooperation of Sino-Korea enterprises is expected to focus on emerging and potential market, which includes: (i) China's strategic emerging industry; (ii) China's green and low-carbon construction field, primarily green and low-carbon cities.

1. The general goal of China's strategic emerging industries (similar with Korea's new growth industry) is to reach 8% of GDP in 2015, and 15% in 2020, especially for energy conservation and environmental-protection industries, which has reached 2 trillion Yuan in production value by 2010 at the rate of 15-17% during the 11th FYP, and will reach 4 trillion Yuan at the end of the 12th FYP, and will definitely become a new-round growth point and mainstay industry in China. Nevertheless, given the fact that insufficient core technology and innovative mode, few scale companies are still popular in this regard, the introduction of advanced international experience therefore is necessary and urgent. Under such circumstances, China's strategic emerging industries may turn attention to the tertiary industry, focus on modern service market in energy and environmental fields; besides, China will further expand the input of capital and technology so as to increase the proportion of tertiary industry in the whole national economy, promote industrial optimization and upgrading, which will bring about great potential for strategic cooperation between Chinese and Korean enterprises, aside from that, energy and environment related consultation and service, equipment management and operation will also be key factors to consider.

Concerning the government support to new energy industry, Korea mainly focused on early-period R&D, preferential policy. As per the goal set by Korean government, new and renewable energy will account for 5% of total national energy in Korea by 2011, 10% by 2020, and 11% by 2030. In addition, Korean government will vigorously promote the development of new and renewable energy industrialization and related equipment manufacturing technology, with a view to make Korea an exporter of new energy.

The market potential of China's strategic emerging industry is clearly extruding in energy field, according to the 12th FYP, China's non-fossil energy will account for 11.4% by 2015, 15% by 2020. In response, China will expand market space in following ways:

(1) Increase the proportion of non-fossil energy like natural gas, nuclear power, renewable energy, which is a key task during the 12th FYP. Nowadays, domestic natural gas industry focus on further development and utilization, water and electricity industries are restricted from natural environment, nuclear power is slowing down due to external factors, wind-power is facing blind and speculative action to some degree, and will enter a stable period.

The potential cooperation opportunity therein will focus on: domestic solar utilization, industry support by preferential electricity prices, energy-storage technology and smart grid and so on.

(2) Increase efficiency of energy utilization, including traditional fossil energy cleaning and utilization by technology innovation, such as: efficient use of coal-based industry, energy conservation application in industry, traffic and building etc.

The potential cooperation opportunity therein will focus on: clean coal technology and further industrialization; advanced technology cooperation market including industrial technologies; new energy car development, like electric car technology cooperation, brand internationalization of new energy car, which is 5-10 years later in China than developed countries; energy conservation retrofit, operation service and green building.

2. China¡¯s green and low-carbon development, mainly points to low-carbon city construction. Currently, China has replaced the concept of low-carbon economy with green low-carbon development, which more suits China¡¯s national conditions and actual development phase. Market cooperation space based on low-carbon city construction is not limited to the pilot zones of five-provinces and eight-cities issued by China¡¯s National Reform and Development Commission;

(1) China has over 2,600 cities and counties, among which 296 are direct-controlled municipality or locally administered level cities, which have launched their green and low-carbon development program, some even established the low-carbon pilot industry park; concerning China¡¯s second and third-tier cities, which have relatively favorable natural conditions and ecological environment, strong growth potential for fostering and developing emerging strategic industries; IEEPA-led ¡°green and low-carbon city¡± projects belongs to this regard; and the 5th WEC, (to be held from August 31 to September 2, 2012), will firstly set ¡°China Green and Low-Carbon Award¡±, with a view to exhibiting emerging forces and future growth potential of China¡¯s cities in green and low-carbon fields.

(2) China¡¯s urbanization rate will be increased by 51.5% during the 12th FYP, whose content cover urbanization process, urban ecological environment, sustainable agricultural protection, increasing agricultural production rate, enhancing food safety, reducing environmental burden, and will bring about strong potential for strategic cooperation of both Chinese and Korean enterprises.

While entering Chinese market, Korean enterprises should stress the importance of Chinese market during the implementation of their globalization strategy, and the following aspects shall be considered:

1. Formulate a strategic roadmap on how to access Chinese market: A complete analysis on mid-long term Chinese market prospect and government policy should be established. Due to different supporting policy and strategies among various ministries and committees, different and flexible implementation in different regions, it is necessary for South Korean enterprises to formulate a strategic roadmap on how to enter Chinese market while considering their native conditions.

2. Allocation capability of advantageous international resource: Korean enterprises shall have the capacity of establishing optimum mix of capital, technology, information, management and labor forces of both countries; these enterprises which have strong R&D capability, complete industry chain, international operating and development strength are in high and urgent demand in Chinese market.

3. Formalization capability of industrial and technical criteria: Chinese government encourages not only domestic enterprises and research institutions to formulate international criteria, but also foreign investors to get involved in this formulation, with a view to forming general international criteria, which have a long-term significance on boosting the influence of Korean enterprises in Chinese market and institutional level.

4. Localized operation capability: Korean enterprises should have advanced operation experience and market application capability of technical achievements, have lasting and professional reserve forces on investment and development of new technologies and products, as well as localization experience; at the same time, they should push forward their business according to local conditions, especially for considering overall development strategy of the cities where they worked.

5. Integration capability: while entering Chinese Market, Korean enterprises, on the basis of joint academic research and talent training, should have the capability of establishing cooperation with Chinese counterparts horizontally or vertically within industry chain, providing upstream and downstream providers with certain knowledge, know-how, and experience; applying, converting and innovating reserved technologies and market locally, setting up joint advantageous production and R&D bases with Chinese cities, enterprises and research institutions, which not only ensures Korean enterprises to achieve maximum value, but plays a key role in helping them shape regional economic pattern and form leading bases. This is also an industry development pattern Chinese government vigorously encourage and promote.

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