Economic Bulletin (Vol. 33 No.8)

8/4/2019 Economic Bulletin (Vol. 33 No.8)

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The Green Book: Current Economic Trends

Overview 3

1. External economic situation 4

2. Private consumption 8

3. Facility investment 12

4. Construction investment 14

5. Exports and imports 16

6. Mining and manufacturing production 18

7. Service sector activity 20

8. Employment 22

9. Financial markets 26

9.1 Stock market9.2 Exchange rate9.3 Bond market9.4 Money supply & money market

10. Balance of payments 30

11. Prices and international commodity prices 32

11.1 Prices11.2 International oil and commodity prices

12. Real estate market 36

12.1 Housing market12.2 Land market

13. Composite indices of business cycle indicators 40

Policy IssuesOutcomes of government plans to further develop theservice sector 42

Economic News Briefing 46

Statistical Appendices 51

Republic of Korea

Economic Bulletin

Vol. 33 | No. 8


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Economic Bulletin 3

The Korean economy has stayed on a recovery track with employment improving, whileinflation has remained in the four percent range.

Employment growth accelerated in June, adding 472,000 jobs, led by service industries, withthe employment rate rising year-on-year to 60.3 percent from 59.8 percent, and the

unemployment rate dropping to 3.3 percent from 3.5 percent.

Consumer price inflation accelerated month-on-month from 4.4 percent to 4.7 percent inJuly, affected by rising agricultural product prices amid the torrential rain and reboundingpetroleum product prices with oil refiners withdrawing temporary price cuts. Meanwhile,core consumer prices continued an upward track from 3.7 percent to 3.8 percent, as theprices of processed food and cost of dining out remained strong.

Mining and manufacturing production rose 0.7 percent in June, as difficulties disruptingsteady supply in automobile and chemical industries were eased. Service output grew 0.9percent compared with the previous month on the back of wholesale & retail salescontinuing an upward track.

In June, retail sales rose 1.3 percent month-on-month in line with growing durable goodssales, particularly automobiles.

Facilities investment increased 0.5 percent month-on-month in June, thanks to increasingtransportation equipment investment. Construction investment gained 14.3 percent from theprevious month, as SOC spending was expanded.

Exports increased 27.3 percent year-on-year in July backed by brisk vessels, petroleumproducts and steel products, resulting in a widening trading surplus from US$2.8 billion inthe previous month to US$7.2 billion.

The cyclical indicator of the coincident composite index rose for a second consecutive monthin June with most of the indexs components improving. The leading composite index climbedyear-on-year for two months in a row, as machinery orders and construction orders increased.

Uncertainties surrounding the financial market rose in July, fueled by the possibility of the USfailing to reach a debt ceiling agreement amid lingering worries over the European fiscal crisis.

While home prices in the Seoul metropolitan area fell slightly with continuing wait-and-seeattitudes, rent increased at a faster pace affected by seasonal factors.

The Korean government will closely monitor the economic situation, as there are growingexternal uncertainties such as high oil prices, slowdown in major economies and possiblespread of the European fiscal crisis.

Under these circumstances, the government will focus on stabilizing prices, with activemeasures to curb price increases in the short term, particularly following the torrential rainand before Chuseok Holiday, as well as long-term measures to improve the economys price-

setting system. On the other hand, the government will renew its efforts to boost domesticdemand and restructure the economy so that the economy can enhance job creationcapabilities and build a solid ground for sustainable development.

The Green BookCurrent Economic Trends

Overview


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4 August 2011

1. External economic situation

Although the recovery of the global economy is continuing, led by developing countries suchas China, there is growing concern that the recovery might slow down as economicindicators for the US and other economies have dropped.

At an emergency summit on July 21, eurozone leaders agreed on a second rescue packagefor Greece worth 158.6 billion euros, easier lending terms for Portugal and Ireland, andbroader powers for the European Financial Stability Facility.

Although concerns over a possible default alleviated following an agreement between theObama administration and congressional leaders to raise the countrys debt ceiling, S&Pdowngraded US credit rating from AAA to AA+ on August 5.

US economic growth slowed down to 0.4 percent (annualized q-o-q) in the first quarter of2011 and 1.3 percent in the second quarter.

Industrial production increased 0.2 percent month-on-month in June and retail sales gained 0.1percent, but in July the ISM manufacturing index and the consumer sentiment index both fell.

Housing prices continued to fall in May with a drop of 0.1 percent month-on-month based onthe S&P/Case-Shiller Home Price Index, and in June existing home sales fell 0.8 percentwhile new home sales slipped 1.0 percent.

The recovery of the labor market lost steam in June as non-farm payrolls only climbed by18,000 month-on-month, and the unemployment rate rose to 9.2 percent.

US

(Percentage change from previous period)

Real GDP2

- Personal consumption expenditur

- Corporate fixed investment

- Housing construction investment

Industrial production

Retail sales

Existing home sales

Unemployment rate3

Consumer prices

2009 2010 20111

1. Preliminary 2. Annualized rate (%) 3. Seasonally adjusted Source: US Department of Commerce

Annual

-3.5

-1.9

-17.8

-16.0

-11.2

-7.0

5.2

9.3-0.3

Annual

3.0

2.0

4.4

14.6

5.3

6.4

-4.5

9.61.6

Q1

3.9

2.7

6.0

-15.3

2.0

2.1

-12.3

9.70.3

Q2

3.8

2.9

18.6

22.8

1.7

1.0

7.5

9.6-0.1

Q3

2.5

2.6

11.3

-27.7

1.6

0.9

-25.1

9.60.4

Q4

2.3

3.6

8.7

2.5

0.8

3.0

13.8

9.60.7

Q1

0.4

2.1

2.1

-2.4

1.2

2.5

8.2

8.91.3

Q2

1.3

0.1

6.3

3.8

0.2

1.1

-5.4

9.10.4

Jun

-

-

-

-

0.2

0.1

-0.8

9.2-0.2

May

-

-

-

-

-0.1

-0.1

-3.8

9.10.2

S&P/Case-Shiller Home Price Index (m-o-m, %)

-0.3 (Jan 2011) -0.3 (Feb) -0.6 (Mar) 0.4 (Apr) -0.1 (May)

Non-farm payrolls (q-o-q, thousand)

68 (Jan 2011) 235 (Feb) 194 (Mar) 217 (Apr) 25 (May) 18 (Jun)

Comparison between preliminary and revised GDP growth ratePreliminary: -0.7 (Q2 2009) 1.6 (Q3) 5.0 (Q4) 3.7 (Q1 2010) 1.7 (Q2) 2.6 (Q3) 3.1 (Q4) 1.9 (Q1 2011)

Revised: -0.7 (Q2 2009) 1.7 (Q3) 3.8 (Q4) 3.9 (Q1 2010) 3.8 (Q2) 2.5 (Q3) 2.3 (Q4) 0.4 (Q1 2011)

ISM manufacturing index (base=50)

61.4 (Feb 2011) 61.2 (Mar) 60.4 (Apr) 53.5 (May) 55.3 (Jun) 50.9 (July)

Consumer sentiment index

77.5 (Feb 2011) 67.5 (Mar) 69.8 (Apr) 74.3 (May) 71.5 (Jun) 63.7 (July)


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Economic Bulletin 5

US federal funds rate and consumer prices

Source: US Federal Reserve Board & Department of Labor

US non-farm payroll employment (m-o-m change)

Source: US Department of Labor

US GDP (q-o-q, annualized rate)

Source: US Department of Commerce1-1

1-2

1-3


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6 August 2011

The solid growth of Chinas industrial production continued amid rising inflationary pressure

as consumption and investment increased. Consumer prices climbed month-on-month in

June to 6.4 percent from 5.3 percent in the previous month, as food prices rose following a

spike in pork prices.

Food prices (y-o-y, %)

10.3 (Jan 2011) 11.0 (Feb) 11.7 (Mar) 11.5 (Apr) 11.7 (May) 14.4 (Jun)

Japans production and retail sales grew in June, while its exports slowed down a decline,

showing the countrys gradual recovery from the major earthquake earlier this year. The

Bank of Japan on July 11 revised downward its economic growth forecast for 2011 from 0.6

percent to 0.4 percent, but maintained its 2.9 percent growth forecast for 2012.

Consumer prices rose 2.7 percent in June, exceeding the European Central Banks target of

2.0 percent for the seventh consecutive month, as the eurozone recovery lost momentum.

The European Banking Authority said on July 15 that its EU-wide stress test found that eight

banks fell below the 5 percent Core Tier 1 Ratio threshold, and the total capital shortfall

would be 2.5 billion euros.

China

Japan

(Percentage change from same period in previous year)

Real GDP

Industrial production2

Fixed asset investment (accumulated)

Retail sales

Exports

Consumer prices2

Producer prices2

2009 2010 20111

1. Preliminary

2. Quarterly change: average of monthly change

Source: China National Bureau of Statistics

1. Preliminary Source: Eurostat

Real GDP


Retail sales

Exports (y-o-y)Consumer prices (y-o-y)

2009 2010 20111


1. Preliminary Source: Japan's Statistics Bureau and Statistics Centre, Ministry of Economy, Trade and Industry, Ministry of Finance

Real GDP


Retail sales (y-o-y)

Exports (y-o-y)

Consumer prices (y-o-y)

2009 2010 20111(Percentage change from previous period)

Annual

9.1

11.0

30.5

15.5

-16.0

-0.7

-5.4

Annual

10.3

15.7

24.5

23.3

31.3

3.3

5.5

Q1

11.9

19.6

26.4

23.7

28.7

2.2

5.2

Q2

10.3

16.0

25.5

23.8

40.9

2.9

6.8

Q3

9.6

13.5

24.5

23.9

32.2

3.5

4.5

Q4

9.8

13.3

24.5

22.0

24.9

4.7

5.7

Q1

9.7

14.9

32.5

17.1

26.4

4.9

7.0

Q2

9.5

13.9

27.0

18.2

22.0

5.7

6.9

Jun

-

15.1

27.0

17.7

17.9

6.4

7.1

May

-

13.3

34.0

16.9

19.4

5.5

6.8

Annual

-6.3

-21.9

-2.3

-33.1

-1.4

Annual

4.0

16.4

2.5

24.4

-0.7

Q1

1.5

7.4

3.8

43.2

-1.2

Q2

0.5

0.7

3.7

33.2

-0.9

Q3

0.8

-1.1

3.2

17.8

-0.8

Q4

-0.3

-0.1

-0.4

10.0

0.1

Q1

-0.9

-2.0

-3.0

2.4

0.0

Apr

-

1.6

-4.8

-12.4

0.3

May

-

5.7

-1.3

-10.3

0.3

Jun

-

3.9

1.2

-1.6

0.2

Annual

-4.0

-14.9

-2.2

-18.10.3

Annual

1.7

7.1

0.7

20.11.6

Q1

0.4

2.4

0.4

12.91.1

Q2

1.0

2.4

0.1

22.31.5

Q3

0.3

1.0

0.4

22.81.7

Q4

0.3

1.7

0.3

21.82.0

Q1

0.8

1.1

-0.2

21.22.5

Apr

-

0.2

0.7

15.02.8

May

-

0.1

-1.1

20.92.7

Jun

-

-

-

-2.7

Eurozone


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Economic Bulletin 7

Eurozone GDP growth and industrial production

Source: Eurostat

Japans GDP growth

Source: Cabinet Office & Ministry of Economy, Trade and Industry, Japan

Chinas GDP and fixed asset investment

Source: National Bureau of Statistics of China1-4

1-5

1-6


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8 August 2011

2. Private consumption

Private consumption (advanced estimates) increased 1.0 percent quarter-on-quarter and 3.1

percent year-on-year in the second quarter of 2011.

Retail sales in June climbed 1.3 percent month-on-month and 5.6 percent year-on-year, helped

by a 3.8 percent improvement in sales of durable goods including a 6.1 percent rise in car sales,

while sales of non-durable goods such as gasoline dropped 0.4 percent month-on-month.

On a year-on-year basis, sales of durable and semi-durable goods expanded 17.2 percent

and 4.9 percent, respectively, while those of non-durable goods declined 0.7 percent.

Sales at large discounters and non-store retailers declined 1.4 percent and 1.0 percent

month-on-month, respectively, while those at department stores and specialized retailers

climbed 1.7 percent and 1.5 percent, each. On a year-on-year basis, all sales categories of

department stores, large discounters, specialized retailers and non-store retailers continuedto gain ground.


Consumer goods sales

q-o-q

- Durable goods2

Automobiles

- Semi-durable goods3

- Non-durable goods4

1. Preliminary

2. Durable goods: Automobiles, electronic appliances, furniture, telecommunications devices, etc.

3. Semi-durable goods: Clothing, footwear, etc.

4. Non-durable goods: Food, medicine, cosmetics, fuel, tobacco, etc.

Source: Statistics Korea

2009 2010 2011


- Department stores

- Large discounters

- Specialized retailers2

- Nonstore retailers


Private consumption2

(Seasonally adjusted)3

2009 20101 20111

1. Preliminary 2. National accounts 3. Percentage change from previous period

Source: The Bank of Korea

Annual Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2

0.0 -1.1 0.4 5.6 4.1 6.6 3.5 3.6 2.9 2.8 3.1

- 3.7 1.4 0.9 - 0.5 0.7 1.4 0.3 0.4 1.0

2009 2010 2011

1. Preliminary

2. Specialized retailers are defined as stores carrying a few (1 to 3) specialized items.Source: Statistics Korea

Annual

2.7

-

8.2

21.8

1.3

1.2

Annual

6.6

-

14.9

11.1

6.8

2.2

Q1

9.7

0.6

29.6

48.9

2.5

3.2

Q2

4.9

-0.1

5.6

-2.1

6.2

3.3

Q3

7.5

3.3

17.0

12.0

6.6

3.0

Q4

5.1

0.8

10.6

0.1

11.1

-0.7

Q1

5.1

1.1

12.9

10.2

6.1

0.8

Q21

5.6

0.1

17.7

13.0

5.9

-0.6

Jun1

5.6

1.3

17.2

12.2

4.9

-0.7

May1

6.3

1.1

20.0

13.0

5.2

0.3

Annual

4.3

-2.2

3.0

8.7

Annual

8.8

4.4

5.6

15.6

Q1

7.5

5.4

9.7

20.1

Q2

9.2

4.1

1.8

17.9

Q3

7.4

7.6

7.3

11.4

Q4

10.5

0.8

4.2

13.5

Q1

11.5

3.5

4.3

11.5

Q21

9.7

5.1

4.8

9.6

Jun1

7.4

3.7

5.9

7.1

May1

8.0

4.3

5.8

11.4


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Economic Bulletin 9

Consumer goods sales

Source: Statistics Korea (industrial activity trend)

Private consumption

Source: The Bank of Korea (national accounts)2-1

2-2

2-3 Consumer goods sales by type



11/71

Sales of consumer goods are expected to grow considering a recovery in employment, which

raises purchasing power, and indicators showing positive trends.

Employment (y-o-y, thousands)

331 (Jan 2011) 469 (Feb) 469 (Mar) 379 (Apr) 355 (May) 472 (Jun)

The consumer sentiment index exceeded the benchmark of 100 and the consumer spending

plan maintained its comparatively high level.

Consumer Sentiment Index (CSI, base=100)

108 (Jan 2011) 105 (Feb) 98 (Mar) 100 (Apr) 104 (May) 102 (Jun) 102 (Jul)

Consumer Spending Plan (base=100)

114 (Jan 2011) 112 (Feb) 109 (Mar) 110 (Apr) 110 (May) 109 (Jun) 109 (Jul)

Advanced indicators of department store sales and those of large discounters as well as car

sales had been rising. Gasoline sales increased as demand jumped ahead of the end oftemporary price cuts by local oil refiners.

Credit card use (y-o-y, %)

10.8 (Feb 2011) 13.1 (Mar) 16.3 (Apr) 21.1 (May) 19.8 (Jun) 16.6 (Jul)

Department store sales (y-o-y, %)


Large discounter sales (y-o-y, %)

-10.9 (Feb 2011) 1.9 (Mar) 4.6 (Apr) 2.4 (May) 2.7 (Jun) 3.9 (Jul)

Domestic sales of gasoline (y-o-y, %)

5.7 (Feb 2011) -2.4 (Mar) -4.7 (Apr) -2.6 (May) -3.4 (Jun) 9.9 (Jul)

Domestic sales of cars (y-o-y, %)


Consumer goods imports (y-o-y, %)

22.6 (Feb 2011) 32.1 (Mar) 30.0 (Apr) 28.1 (May) 27.2 (Jun)

1. Preliminary

Source: Ministry of Knowledge Economy

The Credit Finance Association

Korea National Oil Corporation

The Korea Customs Service

Korea Automobile Manufacturers Association

Ministry of Strategy and Finance (for July data)

The consumer sales increase in July might be limited, considering reduced outdoor activities

due to bad weather conditions, including torrential rains and the rainy season.

Although global uncertainties have abated with the recent stabilization of oil prices and

easing of concerns over the European financial crisis, they may affect consumer sentiment

when they resurface.

Dubai crude (US$/barrel)

92.5 (Jan 2011) 100.2 (Feb) 108.5 (Mar) 115.8 (Apr) 108.0 (May) 107.5 (Jun) 110.2 (Jul)

10 August 2011


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Department store and discount store sales (current value)

Source: Ministry of Knowledge Economy (monthly retail sales)2-4

2-5

2-6 Consumer sentiment index


Domestic automobile sales

Source: Korea Automobile Manufacturers Association (monthly automobile industry trend)

Economic Bulletin 11


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12 August 2011

3. Facility investment

Facility investment (advanced estimates of GDP) in the second quarter of 2011 increased 4.0

percent quarter-on-quarter and 7.6 percent year-on-year.

Facility investment in June rose 0.5 percent month-on-month and 4.3 percent year-on-year,

thanks to the rise in investment in transportation equipment. Facility investment is projected

to see a moderate rise given stable corporate confidence and leading indicators showing

positive signs, but ongoing external uncertainties surrounding the European debt crisis and

the possibility of a US slowdown is likely to limit the gain.


Facility investment2

q-o-q

- Machinery

- Transportation equipment

1. Preliminary 2. National accounts


2009 20101 20111

Annual

-9.8

-

-13.5

2.8

Q4

12.2

7.8

10.1

19.1

Annual

25.0

-

30.8

6.7

Q1

29.1

2.8

30.0

24.2

Q2

30.5

7.9

35.3

15.6

Q3

26.6

5.6

38.9

-6.6

Q4

15.9

-1.0

20.5

0.6

Q1

11.7

-1.1

13.9

3.2

Q2

7.6

4.0

-

-


Facility investment

q-o-q

- Machinery

- Transportation equipment

Domestic machinery orders

q-o-q

- Public

- Private

Machinery imports

Manufacturing operation ratio

Facility investment adjustmentpressure2

1. Preliminary2. Production growth rate minus production capacity growth rate in the manufacturing sector (%p)

Sources: Statistics Korea, the Korea International Trade Association (machinery imports data)

2009 2010 20111

Annual

-9.4

-

-12.6

4.6

-10.3

-

62.4

-18.2

-16.6

-3.5

-3.7

Annual

25.1

-

30.5

4.3

11.2

-

-37.9

21.8

40.4

8.8

9.5

Q2

29.5

6.7

37.1

2.8

24.7

15.2

-42.2

35.5

51.3

10.8

12.1

Q3

29.3

7.2

37.4

-0.1

-0.2

-3.6

-71.7

22.0

40.0

1.8

3.4

Q4

13.6

-5.4

17.1

-1.2

11.3

4.1

31.4

7.8

26.3

5.3

4.6

Q1

6.6

-0.2

6.8

5.6

19.5

3.6

-10.3

22.7

8.0

2.6

4.1

Q21

4.6

2.8

6.8

-5.7

8.9

4.5

82.1

3.9

10.5

-0.2

1.5

Apr

-0.6

-5.4

5.1

-26.5

6.6

-6.4

-19.6

8.6

3.5

-1.4

0.5

May1

10.1

14.1

10.9

6.5

-0.8

8.5

23.4

-2.2

26.9

1.1

2.6

Jun1

4.3

0.5

4.7

2.7

20.4

11.9

205.5

6.1

3.3

-0.4

1.4


Mar Apr May Jun Jul Aug

Business survey indices (base=100) for104 102 103 102 103 103

manufacturing facility investment projections

2011


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Machinery orders and estimated facility investment (3-month average)


Machinery imports

Source: Korea International Trade Association (KITA)

Facility investment by type


3-2

3-3


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14 August 2011

4. Construction investment

Construction investment (advanced estimates of GDP) in the second quarter of 2011 fell 0.4

percent quarter-on-quarter and 8.6 percent year-on-year.

The value of construction completion (constant) in June increased 14.3 percent month-on-month thanks to a rise in both building construction and civil engineering works, but fell 1.5

percent year-on-year due to a drop in building construction.

Construction investment slightly improved in June, with construction orders and other

leading indicators turning positive. Still, it is uncertain whether this trend will continue since

investment sentiment of construction companies has yet to recover and July and August are

traditional off-season particularly due to heavy rain.


Construction investment2

q-o-q

- Building construction

- Civil engineering works

1. Preliminary

2. National accounts


2009 20101 20111

Annual

3.4

-

-2.3

11.6

Q4

4.0

0.7

2.4

5.6

Annual

-1.4

-

-2.9

0.5

Q1

4.3

2.0

4.5

4.0

Q2

-2.3

-4.2

-5.1

1.0

Q3

-3.1

-0.8

-6.3

1.7

Q4

-2.9

-1.0

-2.8

-2.9

Q1

-11.9

-6.7

-11.3

-12.7

Q2

-8.6

-0.4

-

-


Value of construction completion(constant)

q-o-q



Construction orders (current value)

q-o-q



Building permit area

1. Preliminary

Source: Statistics Korea, the Ministry of Land, Transport and Maritime Affairs

2009 2010 20111

Annual

1.6

-

-6.4

16.1

5.0

-

-14.2

44.3

-12.9

Annual

-3.3

-

-7.1

2.2

-18.7

-

-9.9

-29.5

19.3

Q2

-4.3

-3.1

-7.7

0.6

-6.7

0.2

55.3

-49.7

47.4

Q3

-6.8

-4.3

-12.3

1.9

-3.6

-1.4

-1.3

-7.0

-14.3

Q4

-4.3

-1.6

-8.5

1.2

-40.2

-22.9

-46.4

-29.9

18.1

Q11

-12.6

-4.6

-15.2

-9.2

-12.8

12.8

-9.7

-17.0

21.5

Q21

-6.6

3.6

-8.1

-4.6

-3.3

9.8

-4.0

-1.5

3.8

Apr1

-10.1

-9.1

-10.0

-10.2

-2.7

-9.9

2.4

-12.8

0.7

May1

-9.2

3.8

-12.0

-5.4

-22.5

-5.4

-20.5

-28.4

3.5

Jun1

-1.5

14.3

-2.9

0.4

13.3

37.0

8.3

22.1

7.8

Source: The Construction and Economy Research Institute of Korea

Mar Apr May Jun Jul

Business survey indices (base=100) for80.5 59.1 74.6 80.4 76.8

construction projections

2011


16/71


Leading indicators of construction investment

Source: Statistics Korea (construction orders)

Ministry of Land, Transport and Maritime Affairs (building construction permit area)

Construction completed and housing construction

Source: Statistics Korea (construction completed)

Kookmin Bank (housing construction)

Construction investment


4-2

4-3


17/71

16 August 2011

5. Exports and imports

Exports in July increased 27.3 percent (preliminary) year-on-year to US$51.45 billion.

Exports on a monthly basis surpassed US$50 billion for the first time, with an average daily

exports at a record high of US$2.19 billion.

By business category, exports of petroleum products (up 88.6%), steel (up 67.9%), vessels

(up 42.6%), and automobiles (up 22.5%) surged while those of semiconductors (down

13.3%) decreased due to a drop in unit prices.

By regional category, exports to the ASEAN countries (up 56.8%), Japan (up 38.2%), and

China (up 20.7%) jumped, while those to the EU fell, where recovery has been limited with

mounting worries over a debt crisis.

Imports in July increased 24.8 percent (preliminary) year-on-year to US$44.22 billion.

Year-on-year imports soared, while on a month-on-month basis, imports and daily imports

slightly fell mainly due to decreasing terminal prices of oil.

The current account balance in July posted a record high surplus of US$7.22 billion.

(US$ billion)

Exports

(y-o-y, %)

Average daily exports

Imports

(y-o-y, %)

Average daily imports

2009 2010 2011

Annual

363.53

-13.9

1.30

323.08

-25.8

11.6

Annual

466.38

28.3

1.70

425.21

31.6

1.46

Q1

101.08

35.8

1.51

98.16

37.4

0.47

Q2

120.24

33.1

1.76

105.63

42.8

1.54

Q3

116.32

22.7

1.72

105.70

24.6

1.57

Q4

128.75

23.8

1.79

115.73

24.6

1.61

Q1

131.00

29.6

1.99

123.64

25.9

1.87

Jun

47.76

13.6

2.08

44.94

27.4

1.95

Jul1

51.45

27.3

2.19

44.22

24.8

1.88

Q2

143.82

19.6

2.10

134.44

27.3

1.96

1. Preliminary

Source: Korea Customs Service

(US$ billion)

Trade Balance

2009 2010 2011

Annual

40.45

Annual

41.17

Q1

2.93

Q2

14.61

Q3

10.62

Q4

13.02

Q1

7.37

Jun

2.82

Jul1

7.22

Q2

9.37

1. Preliminary

Source: Korea Customs Service

1. PreliminarySource: Korea Customs Service

(thousand)

Mar Apr May Jun Jul1

Terminal prices of oil (US$ per barrel) 105.0 114.2 116.5 114.0 111.8

2011


18/71


Imports (customs clearance basis)

Source: Korea Customs Service & Ministry of Knowledge Economy (export and import trend)

Trade balance


Exports (customs clearance basis)


5-1

5-2

5-3


19/71

18 August 2011

6. Mining and manufacturing production

Mining and manufacturing production in June rose 0.7 percent month-on-month and 6.4percent year-on-year, backed by brisk exports and with difficulties related to supply inautomobile and chemical industries eased.

By business category, automobiles (up 10.1%) and chemical products (up 7.4%) increasedmonth-on-month, while semiconductors and parts (down 3.7%) and primary metals (down2.2%) went down.

The manufacturing inventory-shipment ratio increased month-on-month in two months, asthe increase in inventory (up 2.2%) outpaced that in shipments (up 1.1%).

By business category, the shipments of automobiles (up 8.7%) and machinery (up 2.8%)increased month-on-month, while those of semiconductors and parts (down 2.6%) andprimary metals (down 1.3%) declined. The inventories of refined petroleum (up 15.7%) andautomobiles (up 5.6%) climbed month-on-month, while those of groceries (down 1.6%) andmachinery (down 0.9%) fell.

The average operation ratio of the manufacturing sector gained 1.1 percentage points to 82.5percent, 4.2 percentage points higher than the average of 78.3 percent between 2000 and 2010.

Mining and manufacturing production is expected to stay on a recovery track with favorableexport situations, unless external situations significantly aggravate.

Exports (y-o-y, %)


However, with a possibility that the recovery of major economies might slow down as isshown in the OECD leading indicators, it is necessary to keep a close watch on how theglobal economic situation will develop.

OECD leading indicators (base=100)

102.8 (Jan 2011) 102.9 (Feb) 102.9 (Mar) 102.8 (Apr) 102.5 (May)

Production (q-o-q, m-o-m)

(y-o-y)

- Manufacturing

ICT 3

Automobiles

Shipment

- Domestic demand

- Exports

Inventory4

Average operation ratio (%)

Production capacity

1. Preliminary

2. Including mining, manufacturing, electricity, and gas industry

3. Information and Communications Technology

4. End-period



Mining andmanufacturingactivity2

Manufacturingactivity

2010 2011

Annual

-

16.2

16.7

25.2

23.1

14.4

11.5

18.2

17.4

81.2

7.2

Q2

4.2

18.8

19.3

26.7

32.1

15.9

13.3

19.5

17.5

82.3

7.2

Jun

1.2

16.5

16.9

22.3

25.0

13.9

10.2

19.4

17.5

83.1

7.5

Q1

6.1

10.6

10.9

14.3

16.1

11.9

7.2

18.4

10.3

83.1

6.8

Q21

-0.1

7.1

7.3

10.5

12.1

7.0

3.5

11.7

9.9

81.4

5.8

Apr

-1.7

6.9

7.1

12.4

8.3

7.3

2.2

14.5

8.7

80.4

6.6

Jun1

0.7

6.4

6.4

7.0

17.0

5.6

3.0

9.0

9.9

82.5

5.0

May1

1.6

8.1

8.3

12.4

10.7

8.1

5.3

11.7

8.1

81.4

5.7


20/71


Average manufacturing operation ratio


6-1

6-2

6-3



Inventory



21/71

20 August 2011

7. Service sector activity

Despite sluggish hotels & restaurants, real estate & renting, service activity in June

increased 0.9 percent from the previous month, helped by wholesale & retail sales and

educational services. On a year-on-year basis, service activity rose 3.6 percent.

Service activities in wholesale & retail sales (up 1.6%) expanded month-on-month, helped

by increased car sales. Information & communication services (up 3.9%) and educational

services (up 2.3%) also increased.

With continuing sluggish performance in real estate & renting (down 4.4%), contracting for

five consecutive months, service activities in restaurants & hotels (down 1.3%) slowed down

due to limited outdoor activities affected by the rainy season and torrential rains.

Service activity is expected to maintain an upward trend in July helped by continuously

improving consumer spending. Nevertheless, the upward pace may decelerate in wholesale& retail sales and restaurants & hotels due to limited outdoor activities affected by bad

weather conditions such as the rainy season and heavy rainfall.


Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 May1 Jun1

Service activity index 100.0 1.8 3.9 6.2 4.2 2.3 3.2 2.7 3.4 3.4 3.6

21.8 -0.4 5.7 7.4 5.6 5.0 4.7 4.0 4.8 5.7 4.7

9.0 -6.6 12.0 14.1 14.3 10.1 10.0 7.2 3.2 3.1 2.8

7.7 -1.4 1.2 1.2 0.7 1.3 1.7 -0.6 1.8 3.0 1.5

8.4 0.9 1.9 1.0 0.4 2.2 3.6 3.9 3.0 1.6 5.6

15.3 7.8 4.6 6.7 2.5 1.4 8.2 7.2 8.9 9.0 8.6

6.3 5.3 -8.6 11.5 -2.4 -15.9 -24.2 -17.7 -11.2 -12.7 -4.0

4.8 1.2 -0.5 0.8 2.1 -3.9 -1.3 -3.6 -1.6 -1.2 -4.9

2.9 -3.0 7.5 5.3 8.1 7.6 8.6 5.7 5.2 4.6 4.5

10.8 2.1 2.0 3.2 1.4 0.5 3.1 1.1 0.2 -0.8 0.7

6.0 10.4 8.8 11.7 11.0 8.6 4.6 6.2 5.0 5.6 4.8

2.9 -0.5 -0.4 -3.9 -0.1 -0.4 2.7 2.4 1.1 -0.7 1.3

3.8 -2.1 4.3 1.6 6.0 5.0 4.5 2.9 2.1 2.4 1.8

0.4 3.7 5.1 6.7 6.0 1.7 6.4 0.0 -3.1 3.3 -9.1

Weight2009

- Wholesale & retail sales

- Transportation services

- Hotels & restaurants

- Information & communication services

- Financial & insurance services

- Real estate & renting

- Professional, scientific & technical services

- Business services

- Educational services

- Healthcare & social welfare services

- Entertainment, cultural & sports services

- Membership organizations

- Sewerage & waste management

2010 2011

1. Preliminary



22/71


June 2011 service industry by business

Source: Statistics Korea (service industry activity trend)

7-1

7-2

7-3

Service industry


Wholesale and retail sales


Totalin

dex

Who

lesale

&retail

Tran

sportatio

n

Hotels

&re

staurants

Informatio

n&commu

nication

s

Real

estate

&renting

Professional,

scien

tific

&

technic

alservice

s

Busin

essfacility

man

agem

ent&

busin

esssupport

servi

ces

Education

alservi

ces

Healthc

are&

socialw

elfar

e

servi

ces

Ente

rtainm

ent,

cultu

ral&

sports

servi

ces

Membe

rship

organiz

ation

s,repair

&othe

rpersonals

ervic

es

Sewe

rage,wa

stema

nageme

nt,

materials

recovery&

remediation

activitie

s

Finan

cial&

insuran

ceservi

ces


23/71

22 August 2011

8. Employment

The number of workers on payroll in June increased by 472,000 from a year earlier, while the

employment rate (seasonally adjusted) rose by 0.5 percentage points year-on-year to 60.3

percent. On a month-on-month basis, the number of workers on payroll rose by 48,000

(seasonally adjusted), continuing to increase for the fifth consecutive month.

By industry, employment in manufacturing (up 118,000) and services (up 436,000) continued

to grow.

Hiring in manufacturing continued to climb on the back of strong exports, maintaining a rapid

increase pace of more than 100,000 for the 16th consecutive month for the first time since

November 2000.

The service sector continued to expand employment with increasing health & welfare (up

186,000), professional, scientific & technical services (up 74,000) and business assistance (up

82,000). In addition, wholesale & retail sales (up 96,000) and transportation services (up

79,000) contributed to the increase.

By status of workers, the number of regular workers (up 627,000) continued to increase.

Meanwhile, non-wage workers (down 17,000) including temporary workers (down 159,000),

daily workers (down 99,000) and self-employed workers (down 53,000) continued to decline.

Annual Q3 Q4 Annual Jun Q1 Q2 Q3 Q4 May Jun Q1 Q2

Number of employed (million) 23.51 23.75 23.63 23.83 24.28 23.04 24.17 24.12 23.99 24.66 24.75 23.46 24.57

Employment rate (%) 58.6 59.1 58.7 58.7 59.8 57.0 59.6 59.3 58.9 60.1 60.3 57.4 59.9

(seasonally adjusted) 58.6 58.7 58.5 58.7 58.8 58.3 58.9 58.9 58.6 59.2 59.3 58.8 59.2

Employment growth (y-o-y, thousand) -72 -1 -6 323 314 132 433 369 358 355 472 423 402

(Excluding agriculture, forestry & fishery) -34 24 110 405 353 296 518 414 393 382 501 451 39

- Manufacturing -126 -143 -49 191 181 61 172 262 269 101 118 228 112

- Construction -91 -103 -107 33 67 -61 44 92 57 -27 -42 -3 -41

- Services 179 261 261 200 126 313 325 83 80 260 436 224 331

- Agriculture, forestry & fishery -38 -25 -116 -82 -39 -164 -85 -45 -35 27 -29 -28 3

- Wage workers 247 356 385 517 457 371 623 541 532 372 527 519 421

Regular workers 383 386 515 697 750 651 766 671 699 630 627 605 621

Temporary workers 22 125 105 -34 -116 -37 42 -26 -114 -159 -33 -88 -137

Daily workers -158 -155 -235 -146 -177 -243 -185 -104 -53 -99 -66 2 -63

- Non-wage workers -319 -357 -391 -194 -143 -239 -189 -172 -174 -17 -55 -96 -19

Self-employed workers -259 -276 -279 -118 -85 -106 -91 -130 -146 -49 -53 -115 -39

- Male 31 34 89 181 109 117 188 207 212 171 265 266 221

- Female -103 -34 -94 142 205 15 245 163 146 184 207 157 181

- 15 to 29 -127 -123 -77 -43 -86 -12 -58 -44 -57 -98 -52 -49 -74

- 30 to 39 -173 -169 -149 -4 -27 -42 -13 21 17 -15 -7 -34 -13

- 40 to 49 -24 -30 -46 29 24 -21 48 40 50 64 73 77 59

- 50 to 59 198 211 230 294 332 251 342 295 287 274 306 286 294

- 60 or more 54 109 37 47 70 -44 114 57 60 129 152 143 137

2009 2010 2011



24/71


Share of employed by industry

Source: Statistics Korea (employment trend)

8-1

8-2

8-3 Share of employed by status of workers


Number of employed and employment growth



25/71

24 August 2011

The number of unemployed persons in June decreased by 38,000 year-on-year to 839,000

and the year-on-year unemployment rate (seasonally adjusted) dropped 0.2 percentage

points to 3.3 percent.

On a month-on-month basis, the unemployment rate (seasonally adjusted) declined 0.3

percentage points to 3.3 percent and the number of unemployed persons (seasonallyadjusted) decreased by 69,000 to 840,000, turning back to the normal level.

The youth unemployment rate fell 0.7 percentage points year-on-year to 7.6 percent. In

seasonally adjusted terms, the youth unemployment rate went down 0.3 percentage points

to 7.4 percent, falling for the third consecutive month.

The economically inactive population in June was up 26,000 from a year earlier to

15,440,000. Meanwhile, the labor force participation rate (seasonally adjusted) rose 0.4

percentage points year-on-year to 62.4 percent.

The number of workers quitting jobs due to rest, time-off and leisure (up 125,000) increased,

while those who quit jobs due to old age (down 34,000), housework (down 19,000),

childcare (down 15,000) and education (down 14,000) decreased.

2009 2010 2011


Economically inactive population (million) 15.70 15.53 15.83 15.84 15.42 16.25 15.49 15.66 15.96 15.52 15.44 16.39 15.56

Labor force participation rate (%) 60.6 61.3 60.7 61.0 62.0 59.8 61.8 61.5 60.8 62.1 62.4 59.9 62.0

(seasonally adjusted) 60.6 60.9 60.6 61.0 61.0 61.0 61.0 61.1 60.8 61.3 61.3 61.1 61.3

Growth in economically inactive447 374 456 143 264 166 146 128 133 89 26 138 66population (y-o-y, thousand)

- Childcare 40 19 15 -125 112 -118 -126 -149 -107 -11 -15 -44 -16

- Housework 148 100 235 201 246 237 175 203 189 34 -19 130 27

- Education 31 11 -36 12 29 -74 23 46 55 -65 -14 -16 -39

- Old age 88 105 92 80 53 193 59 43 25 -60 -34 -103 -58- Rest, time-off and leisure 123 94 123 -56 45 -187 -27 15 -27 188 125 241 163

2009 2010 2011



Number of unemployed (thousand) 889 886 817 920 878 1,130 868 873 808 819 839 1,028 865

Unemployment growth (y-o-y, thousand) 119 134 60 31 -83 222 -75 -13 -10 26 -38 -101 -3

- Male 80 95 25 -7 -51 83 -47 -48 -16 -10 -59 -70 -32

- Female 40 39 36 38 -32 139 -29 35 6 36 21 -32 29

Unemployment rate (%) 3.6 3.6 3.3 3.7 3.5 4.7 3.5 3.5 3.3 3.2 3.3 4.2 3.4

(Seasonally adjusted) 3.6 3.7 3.5 3.7 3.5 4.3 3.5 3.6 3.4 3.3 3.3 3.9 3.4

- 15 to 29 8.1 8.1 7.6 8.0 8.3 9.5 7.7 7.6 7.1 7.3 7.6 8.8 7.9

- 30 to 39 3.6 3.5 3.3 3.5 3.4 3.9 3.6 3.5 3.2 3.2 3.4 4.0 3.5

- 40 to 49 2.4 2.4 2.3 2.5 2.2 2.9 2.3 2.5 2.2 2.0 2.1 2.5 2.1

- 50 to 59 2.5 2.5 2.2 2.5 2.0 3.2 2.1 2.3 2.3 2.1 1.9 2.7 2.0

- 60 or more 1.6 1.6 1.5 2.8 2.0 5.8 2.1 2.0 1.9 2.2 2.2 4.5 2.3



26/71


Unemployment rate and youth unemployment rate


8-4

8-5

8-6 Economically active population


Employment rate



27/71

26 August 2011

9. Financial market

9.1 Stock market

The Korean stock price index rose 1.5 percent month-on-month in June, shifting to a rise for

the first time in three months. Although the Korean stock market mixed due to concerns over

financial stability of the US and Europe, the shares rose after the announcement of the

second rescue package for Greece. The index then fell to wrap up the month to a minimal

increase, weighed down by uncertainties over the US debt negotiations.

Foreign investors turned to a net-buying position of 1.2 trillion won in July from the previous

months net-selling of 0.7 trillion won.

9.2 Exchange rate

The won/dollar exchange rate in July decreased 13.2 won to wrap up the month at 1,054.5won from 1,067.7 won at the end of June.

The won/dollar exchange rate fell 13.2 won affected by eased concerns over the eurozones

debt problem after the announcement of the Greek rescue plan and the weak dollar caused

by uncertainties over the agreement to raise the US debt ceiling.

Due to the flight to safety assets caused by the debt concerns in the US and Europe, the yen

rapidly strengthened and the won/100 yen exchange rate rose 32.1 won from the end of the

previous month.

June 2011 July 2011 Change1

June 2011 July 2011 Change1

Stock price index 2,100.7 2,133.2 +32.5 (+1.5%) 479.6 536.1 +56.5 (+11.8%)

Market capitalization 1,183.5 1,203.6 +20.1 (+1.7%) 98.2 109.8 +11.6 (+11.8%)

Average daily trade value 6.56 6.60 +0.03 (+0.5%) 1.22 2.10 +0.89 (+73.1%)

Foreign stock ownership 32.2 32.1 -0.1 (-0.3%) 10.9 10.4 -0.5 (-4.3%)

1. Change from the end of the previous month

(End-period)

Dec Dec Dec Dec Jun Jul Change1

Won/Dollar 936.1 1,259.5 1,164.5 1,134.8 1,067.7 1,054.5 7.6

Won/100 Yen 828.6 1,396.8 1,264.5 1,393.6 1,328.2 1,360.3 2.4

2007 2008 2009 2010 2011

KOSPI KOSDAQ

(End-period, point, trillion won)

1. Appreciation from the end of the previous year (%); the exchange rate is based on the closing price at 3:00 p.m., local time.


28/71


9-1

9-2

9-3 Recent foreign exchange rate

Foreign exchange rate (month-end)

Stock prices


29/71

28 August 2011

9.3 Bond market

The 5-year Treasury bonds yield added 1 basis point in July to 4.02 percent from the previous

months 4.01 percent. Despite debt concerns in the US and Europe, the Treasury bond yields

- most notably those of short-term Treasury bonds - rose, with foreign investors continuing

to invest in the Treasury bonds and as expectations over interest rate hike heightened.

9.4 Money supply & money market

The M2 (monthly average) in May expanded 3.7 percent from a year earlier excluding cashmanagement accounts (CMAs), which were included in M2 since July 2009.

Despite credit expansions in the private sector due to rising bank lending, the month-on-month M2 growth slowed down from the previous month affected by contracted foreigncredits due to foreign fund outflows in equity investment.

In June, bank deposits increased while asset management company (AMC) deposits turnedto a decrease.

While growth in time deposits decelerated due to increased fiscal spending by regionalgovernments, instant access account deposits significantly increased, owing to short-termexcess corporate cash inflows.

Among asset management company (AMC) deposits, money market funds (MMF) plungeddue to withdrawals of funds by banks, affected by banks BIS rate management at the half-year point. Bond-type funds also decreased due to worries over interest rate hike.

Dec Dec Dec Dec Dec May Jun Jul Change1

Call rate (1 day) 4.60 5.02 3.02 2.01 2.51 3.03 3.28 3.27 -1

CD (91 days) 4.86 5.82 3.93 2.88 2.80 3.46 3.57 3.59 +2

Treasury bonds (3 yrs) 4.92 5.74 3.41 4.44 3.38 3.59 3.76 3.85 +9

Corporate bonds (3 yrs) 5.29 6.77 7.72 5.56 4.27 4.33 4.49 4.54 +5

Treasury bonds (5 yrs) 5.00 5.78 3.77 4.98 4.08 3.87 4.01 4.02 +1

(End-period)

1. Basis point, changes in July 2011 from the previous month

2006 2007 2008 2009 2010 2011

Annual Annual Annual Q1 Q2 Q3 Q4 Feb Mar Apr May May1

M12 -1.8 16.3 11.8 14.5 10.7 10.8 11.2 11.5 11.6 9.6 7.4 424.0

M2 14.3 10.3 8.7 9.4 9.5 8.6 7.4 5.0 4.3 3.9 3.7 1,690.5

Lf 3 11.9 7.9 8.2 8.5 9.1 8.2 7.1 5.2 4.7 4.5 4.44 2,175.64

(Percentage change from same period in previous year, average)

1. Balance at end May 2011, trillion won

2. M1 excluding corporate MMFs and individual MMFs while including CMAs

3. Liquidity aggregates of financial institutions (mostly identical with M3)

4. Preliminary

2009 2010 20112008

Annual May Annual May Apr May Jun Jun1

Bank deposits 54.8 10.0 36.9 18.6 12.5 -0.4 6.7 1,068.2AMC deposits -27.6 -2.3 -16.7 4.2 -3.2 4.1 -1.9 1,301.0

(Monthly change, end-period, trillion won)

1. Balance at end June

2009 2010 2011


30/71


Total money supply


Interest rates

Source: The Bank of Korea9-4

9-5

9-6 Share of deposits by financial sector (M3 as of year-end)


* Retail finance: Mutual savings banks & National Credit Union Federation of Korea, Others: Investment banks, post office savings, etc.


31/71

30 August 2011

10. Balance of payments

Koreas current account surplus (preliminary) in June expanded from the previous months

US$2.18 billion to US$2.99 billion.

The goods account surplus widened to US$3.66 billion from the previous months US$1.63

billion, helped by solid exports such as cars, petroleum products and steel products.

The service account shifted to a deficit of US$630 million from the previous months surplus of

US$20 million as the travel account deficit widened and business service payments increased.

The primary income account surplus narrowed to US$240 million from the previous months

US$520 million. Meanwhile, the secondary income account shifted to a deficit of US$280 million

from the surplus of US$20 million a month earlier, affected by increased outward remittance.

The capital and financial account (preliminary) in June accelerated the outflow to US$4.64billion from the previous months US$3.96 billion.

Capital & financial account balance (US$ billion)

-1.28 (Jan 2011) -2.00 (Feb) 0.52 (Mar) 0.39 (Apr) -3.96 (May) -4.64 (Jun)

The direct investment account accelerated the outflow to US$2.14 billion from the previous

months outflow of US$1.25 billion due to increasing overseas direct investment by locals.

The portfolio investment account registered a net outflow of US$1.4 billion from the previous

months outflow of US$1.14 billion due to flight to safety assets affected by worries over

Greek debt restructuring.

The financial derivatives account turned to an outflow of US$50 million from the previous

months inflow of US$170 million. Meanwhile, the other investment account expanded the

outflow to US$1.86 billion from the previous months outflow of US$820 million due to local

banks increased overseas borrowing.

Despite the widening service account deficit due to overseas travel during summer vacation,

the current account surplus in July is expected to increase, helped by the expanding goods

account surplus.

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 May Jun1

Current account 32.79 28.21 0.26 8.86 9.93 9.16 2.72 6.45 2.18 2.99

- Goods balance 37.87 41.90 4.79 12.24 12.54 12.34 5.95 8.62 1.63 3.66

- Service balance -6.64 -11.23 -4.20 -1.87 -2.96 -2.20 -2.54 -0.80 0.02 -0.63

- Income balance 2.28 0.77 0.55 -1.01 1.30 -0.07 0.39 -0.82 0.52 0.24

- Current transfers -0.71 -3.23 -0.87 -0.50 -0.95 -0.91 -1.08 -0.55 0.02 -0.28

(US$ billion)

2009 2010 2011


1. Preliminary


32/71


Capital & financial account balance

Source: The Bank of Korea (balance of payments trend)

Travel balance

Source: The Bank of Korea (balance of payments trend)

Current account balance

Source: The Bank of Korea (balance of payments trend)10-1

10-2

10-3


33/71

32 August 2011

11. Prices and international commodity prices

11.1 Prices

Consumer prices in July rose 4.7 percent year-on-year and 0.7 percent month-on-month.

Prices of agricultural products, especially vegetables, surged. Processed food and oil

product prices also continued their upward trend.

Core consumer prices, which exclude oil and agricultural products, rose 3.8 percent year-on-

year and 0.3 percent month-on-month. Consumer prices for basic necessities, a barometer

of perceived consumer prices, were up 4.8 percent compared with the same month of the

previous year.

Prices of agricultural products, such as fruits and vegetables, showed strong growth, while

those of grain and livestock mostly held steady, either rising or falling slightly.

Prices of agricultural, livestock & fishery products in July (m-o-m, %)

Lettuce (94.4), spinach (71.8), Chinese cabbage (63.9), chicken (8.9), mackerel (3.0), rice (0.1), bean (0.1), pork

(-0.5), beef (-0.7), egg (-3.9)

Prices of industrial products continued to rise (0.6%, m-o-m), due to the increase in the

prices of oil products and processed food.

Despite the price freeze in public utility charges imposed by the central government, overall

public service charges rose (0.4%, m-o-m), as a result of higher municipal public utility

charges such as metro bus fees (up 3.0%, m-o-m) and subway fees (up 0.3%, m-o-m). Price

increases in personal services, which include the cost of dining out, slowed (up 0.2%, m-o-m).

Consumer price inflation in major sectors

Publicutility

Industrialproducts

Oilproducts

TotalAgricultural,

livestock & fisheryproducts

Housingrents

Personalservices

Month-on-Month (%) 0.7 4.0 0.6 1.5 0.3 0.4 0.2

Contribution (%p) 0.66 0.37 0.18 0.09 0.02 0.05 0.06

Year-on-Year (%) 4.7 11.2 6.3 13.6 4.2 1.5 3.3

Contribution (%p) 4.75 0.99 1.99 0.81 0.38 0.24 1.16


Consumer price inflation

2011

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Month-on-Month (%) 0.3 0.3 1.1 0.2 -0.6 0.6 0.9 0.8 0.5 0.0 0.0 0.2 0.7

Year-on-Year (%) 2.6 2.6 3.6 4.1 3.3 3.5 4.1 4.5 4.7 4.2 4.1 4.4 4.7

Core consumer prices (y-o-y) 1.7 1.8 1.9 1.9 1.8 2.0 2.6 3.1 3.3 3.2 3.5 3.7 3.8

(m-o-m) 0.2 0.2 0.3 0.0 0.1 0.3 0.6 0.7 0.3 0.2 0.5 0.3 0.3

Consumer prices for basicnecessities (y-o-y)

2.7 2.6 4.1 4.8 3.6 3.9 4.7 5.2 4.9 4.1 3.8 4.3 4.8

2010



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Contribution to consumer price inflation

Source: Statistics Korea (consumer price trend)

Prices

Source: Statistics Korea (consumer prices, core inflation) & The Bank of Korea (producer prices)11-1

11-2

11-3

Consumer price inflation

Source: Statistics Korea (consumer price trend)


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34 August 2011

11.2. International oil and commodity prices

International oil and domestic oil product prices rose in July.

International oil prices were slightly higher compared with the previous month, due to

decreased US oil inventories and the weak US dollar.

US Energy Information Administration (EIA)s inventory report (released on July 20)350 million barrels (3.73 million barrels less than the previous week)

Yen/dollar exchange rate (end period)

81.52 (Dec 2010) 81.62 (Apr 2011) 80.91 (May) 80.72 (Jun) 77.79 (Jul)

Record high oil prices (spot prices, US$/barrel)

Dubai crude: 141 (Jul 4, 2008), Brent crude: 145 (Jul 3, 2008), WTI crude: 146 (Jul 14, 2008)

Domestic oil product prices increased due to higher international oil prices and thetermination of the gasoline price discount by local refineries.

Prices of international commodities including non-ferrous metals and grain increased, as aresult of the weaker US dollar and prospects of declining inventories.

Production losses due to the strikes in Chiles copper mines, fewer inventories and dollarweakness were among the factors that prompted non-ferrous metal prices to rise.

Prices of non-ferrous metals in July (m-o-m, %)

Tin (8.5), zinc (6.7), nickel (5.9), electrolytic copper (4.7), aluminum (2.7)

International grain prices rose due to lower than expected stocks and concerns over a badharvest caused by heat waves in the US.

United States Department of Agriculture (USDA)s report (released on July 12)

US corn stocks were estimated to be 870 million bushels, down 130 million from the original market

expectation of 1 billion bushels.

Prices of grain in July (m-o-m, %)

Raw sugar (13.2), barley (9.5), corn (7.8), soybean (4.9)

(Won/liter, period average)

Annual Annual Annual Dec Feb Mar Apr May Jun Jul

Gasoline prices 1,692 1,601 1,710 1,771 1,850 1,939 1,951 1,938 1,915 1,935

Diesel prices 1,614 1,397 1,503 1,570 1,652 1,756 1,793 1,773 1,736 1,754

2008 2009 20112010

Source: Korea National Oil Corporation

(Period average)


2,536 2,079 2,553 3,119 3,323 3,221 3,246 3,128 3,143 3,145

20092008

* A weighted average index of 17 major commodities Source: KOREA PDS

2010 2011


Dubai crude 94.3 61.9 78.1 88.9 100.2 108.5 115.8 108.0 107.5 110.2

Brent crude 97.5 61.7 79.7 91.8 103.9 114.6 123.3 114.3 114.0 116.8

WTI crude 99.9 61.9 79.5 89.2 89.7 103.0 110.0 101.3 96.3 97.3

(US$/barrel, period average)

2008 2009 20112010

Source: Korea National Oil Corporation

Reuters index*


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International oil prices

Source: Korea National Oil Corporation11-4

11-5

11-6 International commodity prices

Source: Bloomberg (CRB) & The Bank of Korea (Reuters index)* CRB demonstrates futures price index of 21 commodities listed on the US Commodity Transaction Market, including beans and other crops, crude oil and jewelry.

International oil prices (Dubai crude) and import prices

Source: Korea National Oil Corporation & Korea Customs Service


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36 July 2011

12. Real estate market

12.1 Housing market

The upward trend of nationwide apartment sales prices decelerated in July, with prices rising

0.6 percent month-on-month.

Apartment sales prices in the Seoul metropolitan area continued to show a horizontal pricemovement, falling 0.1 percent from the previous month.

Apartment sales prices in areas excluding the Seoul metropolitan area showed a persistentupward trend, led by Daejeon (up 2.3%, m-o-m), North Chungcheong Province (up 2.2%, m-o-m) and Gangwon Province (up 1.8%, m-o-m). Apartment prices in 5 metropolitan cities andother cities climbed 1.4 percent and 1.2 percent each, surpassing the national average.

Nationwide apartment rental prices in July were up 1.0 percent, accelerating the upward pacefrom the previous months 0.8 percent. Price increases picked up the pace in Seoul (up 1.1%, m-o-m), the Seoul metropolitan area (up 0.9%, m-o-m) and Gyeonggi Province (up 1.0%, m-o-m).

Apartment rental price increases in major districts in Seoul (m-o-m, %)

Gangnam (2.3), Seocho (1.2), Songpa (1.0), Gangdong (2.4)

Apartment sales transactions in June decreased 2.5 percent from the previous months48,077 to 46,885. The transactions were up 54.0 percent from 30,454 a year earlier.


Annual Annual Annual Annual Jan Feb Mar Apr May Jun Jul Jul 41 Jul 111 Jul 181 Jul 251

Nationwide 1.9 0.8 4.5 8.8 1.1 2.0 2.3 1.6 1.1 0.8 1.0 0.27 0.29 0.29 0.29

Seoul 2.2 -1.8 8.1 7.4 1.1 2.1 1.8 0.7 0.3 0.5 1.1 0.33 0.35 0.33 0.36

Gangnam2 0.5 -3.6 10.4 8.8 1.3 1.9 1.4 0.6 0.3 0.6 1.2 0.31 0.32 0.34 0.43

Gangbuk3 4.6 0.5 5.4 5.6 1.0 2.4 2.3 0.8 0.4 0.2 1.0 0.35 0.39 0.32 0.28

Seoul metropolitan area 2.1 -0.4 5.6 7.2 1.0 2.1 2.4 1.2 0.5 0.5 0.9 0.28 0.28 0.28 0.31

5 metropolitan cities 1.1 1.6 3.9 12.0 1.3 2.1 2.2 2.2 1.9 1.3 1.0 0.23 0.26 0.31 0.27

1. Weekly trends 2. Upscale area of Southern Seoul 3. Northern Seoul Source: Kookmin Bank

2007 2008 2009 2010 2011

Nationwide apartment rental prices

Source: Korea Land & Housing Corporation

(Monthly average, thousand)Apartment sales transactions

Annual Annual Annual Annual Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Nationwide 38 39 44 40 30 32 31 34 41 54 63 45 52 59 56 48 47

2007 2008 2009 2010 2011


Annual Annual Annual Annual Jan Feb Mar Apr May Jun Jul Jul 41 Jul 111 Jul 181 Jul 251

Nationwide 2.1 2.3 1.6 2.5 0.6 1.1 1.3 1.2 1.0 0.7 0.6 0.13 0.14 0.16 0.14

Seoul 3.6 3.2 2.6 -2.2 0.2 0.3 0.1 0.0 -0.1 -0.1 -0.2 -0.03 -0.04 -0.05 -0.03

Gangnam2 0.5 -1.9 3.9 -1.8 0.2 0.4 0.2 0.0 -0.1 -0.2 -0.2 -0.04 -0.06 -0.05 -0.03

Gangbuk3 8.3 9.4 0.9 -2.7 0.1 0.2 0.1 0.0 0.0 -0.1 -0.1 -0.02 -0.02 -0.05 -0.03

Seoul metropolitan area 4.0 2.9 0.7 -2.9 0.1 0.3 0.3 0.1 0.0 -0.1 -0.1 -0.02 -0.03 -0.03 -0.01

5 metropolitan cities -0.6 1.0 2.8 8.7 1.2 2.0 2.3 2.4 2.2 1.6 1.4 0.31 0.35 0.34 0.29

1. Weekly trends 2. Upscale area of Southern Seoul 3. Northern Seoul Source: Kookmin Bank

2007 2008 2009 2010 2011

Nationwide apartment sales prices


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Apartment prices by region

Source: Kookmin Bank (national housing price trend)

Weekly apartment sales prices and monthly transaction volume

Source: Kookmin Bank (weekly APT price trend) & Korea Land Corporation (monthly land trade trend)

Real estate prices

Source: Kookmin Bank (national housing price trend)12-1

12-2

12-3


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38 August 2011

12.2 Land market

Nationwide land prices in June rose for the eighth consecutive month (up 0.10%, m-o-m), but

were still 1.63 percent lower than the pre-crisis peak reached in October 2008. Land prices

were 0.10 percent lower compared with the previous year, but the pace of increase has

slightly accelerated nationwide.

Month-on-month land prices in Seoul (up 0.07%), the Seoul metropolitan area (up 0.10%),

Gyeonggi Province (up 0.14%) and Incheon (up 0.06%) continued to rise.

Land price increases in Seoul metropolitan area (m-o-m, %)


Land prices in areas excluding the Seoul metropolitan area rose 0.09 percent month-on-

month in June, continuing the upward trend from October 2010.

Land price increases in areas excluding Seoul metropolitan area (m-o-m, %)


Nationwide land transactions in June recorded 207,000 land lots, down 1.9 percent from the

previous month and up 13.2 percent from 183,000 a year earlier. Land transactions were 0.8

percent lower than the most recent five-year June average of 209,000 land lots.

Month-on-month land transactions continued to decrease in areas such as Incheon (down

19.8%), Ulsan (down 17.9%), Gyeonggi Province (down 5.3%), and South Chungcheong

(down 8.6%).

(Percentage change from previous period)Land prices by region

Annual Annual Annual Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4 Jan Feb Mar Apr May Jun

Nationwide 3.88 -0.31 0.96 0.35 0.88 0.94 1.05 0.70 0.29 -0.05 0.11 0.09 0.09 0.11 0.10 0.10 0.10

Seoul 5.88 -1.00 1.40 0.68 1.30 0.81 0.53 0.72 0.02 -0.25 0.39 0.12 0.12 0.15 0.12 0.09 0.07

Gyeonggi 4.22 -0.26 1.22 0.37 1.13 1.36 1.49 0.96 0.53 -0.08 0.07 0.08 0.08 0.10 0.11 0.12 0.14

Incheon 4.86 1.37 1.99 0.53 1.16 1.70 1.43 1.08 0.43 -0.10 0.02 0.06 0.06 0.06 0.06 0.06 0.06

2007 2008 2009 2010 2011


(Land lot, thousand)Land sales transactions

Annual1 Annual1 Annual1 Oct Nov Dec Annual1 Jun Oct Nov Dec Jan Feb Mar Apr May Jun

Nationwide 208 208 203 212 207 241 187 183 181 208 257 191 176 244 226 212 207

Seoul 33 26 22 25 19 21 16 13 14 18 24 18 17 23 19 18 18

Gyeonggi 49 45 46 52 48 58 41 42 40 45 58 46 38 52 46 43 40

Incheon 13 13 10 14 11 12 8 8 8 9 11 8 9 13 11 13 10

2007 2008 2009 2010 2011


1. Monthly average


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Land trade volume

Source: Korea Land Corporation (land trade trend)

12-4

12-5

12-6

Land and consumer prices since 1970s

Source: Korea Land Corporation (land prices) & Statistics Korea (consumer prices)

Land prices by region

Source: Korea Land Corporation (land price trend)


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40 August 2011

13. Composite indices of business cycle indicators

Industrial output in June increased 1.9 percent month-on-month and 4.2 percent year-on-

year, with all sectors, including mining & manufacturing, service, construction and public

administration, showing improvements.

Contribution to month-on-month industrial output increase (%p)

Construction (0.75), service (0.5), public administration (0.44), mining & manufacturing (0.26)

The cyclical indicator of the coincident composite index rose for the second consecutive

month (up 0.3p) in June.

All eight components of the coincident composite index, including the volume of imports and

value of construction completion, rose from the previous month.

Components of coincident composite index in June (m-o-m)

Volume of imports (2.9%), value of construction completion (2.8%), wholesale & retail sales index (0.6%),

service activity index (0.4%), mining & manufacturing production index (0.2%), number of non-farm payroll

employment (0.2%), domestic shipment index (0.1%), manufacturing operation ratio index (0.0%)

The year-on-year leading composite index in June improved for the second consecutive

month (up 0.4%p, m-o-m), due to improvements in machinery and construction orders.

Among components of the leading composite index, six factors, including the value of

construction orders received and the value of machinery orders received, rose while four other

factors, such as the indicator of inventory cycle and ratio of job opening to job seekers, dropped.

Components of the leading composite index in June (m-o-m)

Value of construction orders received (6.0%), value of machinery orders received (4.6%), consumer

expectations index (2.2p), value of capital goods imports (1.3%), composite stock price index (0.2%), liquidity

in the financial institutions (0.2%), spreads between long & short term interest rates (-0.1%p), net terms of

trade index (-0.3%), ratio of job openings to job seekers (-1.3%p), indicator of inventory cycle (-1.7%p)

Nov Dec Jan Feb Mar1 Apr1 May1 Jun1

Industrial output (m-o-m, %) 0.9 2.8 3.2 -4.7 2.8 -1.3 1.8 1.9

(y-o-y, %) 5.4 5.0 8.4 0.1 3.4 3.2 4.5 4.2

Coincident composite index (m-o-m, %) 0.2 0.8 1.5 0.1 0.4 -0.3 0.8 0.8

Cyclical indicator of coincident composite index 99.5 99.8 100.8 100.6 100.6 99.9 100.3 100.6

(m-o-m, p) -0.1 0.3 1.0 -0.2 0.0 -0.7 0.4 0.3

Leading composite index (m-o-m, %) 0.2 0.5 0.6 -0.2 -0.3 -0.3 0.4 0.5

12 month smoothed change2.8 2.9 3.0 2.3 1.6 1.0 1.3 1.7in leading composite index (%)

(m-o-m, %p) -0.5 0.1 0.1 -0.7 -0.7 -0.6 0.3 0.4

2010 2011

1. Preliminary


42/71


Coincident and leading composite indices


13-1

13-2

13-3

Cyclical indicator of coincident composite index


Leading composite index



43/71

Background

Service industries are one of the main drivers of Koreas sustainable growth, as they are at

the heart of boosting domestic demand and creating jobs. The Korean government has

announced 13 packages of 695 plans between 2008 and 2010 to nurture the service sector.

The government measures also include financial support and tax incentives for R&D

investment in the service sector, and the forming of think-tanks to support the development

of the service sector.

Outcomes of the plans

Out of the 695 plans, 433 have been completed while 217 plans are being carried out and

the other 45 have been suspended: Of the 45 suspended plans, 20 are under discussion at

the National Assembly. The rest of 25 plans have been delayed due to changes in

environment, conflicts of interests between ministries, and schedule changes. Major

outcomes by category are as follows:

42 August 2011

Outcomes of Government Plans to Further Develop theService Sector

Policy Issues


44/71

1. Health and medical services

Regulations have been changed to allow sales of some medical supplies outside pharmacies.

By the end of November this year, 39,254 medical supplies will be categorized as products

that could be sold outside pharmacies and ones that have to be sold at pharmacies.

With the introduction of medical tourist visas in May 2009, the number of foreign patients

jumped from 27,480 in 2008 to 60,201 in 2009 and to 81,789 in 2010. On top of that, foreign

patients treated in hospitals in provinces increased while those treated in hospitals in the

Seoul metropolitan area declined between 2009 and 2010, due to local governments efforts

to develop medical tourism services.

2. Education

Five foreign educational institutions have opened their branches in Korea, and the quota for

local students has been increased up to 30 percent in 2011 from 10 percent in 2005. The five

foreign institutions are Chadwick Songdo International School, the State University of New

York at Stoney Brook in Songdo, Shipping and Transport College Korea (STC-Korea) in

Gwangyang, FAU Busan Campus, and Lee Academy in Daegu.

3. Tourism

Streamlined visa issuance processes for Chinese and East Asian tourists resulted in an

increase in tourists from those countries by 2.02 million from China and 310 thousand from

the East Asian countries. Affordable and quality accommodations have jumped as

government-designated exemplary accommodations increased from 164 in 2008 to 279 in

2010. Through the immigration program for real estate investors, Jeju island has attracted

112.5 billion won and 16 investor immigrants. Regulations on membership for vacation

accommodations have been eased to help boost domestic tourism. There has also been

deregulation to nurture marine sports and develop marine sports facilities such as ports

exclusive for cruise ships. Rules regulating sports stadiums and golf fields have been

relaxed, and provincial golf clubs with membership were given tax incentives between 2008

and 2009, contributing to an increase in such golf clubs from 311 in 2008 to 386 in 2010.

4. Broadcasting/communications/contents

To promote three dimensional (3D) broadcasting, the government financed broadcastingcompanies with 2.12 billion won. Regulations on the mobile payment system have been

eased to help boost mobile transactions, and mobile virtual network operators (MVNOs*)

have been introduced in the mobile phone market to promote competition.

To nurture the contents industry, the government strengthened copyright protection,

lowered market entry barriers, and applied eased ratings on game programs available in the

open market.

* A mobile virtual network operator (MVNO) provides mobile phone services, but does not have its own

licensed frequency allocation of radio spectrum.



45/71

5. Logistics

The government has supported third party logistics companies by providing consulting

services as well as tax incentives. 33 companies have been beneficiaries of those supports,

and received three years of consulting services from 2008 to 2010. A total of 205.3 billion

won worth logistics contracts have been made with third party logistics companies, resultingin the saving of 23 billion won in logistics costs.

License certificates have replaced temporary license plates as for cars for export, saving time

and efforts to put the plates on the cars and resulting in the saving of 1.2 billion won a year.

6. Social security services/ business support services

Social security services have been expanded from 4 services in 2007 to 10 services in 2010

including daycare and pre-pregnancy check-ups, with electronic vouchers available to all

registered service providers.

Government orders for software have been required to be made separately so that small-

and-medium sized enterprises (SMEs) have more chances. Intellectual rights for developed

software have been jointly owned by the companies and the government. Meanwhile,

between 2004 and 2010, 102 universities have been funded with 3.6 billion won of

government support for educating design majors based on market needs.

7. Professional service market

Deregulation on professional services such as patent and law corporations and pharmacies

has been pursued. Establishing limited corporations by patent and law corporations has

been sought, and related bills are to be brought to the National Assembly in November,

2011, with bills concerning the establishment of pharmacies corporations pending in the

National Assembly. Less tight requirements of professional carriers for establishing those

firms have also been deliberated, and three lawyers with more than 5 years of experience

can establish law corporations instead of five lawyers with more than 10 years of experience,

if the related bill is passed.

8. Support for service industries

Service industries have been given expanded supports equivalent to those given to SMEsincluding tax incentives, government guarantees and other financial supports. Soap operas,

performances, and games as well as films were made eligible for governments guarantees

given to cultural export products in 2009.

Future tasks

The government will continue to make efforts for for-profit hospital related bills to be passed

in the National Assembly. It will also enact new regulations and revise regulations if they are

44 August 2011


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needed to develop medical services: At present law enactment concerning healthcare services

and medical bonds, and law revision to facilitate remote treatment are under active discussion.

To attract more foreign educational institutions, the Special Free Economic Zone Act needs

to be revised so that the institutions surplus can be remitted outside the country. Thegovernment will renew its efforts for the revised bills to be passed in the August National

Assembly, and a new package containing plans to further attract foreign educational

institutions will be announced in the third quarter of 2011.

For fair and competitive broadcasting industries, changes in acts regulating broadcasting

advertising system will continue to be sought, along with law revision to provide a fair

ground to outsourced producing companies.

Guidelines for government R&D support in the service sector will be released in March 2012,

and government certification for qualified service businesses will be expanded with

improved practicality.



47/71

46 August 2011

Korea grows 0.8% in Q2 (Advanced)

Koreas real gross domestic product (GDP) expanded by 0.8 percent in the first quarter of

2011 compared to the previous quarter. From a year earlier, the GDP grew 3.4 percent.

On the production side, manufacturing sector expanded by 1.5 percent, led by an increase in

general machinery and transport equipment. Service sector grew by 0.1 percent from theprevious quarters 1.2 percent. Meanwhile, agriculture, forestry & fishery increased by 8.2

percent, recovering from the abnormal cold wave and outbreak of foot-and-mouth disease.

On the expenditure side, exports rose by 1.8 percent, driven by vessels and telecommunication

devices. Private consumption grew by 0.1 percent due to increased expenditures on durable

and semi-durable goods. Facility investments increased by 4.0 percent while construction

investment decreased by 0.4 percent.

Real gross domestic income (GDI) fell by 0.1 percent as terms of trade worsened affected by

high oil prices.

EconomicNews Briefing


48/71


Korea holds a joint press conference for foreign media

The Ministry of Strategy and Finance held a news conference for foreign media in

coordination with senior officials from the Financial Services Commission, the FinancialSupervisory Service, and the Bank of Korea on August 11. The meeting was convened as part

of efforts to properly notify Koreas economic situation and to promote the nations

resilience to external shock such as the financial woes in the US and Europe.

The gathering was attended by local correspondents of foreign press including Bloomberg

News, Dow Jones, Financial Times, NHK, etc. The ministry, the two financial regulators and

the central bank made it clear that they would take firm actions in response to the recent

volatility. The Ministry of Strategy and Finance will continue to rapidly and actively respond

to changing global economic conditions.

GDP

Agriculture, forestry and fishery

Manufacturing

Construction

Services3

Private consumption

Government consumption

Facility investment

Construction investment

Goods exports4

Goods imports4

Gross Domestic Income

*At 2005 chained prices in seasonally adjusted terms

1. Preliminary

2. Percentage changes from the same period in the previous year in original terms

3. Wholesale & retail sales, hotels & restaurants, transportation & storage, communication services, financial & insurance services, real estate & renting, business

services, public administration, defense & social security, educational services, healthcare & social welfare services, entertainment, cultural & sports services

and other services are included.

4. FOB basis

2009 20101 20111

Q1

0.1(-4.2)2

1.1

-3.4

3.5

0.4

-0.3

2.6

-10.2

3.9

-2.1

-6.1

0.8

Q2

2.5(-2.1)

0.0

8.4

1.3

1.0

3.7

0.8

6.7

2.4

13.3

8.1

4.8

Q3

3.4(1.0)

3.7

9.7

-1.4

1.1

1.4

0.1

9.1

-1.2

5.4

7.8

1.9

Q4

0.2(6.3)

0.0

-1.1

0.5

0.9

0.9

-1.1

7.8

0.7

-1.7

-0.4

1.2

Q1

2.1(8.5)

-3.1

4.2

1.4

1.5

0.5

3.6

2.8

2.0

3.0

4.8

1.6

Q2

1.4(7.5)

-2.5

4.0

-0.1

0.2

0.7

0.3

7.9

-4.2

7.4

7.1

1.2

Q3

0.6(4.4)

-2.5

2.3

-1.2

0.3

1.4

-0.1

5.6

-0.8

2.5

3.6

0.5

Q4

0.5(4.7)

0.2

0.1

-3.2

1.1

0.3

-0.4

-1.0

-1.0

3.0

-0.7

0.3

Q1

1.3(4.2)

-4.5

3.1

-6.1

1.2

0.4

1.7

-1.1

-6.7

4.6

3.1

-0.3

Q2

0.8(3.4)

8.2(0.9)

1.5(7.3)

0.3(-9.7)

0.1(2.7)

1.0(3.1)

0.9(2.2)

4.0(7.6)

-0.4(-8.6)

1.5(12.1)

3.1(10.0)

-0.1(0.4)



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48 August 2011

Revision bill of the Financial Investment Services and Capital Markets Act

The Financial Investment Services and Capital Markets Act (FSCMA) was established in 2007

to promote autonomy and innovation in capital markets. Since the FSCMA took effect in

February 2009, however, initially expected effects such as the creation of globally

competitive investment banks (IBs) were not brought about due to the global financial crisis.

Against this backdrop, the Korean government drafted a revision bill of the FSCMA and made

public for 20 days from July 27 to August 16.

Key revisions to the FSCMA are as follows: First, to nurture leading investment banks,

securities companies that meet certain criteria will be qualified as investment banks or

comprehensive financial investment services providers; Second, to further develop asset

management business, asset management companies will be required to further protect

investors rights by exercising their voting rights in accordance with investors interests andsimplifying the procedures for mergers between small funds; Third, to promote competition

and efficiency in the market structure, a license system will be introduced to allow new stock

exchanges or an alternative trading system (ATS); Fourth, to diversify listed companies

funding tools, listed companies will be allowed to issue contingent securities and warrants.

In addition, to help general meetings of shareholders to properly function, the shadow

voting system will be abolished in 2015, and regulations on the granting of a Power of

Attorney will be amended; and Fifth, to strengthen regulations on unfair trading practices,

price manipulation using unlisted securities or OTC derivatives will be punished with

criminal charges if underlying assets of such products are listed securities while acts ofmarket abuse such as scalping will be subject to administrative sanctions.

Macro-prudential Stability Law takes effect from August

Starting on August 1, 2011, the Korean government imposes Macro-prudential Stability Levy

on non-deposit foreign currency liabilities held by 56 financial institutions including 13

domestic banks and 37 foreign bank branches as well as Industrial Bank of Korea, Korea

Eximbank, the Korea Development Bank, Korea Finance Cooperation, Bank of NationalAgricultural Cooperative Federation and National Federation of Fisheries Cooperation.

The levy varies according to debt maturity, i.e., short-term debt is subject to higher levy rate

compared with long-term debt as the former poses higher risk than the latter. For instance,

the levy of up to 0.5 percent is imposed according to debt maturity, with 0.2 percent for less

than one-year ones, 0.1 percent for those between one and three years, 0.05 percent for

three to five year debts, and 0.02 percent for more than five year debts. In case of an

emergency, however, an extra levy can be imposed for up to 6 months to the total levy of up

to 1.0 percent. The first notice of the levy for liabilities between August and December of

2011 will be issued in April 2012.


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FDI rose 23.8% in first half of 2011

Foreign direct investment (FDI) in Korea maintained strong growth in the first half of 2011,

despite risk factors such as the devastating earthquake in Japan, uprising in the Middle East,and concerns over the financial crisis in Europe. FDI inflows during the first six months of 2011

amounted to US$5.37 billion, a 23.8 percent rise from the same period of the previous year.

Investment from the advanced economies contributed greatly to the overall growth. FDI from

the United States surged 186 percent year-on-year, while investment from Japan and the

European Union (EU) increased 43.5 percent and 45.6 percent each. In contrast, FDI inflows

from the Middle East fell 58.9 percent, due to the political unrest that weakened investor

sentiment in the region.

Greenfield investments continued to show strong growth this year, rising 31 percent while

cross border M&A activities decreased 2.5 percent. By industry, investments in

manufacturing and services both increased, reversing last years trend. Service sector FDI, in

particular, expanded 17 percent year-on-year, boosted by investments in finance, insurance

and business services.

FSC releases report on microfinance services

The Financial Services Commission (FSC) released on July 14 a report assessing the current

situation of lending programs

Economic Bulletin (Vol. 33 No.8)

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Transcript of Economic Bulletin (Vol. 33 No.8)