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Heavy and Chemical Industrialization

South Korea today
is a world-recognized industrial producer.
All from very humble beginnings.

Princeton Ryman(Professor of Georgetown University)

Korea was heavily aid-dependent, gone through political turmoil.
They didn’t see the resources.
And getting there, many Koreans felt the same way that
their futures were very bleak.

Though many believed it impossible,
South Korea successfully industrialized.

The core of the economic miracle that
was South Korea’s economic rise,
was Heavy and Chemical Industry – the commanding heights.

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1. Plans to develop Heavy and Chemical Industry

HCI was a symbol of economic self-reliance
in the newly independent South Korea.

The dream of HCI had been held by the Syngman Rhee and
the Jang Myeon governments, and the Park Chung-hee
government also had such aspirations.

In the 1962 Five Year economic plan, the Park Chung-hee government envisaged
not only the construction of four hydroelectric power plants
and eight thermal power plants, but also fertilizer, oil refining,
cement, integrated steel, machine tools, shipbuilding and automobile
producing facilities – i.e. every major area of heavy industry.

But without the necessary funds,
such plans remained on the drawing board.

Much of the more ambitious parts of the plan were scrapped,
leaving only the refinery and the fertilizer factory.

A refinery was soon built in Ulsan, and fertilizer plants
built in Ulsan and Jinhae.

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2. Finding foreign capital to fund HCI

Refining and fertilizer capacity
were just a part of heavy and chemical industrialization
Further HCI capacity would require
large amounts of foreign currency.

Normalizing relations with Japan and sending Korean forces to Vietnam
would provide much of the funds required. 1) The Normalization of Relations with Japan
In June 1965,
the Korean-Japanese treaty of Normalization was signed.

$800 million as reparation fund was a massive sum
given that South Korean exports were
only $119 million in 1964.
The Normalization allowed also South Korea
to import much needed advanced technology,
knowhow and information from Japan.

2) The deployment of troops in the Vietnam War
The deployment of troops to Vietnam was a major foreign currency earner.

In 1964, the United States
requested the deployment of South Korean forces.

Expecting that deployment would result in multiple benefits
Korean government agreed to deploy forces.

The number of South Korean armed forces sent to Vietnam amounted to 310,000 man.
Of those deployed, 5,000 were killed in action,
and 11,000 injured.

During the deployment
the pay of soldiers and workers,
as well as the revenue of Korean contractors there,
totalled $740 million.
Money earned through ‘blood spent’.

3) Rapid increase of foreign currency inflows
With the US-Korean-Japanese security alliance consolidated,
foreign capital inflows began to increase rapidly.

Foreign loans were only
the $ 40 million in 1965.
By 1969, however,
they reached $500 million, exceeding twelvefold.

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3. Construction of the Ulsan Petrochemical complex

The government used this foreign capital to finance
the construction of a petrochemical works in Ulsan
and an integrated steelworks in Pohang.

Petrochemicals were
the inputs for light industry including synthetic fibres.

In October 1972, after four years
and investment totalling $250 million,
the Ulsan Petrochemical complex was completed.

Thereafter the supply of basic materials
dramatically improved.

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4. Construction of an integrated steelworks in Pohang

The Park government sought to construct an integrated steelworks
with the support of US magnates in 1965, having been proposed, but put off in the original First Five Year plan.

But in April 1969, the plan came to an end
when US steelmakers involved could not obtain loans.

Then it was decided to use a large amount of Japanese reparations
for the project.

To make the project work,
the government spared no expense,
funding the building of needed infrastructure
and providing tax breaks. Planned capacity was also increased
to a million ton a year.

In December 1969,
South Korea and Japan reached
a basic agreement for the construction of an integrated steelworks.

The Japanese government directly
provided $73,700,000 ($30,800,000 in the form of grants).
The Japan Export-import Bank provided $50 million in loans
$178 million of foreign capital,
and 49.3 billion won of domestic funds,
a total of 120.4 billion won invested,
the most expensive project in the history of Korea.

June 1973, finally the dream of an integrated steelworks was realized.

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5. A security crisis and the pursuit of HCI

In the late 1960s, the HCI plan accelerated as a result
of a security crisis.

At the time tensions between North and South Korea
escalated as North Korean provocations
intensified.

This is at the very time when
globally, detent went forward between the East
and the West.

The United States withdrew one of the two
divisions it had stationed in South Korea.
Japan and United States began efforts to
normalize relations with the People’s Republic of China.

Park Chung-hee interpreted these changes in the international
situation as a severe crisis for the state.
He saw no alternative but to pursue an independent defence policy,
and create a defence industry capable of producing the weapons
for national defence.

So, in 1970,
the government put in place a plan to build what it termed the ‘four core industrial facilities’
and set up the Agency for Defence Development (ADD),
to nurture the domestic defence industry.
However, unable to obtain loans,
the four core industrial facilities plan did not get off the ground.

Then Park Chung-hee, organized an HCI Team,
that included Kim Jeong-reom, Presidential House Chief of Staff,
and Oh Won-cheol, the second secretary on economic affairs.

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6. Policy of fostering Heavy and Chemical industry (HCI) in the 1970s

12th January 1973, First Press Conference, President Park Chung-hee
“Korea today has entered an era of Heavy and Chemical Industry. The government declares its intention to put in place policies to foster the creation of Heavy and Chemical Industry.”

In 1970s the massive investment in HCI
led to what was called then as the
‘biggest boom since Dangun’,
Dangun being the legendary founder
of the first Korean dynasty.
In the 1976-78 period,
annual economic growth exceeded 10%.

and
manufacturing growth reached
16.6% a year.

Except for the machinery industry,
every industry involved exceeded its growth target.
While the $10 billion export target
was met in late 1977, four years early.

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7. Development of Heavy and Chemical Industries

It was at this time two of South Korea’s major industries:
cars and shipbuilding, were built.

1) The automobile industry
From the early 1960s,
complete cars were made
from imported components.

Production increased,
but spending on import of components
required a lot of foreign currency.

Thus, in the early 1970s,
the government sought to domestically produce
cars and the parts involved.

In 1973, the government began encouraging
companies to produce their own car models.

In 1974, Kia produced the foreign model-based Brisa 1.0 L car,
with an engine designed in-house.

Hyundai began to produce Pony car in 1976, South Korea’s first own model car.

2) The shipbuilding industry
From the 1970s,
the government also moved
to foster the emergence of
a shipbuilding industry.

The Ministry of Commerce and Industry
got Gulf, the American supplier of
crude oil to South Korea,
to use oil carriers built in South Korea.
The Korea Shipbuilding Corporation
supplied Gulf with 12 small, 20,000-30,000 ton
ships.

In October 1971, Jeong Ju-yeong, head of Hyundai
concluded a contract with a Greek shipping company
to supply them with two massive 260,000 ton ships, to be delivered
two and a half years later. The Korean government guaranteed delivery.

With loans secured
it began constructing a shipyard in Ulsan.
Ship building began soon after, while
facilities were still under construction.

From 1973 until early 1974, Hyundai built twelve,
massive 300,000 ton ships.

Amid difficult circumstances,
workers and technicians successfully learnt how to build ships.
They greatly raised productivity
narrowing the gap with Japan.

It was this dynamic ability to learn that
would ultimately lead to South Korea
becoming the world’s number one shipbuilder.

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8. Stabilization of Heavy and Chemical Industry in the 1980s

With the sudden death of Park Chung-hee in October 1979,
and the resulting political crisis
the economic crisis the country faced also worsened.

The new military regime led by Chun Doo-hwan/
saw Park Chung-hee’s HCI as the cause of the economic crisis..

The new military government
ousted the Ministry of Commerce and Industry’s
HCI line.
The government attempted to restructure investment
in the particularly badly performing car and electricity generation equipment industries.

The Chun Doo-hwan government also changed industrial policy.
It ended preferential treatment.
These economic stabilization and rationalization policies
resulted in rapid growth returning in the early 1980s.

And…
in 1986-88,
the economy boomed.

It was the car industry
that expanded particularly
rapidly in this period.

In the early 1980s, the way for the vulnerable Korean car industry to survive was to invest
in small model cars,
creating a mass production system for export
Hyundai Cars invested to create capacity to
produce 300,000 small cars per year.
The investment proved to hit the mark.

With the US-Japanese trade deficit
rising and the trade conflicts worsened,
the Japanese car industry cut back
on exports of small cars to the US.

A newly opened gap in the market was
seized by Hyundai.
Hyundai Pony Excel car exports grew rapidly.
Exports of 16,000 units in 1983,
rose to 564,000 in just five years.
It was one of the ten hit products
in the United States at the time.

Since then, the Korean car industry,
with constant improvements in performance,
and active marketing,
has grown into the fifth largest worldwide.

In the 1980s…
another industry that succeeded
was semiconductors.

In 1983, Samsung’s Lee Byung-chul,
designated semiconductors a key industry
for the firm, and entered the D-ram market.

Samsung’s other main rivals,
LG and Hyundai, followed suit.

In November 1983,
Samsung developed 64K D-ram.

They had an expertise gap of 5 years
compared to the most advanced makers.

The gap in product development with Japan
was closed by November 1992, when developing 64M D Ram.
Korean Ram was of the same level as American and Japanese.

In the 1990s,
South Korea began to export D-ram in large quantities.

As PC ownership increased rapidly worldwide,
demand for D-ram also soared.
Orders for South Korean D-ram rolled in.

From 1993, South Korea became the no. 1
maker of semi-conductor memory worldwide.
And it was the third largest producer of semi-conductors
generally, with only the United States and Japan producing more.

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Epilogue: The significance of Heavy and Chemical Industrialization

Beginning with steel,
petrochemicals,
shipping
and all the way up to cars and electronics

HCI was the driving force
behind Korea’s economic rise.

With the government leading the way,
the ambition of industrialists, the ability of workers and engineers to learn,
as well as their hard work, made HCI possible.

Koreans sought to create the industries of an advanced country,
steel, chemicals, machinery and electronics,/
as if to show to those who did not believe it possible,
they succeeded.

HCI
turned South Korea into a top-ten economy in the world
playing a crucial role in creating a better future.