Updated February. 10, 2014 04:25
The Centum City in Busan is Asias largest shopping resort with a shopping mall, an ice rink, and an aqua land. It has become the citys landmark as it surprises visitors with the worlds largest department store, earning a Guinness Book of World Records, and other grandiose facilities. Those who want to revive traditional markets could find it uncomfortable because it attracts all sorts of facilities and make people open up their wallets.
The Centum City, however, houses 1,200 companies including movie and software with some 15,000 employees. It is a good case that a company creates tourism and cultural infrastructure and revives the local economy with job creation. It attracts not only shoppers but also tourists from both at home and abroad.
A research found that if high-income households spend 264,000 won (245.4 U.S. dollars) per month more, 168,000 new jobs would be created. Hyundai Research Institute released a report titled Consumption Power by Income Bracket and Its Implications, and it said that if the rich open up their wallets more, Koreas GDP would increase 7.2 trillion won (6.69 billion dollars) per year. In other words, it is necessary to develop ideas on how to increase the spending of high income households in order to boost domestic consumption.
Higher domestic consumption leads to increased production in manufacturing and services and more jobs. Despite the global financial market uncertainty, Korea recorded the largest export volume with a trade surplus in history last year. The effect of strong exports, however, did not trickle down to ordinary households. The default rate of commercial notes hit a record high in three years, indicating the weak domestic economy. This is why President Park Geun-hye stressed the balance of domestic consumption and exports in the New Years speech.
Due to the lack of money, low-income households cannot spend money even though they want to. Household debts have surpassed 1,000 trillion won (929.8 million dollars). This is why the rich have to open their wallets. The consumption growth rate for the past few years was short of the income growth rate. Consumption is particularly weak among high income earners. The monthly average disposable income of the high-income class is 5.87 million won (5,457 dollars), which is nine times higher than that of the low-income class (660,000 won or 613 dollars). However, their actual spending is 3.23 million won (3,003 dollars), only 3.6 times that of low-income households (900,000 won or 836.8 dollars).
The government even came up with the idea of offering a spring and autumn break at elementary, middle and high schools to boost domestic tourism, which has a strong impact on generating domestic consumption. High-end cultural and tourist infrastructure must be developed in order to attract the tourism demand of high income households, who often go abroad. If it cuts the special consumption tax and lifts bans on golf courses, fewer people will go abroad for golf. It also needs to boost demand by easing regulations on luxury houses. Reviving demand in every corner of the economy can guarantee sustainable growth.