Lee Gui-nam and her housewife friends will soon join the hordes of South Koreans setting off abroad this summer, heading for a tour of eastern China’s picturesque Yellow Mountain and West Lake.
“People say it is a famous scenic spot and the price is reasonable – Won700,000 ($755, €550, £380) for a four-day, three-night package tour,” says Mrs Lee, who works at an insurance company and contributes to a travel savings account with her friends.
“We save up our money to travel abroad – we have been to the Philippines twice. But this is the first time I have been to China. It is getting more popular and easier for us to go overseas these days.”
Mrs Lee is one of the millions of Koreans who will venture abroad in the next few months, taking with them piles of Korean won that make comparatively cheap destinations such as China and Vietnam even cheaper.
While the strengthening currency has been hurting exporters such as Samsung Electronics and Hyundai Motor, it has been a boon to South Korean holidaymakers.
But the combination of declining profits from exports and increasing holidays abroad has created another potential headache for financial authorities – and a surprising economic occurrence. In this manufacturing-led economy, the travel deficit in the current account is now regularly exceeding the goods surplus.
“We think of Korea as an export powerhouse, making computer chips and phones, but whatever Koreans take in from exports they spend by going to the beach,” says Frederic Neumann, who tracks the Korean economy for HSBC.
Tourist departures from South Korea have grown by almost 30 per cent over the past three years, hitting 11.6m trips in 2006 out of a population of 48m. China is the preferred destination, attracting 3.9m Korean tourists in 2006, followed by Japan with 2.1m and Thailand with 1.1m.
“In the past everyone wanted to go to south-east Asia, especially Phuket, but these days they are keen to do China and not just Beijing. They want to go to unheard of places too,” says Kim Sung-hee, a travel agent for Mode Tour, one of the leading agencies.
When they go, they spend. Overseas expenditure by Korean tourists has grown at an annual pace of about 20 per cent in recent months, to total $1.2bn in April alone. Much of this has been due to spending on credit cards. Koreans charged more than $4.8bn (€3.5bn, £2.4bn) to their credit cards in foreign countries last year, an increase of 32 per cent from 2005.
This outward surge coincides with the steady appreciation of the won against the US dollar, gaining 14.5 per cent in 2004 and 9 per cent last year. It has continued to strengthen this year – last week hitting Won918 to the dollar, a seven-month high.
The finance ministry is uneasy about the continuing rise and its impact on industry. In a recent statement the ministry declared that the won’s movement “seems to be out of line with the country’s macroeconomic conditions”. It added that the currency would be closely monitored.
South Korea’s current account swung back into the black in May, recording a $925m surplus after a $2.1bn deficit in April, according to Bank of Korea data, and economists expect it to be neutral by the end of the year.
However, the scars of the Asian financial crisis 10 years ago have instilled a strong streak of financial prudence in the Seoul authorities, who continue to favour healthy surpluses and large foreign exchange reserves.
“The current account remains roughly in balance, but the Korean authorities have been very concerned about the external payments system and still feel the need to run a current account surplus, even though the trade balance has been positive for some time,” Mr Neumann says.
“They will have to run a much larger trade surplus in the future to maintain a current account surplus. But it’s difficult to see how Korean exporters could ramp up production enough to counteract this.”
This dilemma is likely only to worsen. Many financial analysts expect the currency to hit Won900 to the dollar by the end of the year and South Korea is likely at some time in the near future to be added to the list of countries whose citizens do not require visas for short stays in the US.
Once that happens, Koreans will have even more incentive to travel abroad and the current account will come under even greater strain.