This is the fifth in a series of interviews with global economists to see how the ongoing trade disputes will unfold and to analyze their implications for the Korean economy ― ED.
Korea urged to foster auto sector as 'pillar'
By Kim Bo-eun
The Chinese yuan is expected to weaken to as low as 7.5 per U.S. dollar this year as a result of the escalating trade dispute between the two largest economies, a noted global economist forecast, Thursday.
"The yuan is depreciating to reflect the higher tariffs in the U.S. market ― 22 percent of total exports. The yuan-dollar exchange rate is likely to reach 7.5 this year," Andy Xie, a Shanghai-based economist specializing in China and Asia, told The Korea Times in an email interview.
"The exchange rate will weaken further in 2020, as inflation will erode the devaluation effect over time. It may reach 8 next year," he said.
On Aug. 5, the U.S. Treasury Department designated China as a currency manipulator, accusing Beijing of intentionally allowing its yuan to fall to its lowest level in 11 years ― 7 per U.S. dollar. Three days later, China's central bank even set the official reference rate for its currency at 7.0039 yuan per dollar.
Noting China's debt is 300 percent of its GDP, Xie said the economy needs either growth or negative real interest rate to remain stable.
"As growth continues to slide, devaluation and inflation become a policy mix to keep debt stable," he said.
But he noted the U.S. has no tools to stop China from depreciating the currency. "It already puts a tariff on all Chinese goods," he said.
Korea needs new model
Korea needs a long-term approach to addressing challenges both at home and abroad by focusing on R&D to heighten the country's competitiveness, the economist said.
"Korea's exports will struggle as the global economy slows and Chinese companies become more competitive," he said.
"Korea must face up to the weakening demand situation," he said noting there is "no quick fix."
The former Morgan Stanley chief Asia-Pacific economist advised the government not to increase debt to stimulate the economy.
"Don't add debt to juice up the economy in the short term. It leads to more difficulties later," he said.
The Korean government has made all-out efforts to revitalize the economy through interest rate cuts and expansionary fiscal policies. But some organizations, including ING, expect Korea's GDP to fall below 2 percent this year. The country's GDP grew 2.7 percent in 2018.
"Growth isn't a solution to livelihood issues anymore. Government policy must step in," Xie said.
"To prepare for the long run, Korea must emphasize R&D. Increasing competitiveness is the only way to a better future," he said.
While Xie noted R&D needs to be conducted on the tech sector as a whole, he said Korea needs to focus on the auto industry. This is one of the country's core industries.
"Auto must be a focus, as a big sector going through a tech revolution. Korea needs auto as a pillar," he said.
The government has been investing in R&D in the auto sector including in autonomous and electric cars and infrastructure, but has yet to do more for its industry not to lose global competitiveness.
The economist, who is well known for forecasting the 1997-1998 Asian financial crisis, said the government's role becomes increasingly important in a post-growth era.
"The world is entering a post-growth era. We can't hope growth will lift people up over the affordability bar. The government must lower the bar to create a better and a more efficient society," he said.
He noted the Korean government needs to intervene more in the markets such as housing and education.
"A pure market-based housing market doesn't work. Too many are left out. Look at the difference between Singapore and Hong Kong," Xie said. "When education becomes too expensive like in the U.S., it leads to social instability."
Citing models such as Switzerland, Sweden or Finland, he said "(Korea needs to) be a role model in the compassionate market economy and social justice. China is all about power and money. Korea can never win in that race. But, there are higher goals to human life. Once Korea gets there, it will change China."
Korea urged to foster auto sector as 'pillar'
By Kim Bo-eun
 |
| Andy Xie / Korea Times file |
"The yuan is depreciating to reflect the higher tariffs in the U.S. market ― 22 percent of total exports. The yuan-dollar exchange rate is likely to reach 7.5 this year," Andy Xie, a Shanghai-based economist specializing in China and Asia, told The Korea Times in an email interview.
"The exchange rate will weaken further in 2020, as inflation will erode the devaluation effect over time. It may reach 8 next year," he said.
On Aug. 5, the U.S. Treasury Department designated China as a currency manipulator, accusing Beijing of intentionally allowing its yuan to fall to its lowest level in 11 years ― 7 per U.S. dollar. Three days later, China's central bank even set the official reference rate for its currency at 7.0039 yuan per dollar.
Noting China's debt is 300 percent of its GDP, Xie said the economy needs either growth or negative real interest rate to remain stable.
"As growth continues to slide, devaluation and inflation become a policy mix to keep debt stable," he said.
But he noted the U.S. has no tools to stop China from depreciating the currency. "It already puts a tariff on all Chinese goods," he said.
Korea needs new model
Korea needs a long-term approach to addressing challenges both at home and abroad by focusing on R&D to heighten the country's competitiveness, the economist said.
"Korea's exports will struggle as the global economy slows and Chinese companies become more competitive," he said.
"Korea must face up to the weakening demand situation," he said noting there is "no quick fix."
The former Morgan Stanley chief Asia-Pacific economist advised the government not to increase debt to stimulate the economy.
"Don't add debt to juice up the economy in the short term. It leads to more difficulties later," he said.
The Korean government has made all-out efforts to revitalize the economy through interest rate cuts and expansionary fiscal policies. But some organizations, including ING, expect Korea's GDP to fall below 2 percent this year. The country's GDP grew 2.7 percent in 2018.
"Growth isn't a solution to livelihood issues anymore. Government policy must step in," Xie said.
"To prepare for the long run, Korea must emphasize R&D. Increasing competitiveness is the only way to a better future," he said.
While Xie noted R&D needs to be conducted on the tech sector as a whole, he said Korea needs to focus on the auto industry. This is one of the country's core industries.
"Auto must be a focus, as a big sector going through a tech revolution. Korea needs auto as a pillar," he said.
The government has been investing in R&D in the auto sector including in autonomous and electric cars and infrastructure, but has yet to do more for its industry not to lose global competitiveness.
The economist, who is well known for forecasting the 1997-1998 Asian financial crisis, said the government's role becomes increasingly important in a post-growth era.
"The world is entering a post-growth era. We can't hope growth will lift people up over the affordability bar. The government must lower the bar to create a better and a more efficient society," he said.
He noted the Korean government needs to intervene more in the markets such as housing and education.
"A pure market-based housing market doesn't work. Too many are left out. Look at the difference between Singapore and Hong Kong," Xie said. "When education becomes too expensive like in the U.S., it leads to social instability."
Citing models such as Switzerland, Sweden or Finland, he said "(Korea needs to) be a role model in the compassionate market economy and social justice. China is all about power and money. Korea can never win in that race. But, there are higher goals to human life. Once Korea gets there, it will change China."
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