By Kim Jae-kyoung
Staff Reporter
Choi Jae-young, 36, a Korean resident in Beijing who headed a Korean conglomerate's Chinese branch over the past four years, recently made a once-in-a-life time decision.
He quit his job and set up Opex Consulting there, a firm specializing in offering consulting services for Koreans investing in China, to capitalize on new opportunities in the event of an economic slowdown there.
His decision may sound implausible as most Koreans believe that a slowdown in China would be another threat to Asia's fourth largest economy. China is currently Korea's largest export destination.
However, Choi countered the argument, saying, ``Ironically, China's slowdown triggered by slowing exports can be a good opportunity for Korea to sidestep the risk of a recession.''
The Korean economy is facing its biggest challenge since the 1997-1998 Asian financial crisis and has shown signs of slipping into recession, with sluggish domestic demand and slowing exports.
The economy grew only 0.6 percent between July and September quarter-on-quarter, the weakest growth in four years, while exports contracted 1.8 percent during the same period. The current account deficit reached $12.59 billion between January and August.
``With its economy losing steam, the Chinese government has initiated huge infrastructure projects to boost domestic demand, which will create numerous opportunities for Korean firms and individuals,'' Choi said.
It seems that his bet has been in good shape so far, with his view widely shared by global experts on the Chinese economy. They said that to maintain political and social stability, China cannot afford to experience a sharp economic slowdown.
``China is facing a problem with inflation and with slowed growth in the U.S., its main export market. Its strategy should be to substitute domestic consumption for exports,'' Mauro F. Guillen, director of the Lauder Institute at the Wharton School of Business, told The Korea Times.
The Chinese economy expanded by just 9 percent in the third quarter, the slowest rate since 2003. The economy grew 10.6 percent in the first quarter and 10.1 percent in the second quarter.
``Korea will suffer from a Chinese slowdown because Korean firms supply Chinese factories with important input and equipment, but there's also an opportunity,'' he added. ``If China does stimulate domestic demand, then Korean exporters may benefit.''
Morgan Stanley Asia chief economist Sharon Lam also said that because of the disappointing third-quarter GDP growth, the Chinese government will speed up and bolster stimulus policies for its domestic economy.
``Korea is exporting for China's domestic growth, not exports, and this is evident in the fact that China's export growth has gone down this year but Korea's exports to China have only grown stronger,'' she added.
According to the Bank of Korea (BOK), China's export growth slowed to 19.1 percent in the second quarter year-on-year. It was the first time for the figure to fall below 20 percent since it stood at 17.8 percent in the second quarter of 2002.
On the other hand, Korea's exports to China expanded 33.7 percent in the second quarter, the highest growth in almost four years since it grew 36.8 percent in the third quarter of 2004.
Lam pointed out that Korea is sensitive to China's infrastructure and fixed asset investment which will be supported by Chinese pump-priming measures.
``It is certain that Korea's export growth will slow but the cushion it can enjoy from China's domestic growth should help it to slow milder than other exporters in the region,'' she said.
China has moved to stimulate domestic demand by building large-scale railroads and highways. According to the China's Ministry of Railways, the State Council has approved two trillion yuan ($292 billion) for the construction of a series of railway projects. About 1.2 trillion yuan has already been allocated.
``Korean builders, machinery manufacturers and steel makers will take much advantage of China's infrastructure projects as they need a huge amount of construction, machinery and steel, which are areas where Korean firms have competitive edges globally,'' Choi said.
``It is also a good news for leading Korean exporters, such as Samsung Electronics. China's plan to boost domestic demand will enrich its middle class, strengthening their spending power,'' he added.
In its 2006 China Report, McKinsey & Company said that during the next two decades, a huge middle class with enormous spending power is expected to emerge in China's cities.
``As incomes increase, the spending patterns of this consumer group will evolve, fueling various levels of growth across consumption categories,'' it said.
Experts said that although domestic demand stimulus measures are good, Korean policymakers also need to see opportunities in the neighboring country to improve the balance of payments and stimulate the economy.
``It is time to strengthen even further Korea's active participation in China's domestic economy. To participate on a larger scale we need to understand more deeply and be sensitive to the practical issues and compromises that the Chinese government inevitably faces,'' Market Force Company CEO James Rooney told The Korea Times.
``President Lee Myung-bak's constructive engagements with the Chinese national leadership over the last few months are a key part of what is needed, but we must be constructively active at all levels of diplomacy and commerce,'' he added.