Decline in China's investments sharply cuts Korea's GDP: IMF
HONG KONG (Yonhap) -- A decline in China's investments will hurt Korea's gross domestic product as South Korea faces a direct impact on its exports, the International Monetary Fund (IMF) said Wednesday.
South Korea's economic growth will fall by 0.6 percentage point if investment growth declines by 1 percentage point in China, the IMF said in its annual Article IV Consultation Staff Report for China.
The impact is significant for South Korea, along with countries like Taiwan and Malaysia, as these economies are more exposed to China's supply chain of electronics and machinery exports, it said.
Taiwan and Malaysia are estimated to suffer declines of 0.9 percentage point and 0.65 percentage point, respectively, from 1-percentage point decline in China's investment growth.
Meanwhile, Japan and Germany, both advanced economies that have less exposure to China's supply chain, are expected to see a drop of about 0.1 percentage point.
The IMF said the importance of Chinese investment to trading partners in its supply chain has grown substantially over the past decade, as China's growth model has become more reliant on investment.
Economies within China's supply chain, such as South Korea, Taiwan and Malaysia, are increasingly exposed to the risks from a deceleration in investment by China, it said.
The ratio of exports to China relative to Korea's GDP has more than tripled from less than 4 percent in 2001 and to 12 percent in 2011, the IMF report showed.
The Washington-based institution said China's major trading partners will share a negative shock, unless China successfully reduces its reliance on investment for the country's economic growth.
Investments, along with exports, have been the main driver of China's economic growth.
Many economic experts have been calling on China for years to adjust its economic structure by increasing domestic consumption and reducing investment.
They say a country's excessive reliance on investments can lead to problems of low investment efficiency and overcapacity.