Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
'China shock' could hurt exporters
By Yi Whan-woo
China’s sluggish economic growth in the first quarter could hurt Korean companies that significantly export to China, the world’s second largest economy, according to market experts, Friday.
Beijing announced Monday its gross domestic product (GDP) growth in the January–March period was 7.7 percent, down 0.2 percentage points from the previous quarter. The rate fell short of market forecasts, including that of Reuters, which predicted an 8 percent growth.
“It suggests China is unlikely to spur economic growth with a stimulus package as in the past,” said Suh Dae-il, an economist at Daewoo Securities. “It’s obvious Korean exporters, especially those who sell industrial materials such as steel and chemicals, will be affected directly.”
In March, China set a 7.5 percent annual growth target, lower than the 7.6 percent growth in 2012, which was the lowest since 1999.
Lee Sung-kwon, an analyst at Shinhan Investment, also said that domestic firms could see a decrease in sales with China’s stagnant growth.
“The target itself was not discouraging for us, but the lower-than-expected growth rate could affect our exporters in the long term,” Shin said.
According to Hyundai Economic Institute (HEI), the Korean economy is expected to see a 0.4 percentage point fall whenever China’s GDP growth falls 1 percentage point.
The institute forecast that Korea’s growth potential will drop by 0.9 percentage points between 2010 and 2020, affected by weakening China’s economic growth.
According to data from Korea Institute for Industrial Economics & Trade, Korea’s exports to China grew by 19.2 percent between 2008 and 2010, much faster than the U.S. (17.3 percent), Germany (11 percent) and Japan (6.3 percent).
“Countries like Korea and Brazil, whose economy heavily depends on China, could suffer from Beijing’s low growth rate,” said Kim Hak-kyun, another Shinhan Investment economist.
“The government is trying to supplement funds for domestic traders who suffer from the slow global economic recovery, and this effort could play a vital role in our economy this year,” he said.