Value context and insight. lkm@koreatimes.co.kr
Korea may become major victim of China slowdown
Sohn Sung-won. Korea Times file
By Lee Kyung-min
By Lee Kyung-min
China's much-feared economic slowdown is bound to have a particularly grave impact on Korea whose small, open and export-reliant economy is far more vulnerable to external shocks, according to a noted U.S.-based economist.
The assessment came after China recorded a 6.6 percent growth rate in 2018, the slowest in 28 years since 1990.
He stressed that Korea should brace for a “hard hit” given that China's sketchy economic statistics make it hard for Korea to come up with a data-backed response strategies.
“China will continue to have a major impact on the Korean economy,” said Sohn Sung-won, an economics professor at California State University-Channel Islands.
“Korea, which depends heavily on exports, will feel worse impact, as the global economy and trading volume slow.”
His remarks are indicative of heavy headwinds Asia's fourth largest economy will face given it sells a lot of intermediate goods that are finished for export by Chinese manufacturers.
According to 2017 data from the Korea International Trade Association (KITA), China was the largest importer of Korean goods and services, accounting for nearly a quarter, or 24.8 percent, of the total export volume.
The veteran economist said Korea's fear can very much become a reality if China has a “hard landing,”
“How hard China lands will depend upon the outcome of the trade friction with the U.S. and if continued, a hard landing for China is not out of the question,” he said.
Sohn called for Korea to remain watchful of further developments in China for the grave scenario because the Chinese economy is much worse than its statistics suggest.
“The economic slowdown in China is much more serious than the official numbers show. While they will show a soft landing, some estimates put economic growth close to zero.”
However, the Korean economy can be relieved of such a sudden “shock,” if China seeks an approach that will spare both countries the embarrassment and concessions.
“One of the reasons for the economic slowdown is the trade war with the U.S. China has motivation to come to an agreement with the Trump administration in order to kickstart its moribund economy.”
The former White House economic adviser describes the Chinese economy as facing “a double whammy of mounting debt and economic slowdown.”
“The rising debt burden in the face of an economic slowdown exacerbates the asset-quality problem. Also, problem loans are thought to be much higher than what has been disclosed by the government.”
According to the China Banking and Insurance Regulatory Commission, non-performing loans known as “bad loans” rose 183 billion yuan (30 trillion won) to hit 1.96 trillion yuan by the end of June 2018, the biggest quarterly jump in data in over a decade.
“Retail sales have lost their momentum for quite some time. Industrial production has been lackluster. The rate of growth of fixed investments has been trending down sharply,” he added.