It may take longer for Korea to experience spillover effects as China reopens: KB report

By Yi Whan-woo

Korea will need time before enjoying some of the spillover effects from China's reopening, a financial report hinted on Sunday, noting that Chinese consumers are unwilling to spend money as much as they did before COVID-19.

KB Financial Group Institute said in its report that Chinese households ― compared to the pre-pandemic era ― saved more money during the strict lockdowns from 2020 to 2022.

Citing the Chinese government's statistics, the institute said the saving rate of households in the country stood at 29.9 percent in 2019 and then recorded 34.1 percent in 2020, 31.4 percent in 2021 and 33.5 percent in 2022.

The accumulated amount of excess savings in the 2020-22 period is estimated to be up to 7.04 trillion yuan ($1.07 trillion).

Under the circumstances, private spending, as well as investments, are unlikely to bounce back for the time being, the report said.

It noted that the self-employed and small businesses in China shrank in number during the pandemic era, and that the job market remains sluggish.

“It can be said that Chinese consumers will have limited ways to spend what they have saved in the pandemic era and that they will be prudent in where to spend it,” the report added.

Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI), said that such an anticipated spending trend in China this year will result in a slower-than-expected increase in Korea's exports to China.

China accounted for 22.8 percent of Korea's total exports representing $683.8 billion in 2022, down from 25.3 percent in 2021 and 25.9 percent in 2020, as the world's second-largest economy's zero-COVID policy heightened and demand for Korea's key export items decreased.

“And the exports to China are not likely to recover quickly, as consumer expenditure in China does not appear to be ready to go up,” Lee said.

Joo Won, deputy director of the Hyundai Research Institute, voiced a similar view, noting that the Chinese economy is no longer enjoying rapid growth.

The Chinese economy is forecast to grow about 5 percent in 2023 ― one of its lowest growth rates in decades ― after expanding just 3 percent in 2022.

“Consumption and investment in China can fall short of what it was in the past, meaning that the country's reopening will have a weaker impact on Korea than expected,” Joo said.

It also said an increase in China's private spending may be short-lived, lasting only until the second half of the year.

Concerning Korea's key export items, he said the U.S.-China trade row can hamper sales in semiconductors while the expiration of incentives offered to customers buying combustion engines in 2022 can push down car sales.