By Yoon Ja-young
Policymakers and companies should come up with new strategies to cope with falling demand from China, which has cut its economic growth target, analysts said Monday.
Korea's exports have already taken the brunt of declines in Chinese demand, contracting for 14 months in a row, and weaker Chinese economic growth could deal a further blow to the Korean economy, they said.
Chinese Premier Li Kequiang suggested at the National People's Congress, Saturday, that the economy should grow between 6.5 and 7 percent this year, and that the average growth for the next five years should be at least 6.5 percent.
This means the world's second largest economy is out of the high growth era in which the economy used to grow over 7 percent annually.
As China has been the world's leading market as well as growth engine, an impact on the global economy is inevitable. It is especially negative for Korea, which has been heavily relying on the Chinese economy.
Among its $527 billion exports last year, over 25 percent headed to China. The ratio of Chinese products in Korea's total imports also stood at over 20 percent.
The slowdown in China thus has direct impact on Korea.
According to LG Economic Research Institute, falling demand in China has a five times bigger impact on the Korean economy than a fall in the United States would have.
The Korea Development Institute (KDI) estimates that a 1 percentage point fall in China's growth will pull down Korea's growth rate by up to 0.6 percentage points.
The KDI pointed out that a global slowdown led by China is hurting exports. "Overall conditions are deteriorating for exports," the institute said, turning more pessimistic about the local economy.
What is more notable than the slower growth itself is Beijing's transition in policies as well as structural reform.
The country is turning to domestic consumption and services from investment and manufacturing to sustain growth, on top of seeking to upgrade its industrial structure. This means less demand for Korea's material and component exporters.
"Under the New Normal, China is enhancing technological competitiveness in material and components as well as high value added goods," said Kim Young-shin, a research fellow at the Korea Economic Research Institute.
He said Korea should strengthen price competitiveness using the Korea-China FTA or RCEP as well as upgrading its global production chain and networks.
While consumption goods took up only 10 percent of Korea's exports to China, Chen Yong-chan, a researcher at Hyundai Research Institute, said that is the sector Seoul should target.
"If China successfully completes restructuring, its domestic consumption market will expand. Korea should develop consumption goods tailored for that sector," he said.
Chen added that Korea should continue nurturing high-tech industries as Beijing is seeking a competitive edge through a fast improvement in the high value added manufacturing sector combined with IT.
It should be prepared for China risks in the mid- to long-term perspective.
"On top of strengthening monitoring on sectors such as petrochemicals and IT where damage is inevitable, it is crucial to diversify exports markets to central Asia and South America," he said, adding that Korea should make active use of its economic cooperative ties with China such as the FTA and the Asia Infrastructure Investment Bank.
Policymakers and companies should come up with new strategies to cope with falling demand from China, which has cut its economic growth target, analysts said Monday.
Korea's exports have already taken the brunt of declines in Chinese demand, contracting for 14 months in a row, and weaker Chinese economic growth could deal a further blow to the Korean economy, they said.
Chinese Premier Li Kequiang suggested at the National People's Congress, Saturday, that the economy should grow between 6.5 and 7 percent this year, and that the average growth for the next five years should be at least 6.5 percent.
This means the world's second largest economy is out of the high growth era in which the economy used to grow over 7 percent annually.
As China has been the world's leading market as well as growth engine, an impact on the global economy is inevitable. It is especially negative for Korea, which has been heavily relying on the Chinese economy.
Among its $527 billion exports last year, over 25 percent headed to China. The ratio of Chinese products in Korea's total imports also stood at over 20 percent.
The slowdown in China thus has direct impact on Korea.
According to LG Economic Research Institute, falling demand in China has a five times bigger impact on the Korean economy than a fall in the United States would have.
The Korea Development Institute (KDI) estimates that a 1 percentage point fall in China's growth will pull down Korea's growth rate by up to 0.6 percentage points.
The KDI pointed out that a global slowdown led by China is hurting exports. "Overall conditions are deteriorating for exports," the institute said, turning more pessimistic about the local economy.
What is more notable than the slower growth itself is Beijing's transition in policies as well as structural reform.
The country is turning to domestic consumption and services from investment and manufacturing to sustain growth, on top of seeking to upgrade its industrial structure. This means less demand for Korea's material and component exporters.
"Under the New Normal, China is enhancing technological competitiveness in material and components as well as high value added goods," said Kim Young-shin, a research fellow at the Korea Economic Research Institute.
He said Korea should strengthen price competitiveness using the Korea-China FTA or RCEP as well as upgrading its global production chain and networks.
While consumption goods took up only 10 percent of Korea's exports to China, Chen Yong-chan, a researcher at Hyundai Research Institute, said that is the sector Seoul should target.
"If China successfully completes restructuring, its domestic consumption market will expand. Korea should develop consumption goods tailored for that sector," he said.
Chen added that Korea should continue nurturing high-tech industries as Beijing is seeking a competitive edge through a fast improvement in the high value added manufacturing sector combined with IT.
It should be prepared for China risks in the mid- to long-term perspective.
"On top of strengthening monitoring on sectors such as petrochemicals and IT where damage is inevitable, it is crucial to diversify exports markets to central Asia and South America," he said, adding that Korea should make active use of its economic cooperative ties with China such as the FTA and the Asia Infrastructure Investment Bank.
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