China risks weighing on economy, Impact on Korean economy too... By Kim Tae-jong Fears over a Chinese economic slowdown are continuing to grow and are perceived as a major threat to the Korean economy, which is heavily dependent on trade with the neighboring nation. Recent statistics have showed the world’s second-largest economy is losing growth momentum, with many figures below analysts’ expectations, raising concerns that the country will not attain a growth target of 7.5 percent for 2014. It is feared that this could derail the Korean economy, which is just starting to show signs of recovery. “The slowdown of the Chinese economy will be an obstacle to the Korean economy’s recovery,” Korea Development Institute (KDI) President Kim Joon-kyung said during a seminar for the CEOs of financial firms last week. Experts say that one of the major reasons behind the sluggish Chinese economy is the drop of exports in recent months. In February, exports showed an alarming 18.1 percent year-on-year decline and a 45 percent decrease from the prior month. The country also showed its first trade deficit in the past two years in the same month. China is also facing risks of a series of corporate defaults because the government has pledged to restructure troubled companies and reform the financial sector, especially shadow banking. Shanghai Chaori Solar Energy & Science Technology declared a default on March 7 after it missed a $12.7 million interest payment on a bond, which was the first corporate default in China. Last week, Baoding Tianwei Baobian Electric had trading of its shares frozen after announcing a second successive year of losses. This is a rare occasion because Chinas corporate bonds had always been backed by the government. There are also growing concerns that Chinas real estate bubble will burst, which will have a far-reaching impact on the Chinese economy According to data released by the Chinese government, sales of residential buildings dropped by 5 percent in the first two months of this year. To make matters worse, sales of office buildings plummeted by 17.1 percent. Impact on Korean economy All these bad signs in the Chinese economy have already started to have a serious impact on neighboring countries, especially Korea. “The Chinese economic slowdown will definitely have an impact on the export-driven Korean economy,” said Han Jae-jin, research fellow at Hyundai Economic Research Institute. “Especially, chemical and electric sectors will be hit hard, as their dependency on the Chinese market is very high.” The risks for China have been already reflected on the Korean stock market because the coupling effect has become increasingly visible on the main bourses of Korea and China in recent months. The coupling effect indicates the increasing influence of the Chinese economy on the Korean stock market, Han said. Moody’s Investors Service had already warned that the biggest risk for the Korean economy would be the slowdown of China’s growth. “The biggest risk, perhaps, that Korea and other Asian countries are facing is China’s growth slowdown,” said Thomas Byrne, senior vice president of the firm, during a news conference in Seoul in February. Byrne said that Korea is relatively well prepared for the impact of the Fed’s tampering with its current-account surplus and foreign exchange reserves but China’s slowing growth would have a more serious and direct impact on Korea. Other experts pointed out that the Chinese government’s decision to cope with the current situation will be critical to decide the level of impact on the Korean economy. “In fact, China is in trouble now, suffering from side effects of simulative measures,” said Kim Hak-kyoon, chief of investment strategy at KDB Daewoo Securities. “If the government comes with a new stimulating measure in order to achieve the 7.5 percent growth target, it will be another temporary remedy and also have a positive impact on the Korean economy. So, now it’s time to wait and see.” But there are also expectations that risks from China have been exaggerated and already reflected in the Korean market. “It’s true that China faces risks,” Kim Yong-goo, an analyst from Samsung Securities, said. “But they are still at a level that the Chinese government can put under control. Figures will show some improvements in the coming months.” [email protected] koreatimes.co.kr/www/news/biz/2014/03/123_153534.html
Posted on: Mon, 17 Mar 2014 15:18:37 +0000
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