SEOUL, Sept. 8 (Korea Bizwire) – As the prospect that China will go through a much more severe economic slowdown than expected is spreading, concerns about the impact this will have on the Korean economy are growing. Korea has a bigger dependency on China compared to other countries.
According to a report issued by The Guardian, an English journal, if China continues to shrink imports during the latter half of this year, Korean exports will be hit hard, in addition to exports from New Zealand and Australia.
Since 2003, China has been the largest export market for Korea, with the share of exports to China reaching 25.1 percent. However, Chinese imports have dropped 14.6 percent so far this year (January to July), and even though China is Korea’s favorite export destination, the portion decreased from 10.7 percent in January to 9.9 percent in July, showing a 1 percentage point drop.
In addition, if China continues to devalue the Yuan, Korea is expected to suffer the biggest blow in terms of Gross Domestic Product (GDP) and exports. If the value of the Yuan drops, Chinese products will be priced more competitively in the international market, which will result in Korea having a price disadvantage.
However, there is a possibility that the value of Yuan will drop significantly, as a rise in U.S. interest rates is expected to occur, and the dollar should remain strong.
Oxford Economics, a research center at Oxford University, predicted that if the value of the Yuan drops 10 percent, Korea will have the largest decrease in GDP and exports, being the largest victim. According to Oxford Economics, if the value of Yuan falls 10 percent, Korea’s GDP will drop 1.16 percent, and exports will decrease 1.13 percent compared to July.
Economist Sharon Lamb of Morgan Stanley described Korea as a ‘broken export machine’ on CNBC, suggesting that China will increase their exports and the products they sell will be in direct competition with exports from Korea.
By Francine Jung (email@example.com)