China’s 24-year low growth rate at 6% clouds prospect of Korean economy

China’s economic growth rate slipped to 7.4 percent in 2014, the lowest in 24 years, failing to meet the target growth rate set by the government. As the International Monetary Fund (IMF) expects China to grow by 6.8 percent this year, some media outlets refer it as "Chinese economic growth rate shock." Since 1978 when Deng Xiaoping started pursuit of reform and open market policies, Beijing had maintained high growth rate around 10 percent in annual average by heavily depending on low waged labor, export, pollution-intensive manufacturing industry, and construction industry boom until 2010. However, such growth model has been put to an end. Ma Jiantang, director of China`s National Bureau of Statistics, made a positive comment, saying, “China`s economy has achieved stable progress under the new normal in 2014.” However, repercussions that Beijing’s slow economic growth would bring about to the global economy may not be as simple as it sounds.

According to an analysis of the U.S. investment bank JPMorgan, the world’s growth rate decreases by 0.5 percentage point when China’s economic growth rate falls by 1 percentage point. Korean economy will be seriously impacted by slowing economy in China, as Beijing accounts for more than one quarter of Korea’s exports and has great influence in other areas besides economy, such as the domestic financial market including stock and bond markets and tourism industry. Some forecast that Korea-China Free Trade Agreement would boost exports from Korea to China, but it would not be easy to achieve in the midst of slowing economic growth in China.

The IMF downgraded the global economic growth outlook this year to 3.5 percent, 0.3 percentage point lower from the previous forecast made three months ago. Ahead of election in Greece on Jan. 25, Europe is showing signs of reoccurring economic crisis. Excluding the U.S., which is growing alone in the global economy, no country in the world is free from concerns for economic downturn. In Korea, many signals show downside risk in the domestic demand such as consumption and investment. It would not be a viable option to pin its hope on exports.

Amid cold reality where China that has driven the domestic economy is slowing down, it is quite concerning to take a close look at Korea’s situation. The government has been pouring out measures for development of new growth engines and investment simulations. However, the government has been showing poor performance in implementing economic stimulus packages comprehensively. The politics has long been "shackles" to drag down the economy. Entrepreneurship that achieved the "Miracle of the Han River" isn’t like what it was in the past. Only out-of-date labor movement, which erodes competitiveness in labor market, remains steadfast. Individual policy is important, but sense of crisis, recognition of cold reality and bone-crushing reform by four major groups - the government, politics, business and labor – are most urgently required for Korea to prevent economic crisis and make another leap forward.