Fear for Bearish Tendency of Chinese Yuan

As the US dollar has devaluated, a relative devaluation of Chinese Yuan, not US dollar, is a threatening factor to the Korea economy.

That is because while Korea Won has continuously revaluated, the Chinese Yuan is almost fixed to CNY 8.27/USD.

In the Seoul Foreign Exchange Market, KRW/USD rate closed to KRW 1171.8 on July 16 and it was the lowest value since KRW 1167.5 as of November 21, 2000 after the lapse of 20 months (Increase of Korean Won). KRW/USD rate has decreased by over 10% only after March.

Accordingly, Chinese Yuan decreased by approx. 10% against Japanese Yen, and decreased by 12% against Korean Won respectively.

As the relative value of Chinese Yuan has decreased, the price competitiveness of Korean product exported to China has decreased, but the price competitiveness of imports from China has increased steadily. Especially, it is forecasted that the export of Chinese electric home appliances will rapidly increased.

In addition, in foreign market, such as USA and Japan, the competitiveness of Chinese products has increased. It is worried that it will influence on the export of Korean products.

In fact, as the result of that Korea International Trade Association investigated the trend of Chinese exports and Korean exports in US market, In the exports of electricity & electron, machinery, plastics, shoes, furniture, leather, Chinese products sharply increased, but Korean products decreased or in stagnation.

The analysis shows that Korean manufacturers move the factories to China and so it will accelerate ‘manufacturing industry Socialization’. According to the relative decrease of Chinese Yuan, Korean products have been in ‘Fourfold torture’.

In the latest investigation of Korea International Trade Association, Korean companies have been concerned about this situation seriously.

As the result of the survey for 92 exporting companies by industry including 42 large companies from July 9 through July 11, if the exchange rate maintains KRW 1200 against USD, companies of the estimated exports failure, will reach to 75.9%. 93.5% of total responding companies answered ‘Payability has been worse’, and 15.2% said ‘Deficit export’.

For Competitiveness over China in the level of KRW 1,200/USD, 51.8% of total respondents answered ‘A little weakened, 32.1% answered ‘largely weakened’. 16.1% said ‘Competitiveness maintenance’. For the export competitiveness to Japan, 37.5% of total respondents answered ‘Competitiveness maintenance’ and the remaining answered ‘a little of largely weakened’.

Accordingly, the Ministry of Commerce, Industry and Energy(MOCIE) and the Small & Medium Business Administration (SMBA) plan to execute the joint research on the actual condition for grasping the problems of exporting companies based on the decrease of exchange rate for two days from July 18.

bonhong@donga.com kkh@donga.com