Soothing China Shock

With the domestic financial market recovering after having been shaken by China Shock, the government has decided to hold a meeting of related ministers to arrange comprehensive countermeasures concerning China’s tight-financing policy.

Deputy Prime Minister Lee Hun-jae said at a regular briefing on May 3, “We should take it seriously and review the Chinese economy’s long-term prospects scrupulously considering the importance of imports to China in our economy.”

Lee added that foreign experts are taking China’s recent tight-financing action as advance action to prevent rapid decline of its economy, and that they anticipate China to reach the growth rate of eight percent or more in spite of such actions. He came back on May 1 after having conferences concerning the Korean economy in Hong Kong, London and New York.

“Experts from Wall Street are expecting that Korean economy will grow by 5 percent or more this year, but that consumption will not be active until household debts decrease,” he said.

As for the expected time for raising of interest rates in U.S., he conveyed, “Wall Street experts think chances are that Federal Reserve Bank (FRB) will raise the interest rate by 0.25 percent before August, but that it will rise slowly from its current one percent to 1.75 percent within a year.”

Meanwhile, the domestic securities market seemed somewhat recovered from China Shock as it began to rise after six days of falling. The Korea Composite Stock Price Index (KOSPI) jumped 3.27 points, or 0.37 percent, compared to last weekend, to close at 866.11 on May 3.

With the worry about a slowdown of the Chinese economy still remaining, and as stock prices dipped by about 40 points from April 29 in the wake of China Shock, increases in purchases of low-priced items caused a small rise in stock prices. However, the amount of selling deducted by purchasing in last five days exceeded 200 billion won.

The won-dollar exchange rate, which jumped due to China Shock turned downward as well. As exporting companies sold dollars on the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,171.8 won, which was 1.5 won lower than the previous day.