Korea must reduce export dependence on China: report

The Korean economy, which is highly dependent on China, needs to diversify its export markets in the wake of China`s economic growth rate plunging to its lowest level in two years and nine months, the Korean Strategy and Finance Ministry said in a report released Sunday.

In the report "Two Views on China and Implications," the ministry said, "Concern has been raised over the possibility of a hard landing of the Chinese economy due to downward adjustment of its growth rate.”

In recent months, the Chinese economy is seeing signs of abnormality in far-reaching areas including growth, inflation, exports and the real estate market. Its first-quarter growth rate as announced Friday by the Chinese National Statistics Bureau fell nearly a percentage point from 8.9 percent in last year’s fourth quarter to 8.1 percent in first quarter this year. This is the lowest level since the second quarter (7.9 percent) of 2009, when the global financial crisis was at its peak.

The reason for China`s lackluster performance is exports, which spearhead the Chinese economy. With economic recovery in China’s largest export markets of the U.S. and Europe slow, China posted a trade deficit of 31.5 billion U.S. dollars in February, the largest in 23 years. China’s trade balance returned to the black with 5.3 billion dollars last month, but experts say this represented a “recessionary trade surplus,” which resulted from a significant drop in imports rather than a gain in exports.

China’s economic situation, including its inflation rate and real estate situation, are not in good shape either. Inflation hit 3.6 percent in March, 0.4 percentage point higher than in February. Average housing prices in 70 cities in China declined for five consecutive months from October last year to February this year. Forty percent of provincial governments in China saw their debt ratios exceed 100 percent in the wake of mounting fears over fiscal deterioration in the provinces.

Chances are also high that a hard landing by China could pose a major blow to the Korean economy, whose top export market is China with 24.1 percent. A sluggish Chinese economy will lead to a fall in Korean exports.

The Strategy and Finance Ministry said in the report, “Korea’s export growth rate vis-à-vis China declined from 34.8 percent in 2010 to 14.9 percent last year,” adding, “Korea need efforts to diversify its export markets, including those in emerging economies.”

“Since China is implementing policy to expand its domestic market, Korea needs comprehensive measures to support Korean corporate advance into China’s service market, not to mention the export of cosmetics, cars and high-end electronic products, by overcoming the conventional export method of processing trade.”

weappon@donga.com