Major export market worryingly shrinks

China, dubbed the World’s Factory, shows grim signs of running out of steam as the main driving force for the global economy. China’s GDP only grew by three percent last year. This figure is way below the government’s target of 5.5 percent and the second-lowest record since 1976. Last year, the Chinese population, which had strongly supported the domestic economy and supplied a considerable labor force, recorded the first decline in 61 years. In addition, within this year, India will highly likely overtake the Chinese population in size.

The sudden slowdown of the Chinese economy is attributable to a combination of domestic and overseas factors at play: the nation's zero-COVID policies characterized by stringent quarantine and shutdown measures; and the reshuffling of global supply chains. China is expected to pick up to some degree this year. Many experts agree that the Chinese economy will find it hard to grow more than five percent in the longer term. This partly explains why the so-called "Peak China” theory gains attention by diagnosing that China has already reached its peak and only a downward path awaits it.

The slowing Chinese economy can pose a great risk to the global economy and the South Korean market. China is South Korea's largest trading partner accounting for almost one-fourth of the nation's international trade, although the share has slightly decreased. According to the Bank of Korea, a drop of one percentage point in Chinese growth rates can translate into a decrease of 0.15 percentage points in South Korea's growth rates. That is why South Korea should set up preemptive measures to ensure it stays safe if China does not slow down temporarily but is held back by low growth rates due to structural issues.

The key lies in reducing dependence on China and diversifying trade relationships. The ASEAN countries and India can give us an alternative. Exports to the ASEAN members and India increased by a double-digit rate last year, whereas there has been a decline in exports to China over the past seven months since last June. The ASEAN region, home to more than 0.6 billion people, is known for a young and dynamic market, coming across as a promising candidate for the No. 1 global workshop which can replace Chinese factories. Expected to be the largest market in the world very soon, India will shape a mega-sized consumer market to become the world's third-largest economy leaving behind Japan and Germany by 2027. Otherwise, South Korea can step in to be deeply involved in the U.S.-led efforts to reshuffle global supply chains in the semiconductor, battery, and other cutting-edge fields.

It has been the case that the South Korean economy can grow alongside China, which has shown unprecedentedly rapid economic growth for decades. However, it cannot be a lever anymore but a burden, presumably making it impossible for South Korea to stick to the handy tool used previously. Before it is too late, we should look squarely and draw a new economic master plan. Crises and setbacks can be a new opportunity. To make this statement valid and true, it takes the sense of urgency that we, bare-knuckled, felt when we had to knock on the door to the global market.