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Chinese economic slowdown becomes evident

Posted May. 20, 2023 08:03,   

Updated May. 20, 2023 08:03


Every financial arrow in China is now pointing toward a downturn. A series of underwhelming performances across consumption, production, and investment sectors have raised concerns about the health of the Chinese economy. Notably, the yuan exchange rate, surpassing the symbolic barrier of 7 yuan per dollar, underscores the gravity of the situation. This economic slump has cast a pall over the Korean economy, which had pinned high hopes on China's rapid recovery following its reopening last December.

Friday marked a significant moment, as the so-called "breaking of seven" – the breach of the 7 yuan to the dollar line – became a reality. This shift, the first in approximately five months since December 5 of the previous year, as per the People's Bank of China, redefines the landscape. The government, once tolerating 7 yuan as a line of equilibrium, now faces a yuan that continues to plummet, even amidst an overall weakening dollar. This economic barometer suggests the recovery momentum of the economy is dwindling. Compounding this concern, China's industrial production growth rate failed to hit the halfway mark of market predictions last month.

Alarming signs of economic sluggishness continue to emerge in the job market. In a first since its 2018 recording, China's youth unemployment rate rocketed past the 20% threshold last month, landing at a concerning 20.4%. With companies bracing for an economic decline, caution has become the new norm in hiring practices. And while other nations grapple with rising inflation, China is faced with a starkly contrasting picture: a worryingly low consumer price inflation of only 0.1% last month, hinting at deflation amidst the downturn.

The disappointing Chinese economic revival has loomed over Korea, which has already grappled with a seven-month streak of falling exports. Particularly, a drop in exports to China for the eleventh consecutive month has painted a grim picture. The current export slump can be attributed mainly to the semiconductor industry and dwindling exports to China. Unless China's manufacturing industry bounces back robustly, a revival of Korean exports seems unlikely. While domestic consumption fares better than the export market, the rise of 'guochao' (patriotic consumption) has been a stumbling block for Korean cosmetics, clothing, and franchises that once held a dominant position in the Chinese market.

The situation could potentially worsen should the G7 summit, which commenced Friday in Hiroshima, Japan, intensify its 'selective blockade' against China. With global companies increasingly relocating their factories and facilities from China to nations like India and Vietnam, Korea's exports to and trade with China seem set for an inevitable decline.

For Korean corporations and the government, the protracted Chinese slowdown must now be regarded as a reality rather than an aberration. It's high time to reevaluate their 'high in the first half, low in the second half of the year's strategies hinged on the Chinese economic revival. Leading exporters must steer efforts towards restructuring trade dynamics and expanding sales channels, focusing on the U.S. and Japan - two economies demonstrating an upswing in trade capacity and improving diplomatic relations, respectively. For those targeting the Chinese market with consumer goods and services exports, a strategic pivot towards 'high-end' products distinct in quality is crucial.