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Positive impact might not be as big as expected: analysts
By Yi Whan-woo
China's reopening is fueling optimism in Seoul that sluggish Korean exports will bounce back and possibly offer a breakthrough for the country's trade-reliant economy that is struggling with slowed growth.
During a Cabinet meeting in Seoul, Tuesday, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho urged all related ministries to "pay special attention to China's reopening to result in Korean businesses' export expansion."
His remarks came as Korea struggles with a triple whammy of high inflation, high interest rates and high currency rate amid global economic risks, including a year-long war in Ukraine and years of China's COVID lockdowns that were lifted only in recent months.
Exports, one of the two engines of Korea's economy along with private spending, saw a steep decline on weak demand for semiconductors and other key sales items. And for the first time since 2020, exports marked the fourth straight month of decline in January when outbound shipments dropped 16.6 percent year-on-year.
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| Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks as he presides over a Cabinet meeting at Government Complex Seoul in central Seoul, Tuesday. Yonhap |
The finance minister said the economic revitalization should be driven by bolstering the private sector "to overcome global economic challenges and take a leap forward."
"Accordingly, I ask every ministry to make full-fledged efforts to help expand exports and investments in the private sector and work as if their focus of area is trade and commerce," Choo added.
"I'd say investment opportunities led by the Chinese government will increase this year and such opportunities can possibly improve Korea's exports," a private think tank researcher said, asking not to be named.
In its analysis report on China's reopening, Tuesday, the Bank of Korea (BOK) said sales of chemicals and other Korean exports that are in high demand among Chinese consumers will recover in the short term. The BOK viewed exports of IT products, including smartphones and semiconductors, will recover "slowly over time."
In a separate analysis earlier this month, the Korea International Trade Association (KITA) expected the reopening to push up Korea's overall growth rate by 0.16 percentage point and the country's export growth rate by 0.55 percentage point, both for this year.
In particular, 0.16 percentage point is equivalent to one-tenth of Korea's 2023 growth rate estimated at 1.6 percent by the BOK.
However, some observers say the reopening will have a weaker-than-expected spillover effect on Korea.
They say pent-up demand in China can worsen global inflation, while also pointing out that Beijing is increasingly self-sufficient when it comes to intermediate goods, emerging from its heavy reliance on imports.
Under the circumstances, Hana Bank researcher Seo Jung-hoon warned against "painting a rosy picture" of the Korean economy in relation to China's reopening.
Citing the BOK report, he noted China's growth has less of a spillover effect on the Korean economy over the course of the year.
For every 2 percentage point growth of the Chinese economy, the estimated spillover effect on Korea was 0.5 percentage point to 0.6 percentage point in the past. But the rate has now dropped to 0.3 percent point or lower.
Concerning inflation, the BOK projected that massive pent-up demand from Chinese manufacturers can lead to a surge in the prices of energy and raw materials.
China has been reopening its economy step by step, starting from giving up its zero-COVID policy and allowing people to travel overseas. International experts say the revitalization of China's economy in general will spur growth around the world and help ease supply chain pressures.
But they are also worried about upward pressure on inflation, which can prompt the U.S. Federal Reserve to stick to a hawkish monetary policy and exacerbate global economic woes.
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