China Risk Threatens the World's Economy1)
The China risk refers to the risk that a company or country that relies heavily on exports to China faces when China's economic growth slows due to austerity measures or economic vulnerabilities. Currently, China is facing a severe economic slowdown and there is a potential for losses for global investors due to the escalation of real estate risks. On August 15, China's National Bureau of Statistics reported that China's retail sales growth in July was only 2.5% year-on-year. This shows that there is not much money circulating in the Chinese market and explains the lack of economic growth. Not only is there a default crisis at the big real estate company Country Garden, but another, China Evergrande Group, has filed for bankruptcy protection in the U.S. Bankruptcy Court in Manhattan. China's economic situation has worsened as investors, who had hoped for gains from a reopening of China's economy, have rushed to pull their money out at the prospect of such losses. On August 17, China's fund assets as measured by fund ratings firm FnGuide, fell by 444.8 billion won in one month. This led to a sharp decline in fund returns, indicating that China's economic recovery has been sluggish. As a result of this, austerity measures have been enacted, which is hurting countries that rely heavily on Chinese exports.
Korea is not immune to the threat of this China risk. The Korea Development Institute analyzed that if China's economic slowdown deepens, Korea's economic growth could fall to the low 1 percent range. This is because Korea's dependence on China remains high, and the potential for losses from the China risk is greater given the possibility of wider financial market fluctuations. In this regard, Joo Won, head of Economic Research at the Hyundai Research Institute, said, "In the past, when China's economy was experiencing a crisis, our exports turned negative and our growth rate slipped from the high 3 percent range to the 2 percent range. Given that, a slowdown in China's economy will still affect our growth rate." Korea had already seen its economic growth slow down in the past due to the Chinese risk, so it is hard to avoid its adverse effects. Currently, the Korean government is pursuing economic cooperation with the U.S. and Japan to address them and aims to counter China's strong influence in high-tech industries. It is expected to help Korea effectively respond to the China risk by sharing information with other countries. The government has also established both a task force to monitor the Chinese economy and a close coordination system between the Bank of Korea and the Financial Services Commission. This can be assumed to be an effort to keep the situation of China's economy under constant review and minimize the impact on the economy. As such, various efforts both domestically and abroad are needed to ensure that Korea's economy is not affected by the China risk, which is becoming increasingly likely as the global economy slows down.
1) Sin Ho-gyeong, Park Dae-han, "'Crisis in China' Impact on the Korean Economy..."Bad News, but Limited Impact"", YONHAP NEWS AGENCY, August 20, 2023