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Background behind the Slowdown in the Growth of China, Prospect for the Growth of China and its Effect on Domestic Real Economy

Author Kang Doo-Yong, Shin Hyoun Soo, Min Sung Hwan. Lee Sang Ho Date 2013.09.13 Issue No 566
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The recent slowdown in the growth of Chinese economy has originated from the limitation in its existing strategy to pursue investment·export -oriented growth, and the Chinese government’ policy to restructure its economy in response to the limitation.  

 

Major forecasting institutions are prospecting that China would make a soft landing. However, some raised the possibility that it might go through a short-term sharp decline in its economic growth during the restructuring process

 

As of the first half of 2013, China is the largest export destination for Korea, and the dependency of Korea’s export on China reached all time high. For this reason, if the slowdown in the Chinese economy intensifies, this would bring about direct and indirect effect on Korean economy.   

- In the case of the soft landing, the effect would be minimal. However, once the growth sharply declines, this would result in significant effects on the Korea’s export to the countries having abundant resources or Asian developing countries as well as China.  

- The change in the growth structure of China in a long ?term would cause negative impacts on Korea which is highly dependent on processing trade with China.

 

An 1 % decrease in the Chinese economic growth would lead to the 1.3% and 0.3% decline in the export of the entire Korean industry and value added, respectively, and for individual sectors, display semiconductor, automotive parts and petrochemical industries would be relatively much more affected. 

- It is also concerned that there would be an accelerated oversupply of the sectors such as steel which already is undergoing difficulties due to the excessive facility  problems in China

 

It is necessary for Korea to come up with long-term strategy in response to the change in the economic structure of China as well as prepare for the slowdown in China in a short-term.

- To reinforce the China ?related risk management problem and expand its market share into Chinese consumption market

- Given the industrial sophistication of China or the international division of labor between Korea and China, it is also required to focus also on developing technology of parts or capital goods whose export is very promising.