“The Sluggish Exports to China to Continue in 3Q, to be Better in 4Q”

The Institute for International Trade (President, Kim Geuk-soo, http://iit.kita.net) of the Korea International Trade Association forecasts in the report titled “The Outlook of China’s Economy in the Second Half of the Year and Its Impact on the Exports to China” that Korea’s exports to China will continue to be sluggish until the third quarter due to China’s slow economic growth and decrease of consumption due to unstable stock market but it will be better after the fourth quarter as the large scale investment, such as One Belt, One Road, in China as well as China’s exports and introduction of new products will increase.

China’s economic growth rate of the second quarter was 7.0 percent, which was higher than the expected 6.8 percent, and removed concerns over hard landing in Chinese economy. As the economy of the U.S. is recovering, China’s exports to the U.S. made turnaround to increase in June and the sales of consumer durables such as furniture, building materials and home appliances, increased due to the recovery of real estate market. In addition, as the exports and consumption increased, the industrial production growth rate slightly went up for three consecutive months.

Furthermore, the decrease of fixed asset investment slowed down due to the increase of investment in infrastructure by policies. The reason why China’s economic growth rate in the second quarter was higher than the expected was that first, the impact of the Chinese government’s mini-stimulus package is becoming visible. The Chinese government cut the benchmark interest rate by 0.75 percent point over three times in March, May and June. Particularly, the benchmark interest rate and the cash reserve ratio were down at the same time last June for the first time in seven years since the global financial crisis. In the end of March, the government implemented a powerful real estate stimulus package such as reducing the mortgage down payment ratio for the sustainable recovery of real estate market. Second, despite the manufacturing slowdown, the growth of service industry controls China’s overall economic downturn. The tertiary industry, which is service sector, took up 49.5 percent of China’s GDP in 2014. It has been constantly growing beyond the secondary industry since 2012. In the second half of the year, the growth rate of service sector went up 8.4 percent year-on-year, which is much higher than the overall economic growth rate.

In spite of financial instability and decreased consumption due to the plunge in stock market, Chinese economy in the second half of the year is expected to secure the government’s target 7.0 percent because of △ the Chinese government’s liquidity easing policy, △ exports increase led by the recovery of foreign demands, △ the rebound of real estate market.

Since China takes up about ¼ of Korea’s overall exports, Chinese economy’s sluggish growth rate has negative impact on Korea’s exports to China. In particular, the decline of China’s manufacturing, decreased consumption due to stock market anxiety and increasing self-sufficiency with the technical competitiveness of Chinese enterprises will result in Korea’s sluggish exports to China. However, Korea’s exports to China are expected to be better after the fourth quarter as the large-scale investment such as One Belt, One Road, will increase, China’s exports will recover and new products, including cars and smart phones, will be released.

Lee Bong-geol, research fellow at IIT, said “Due to the long-term economic downturn, Chinese consumer’s consumption patterns are becoming more reasonable. Therefore, Chinese companies with value for money products are rapidly taking over market share.” He stressed “In order to overcome this, Korean companies need to come up with not only quality products but also differentiated design and functions.” Moreover, he suggested “Korean companies should take advantage of all the opportunities created from the One Belt, One Road project, strongly driven by the Chinese government, new urbanization and service sector.”

korean-machinery.com | Blog Magazine of korean-machinery, brands and Goods

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