In a statement issued after its meeting last week, the powerful politburo of China’s ruling Communist Party said the government would keep the economy operating “within a reasonable range” next year. This position set the tone for economic policies for 2015, which were mapped out at the closed-door Central Economic Work Conference that began Tuesday.
Although its conclusions are likely to be formally unveiled in March, economists have expected China’s policymakers to lower the official growth target to around 7 percent next year from 7.5 percent this year.
This shift to slower long-term expansion in favor of more sustainable growth is set to deepen the problems in Korea’s economy, which relies on China for more than a quarter of its overseas shipments.
In the first 11 months of this year, Korea’s exports to China declined by 0.5 percent from a year earlier. In November, the decrease was steeper, at 3.2 percent, according to data from the Ministry of Trade, Industry and Energy.
China’s gross domestic product is expected to grow by 7.5 percent this year, down from 7.7 percent in 2013. A continued slowdown in the world’s second-largest economy is likely to further reduce Korea’s exports to China.
What is more worrying is that Chinese competitors are rapidly catching up with Korean manufacturers to expand their presence in global markets.
According to a report released this week by the Federation of Korean Industries, a lobby group of large conglomerates, China has overtaken or led Korea in six key industries in terms of global market share over the past decade. The report showed China outpacing Korea in smartphones, cars, shipbuilding and marine plants, petrochemicals, steelmaking and oil refineries.
Local companies still maintain a competitive edge in semiconductors and LCD panels, but their lead has fast eroded in recent years.
Chinese manufacturers have rapidly narrowed the technological gap with their Korean rivals, with their price competitiveness expected to further strengthen on the back of Beijing’s policy to depreciate the yuan.
Korea is now in urgent need of measures to prevent its manufacturing exporters from being pushed to the sidelines due to decreasing exports to China and rising challenges from Chinese competitors in the global markets for high-tech products.
The country’s exporters should accelerate efforts to reduce their reliance on China and expand markets for their goods elsewhere, especially in the 10-member Association of Southeast Asian Nations.
They should also develop new products that can allow them to widen their technological advantage over Chinese competitors. If not, a bilateral free trade agreement reached last month would only open the gate for Chinese products to flood into the Korean market rather than helping local companies make inroads into China’s vast domestic market.
Government officials are urged to share this sense of urgency and should be quick and thorough in abolishing all regulations that have hampered development at local manufacturers.
At the same time, Korean companies need to strengthen efforts to find more business opportunities in the shift in China’s economic policies toward consumers’ interests and environmental issues. They may also benefit from selective participation in China’s plans to help build infrastructure facilities and boost economies across Central and Southeast Asian countries in steps to usher in an era of Eurasian prosperity.
