hankyoreh

Industrial competitiveness between South Korea and China

Over the past 10 years, the effect of China’s economic growth rate on economic growth in South Korea has increased threefold, a new report says.

A report titled “The Recent Effect of Changes in Foreign Conditions on the South Korean Economy” states that the effect of an increase in the US economic growth rate on the South Korean economy has continued to decrease while the effect of the Chinese economic growth rate has become much greater. The report was prepared by Lee Dong-jin and Han Jin-hyeon, analysts with the Bank of Korea.

In the first quarter of 2005, a 1 percentage point increase in China’s economic growth rate had the effect of boosting the South Korean rate by about 0.1 percentage points, the analysts found. But in the first quarter of 2015, the boost to the economic growth rate had tripled, to 0.3 percentage points.

In contrast, while the US caused a 0.25-percentage point increase in the first quarter of 2005, by the first quarter of 2015 this had fallen by more than half, to 0.1 percentage points.

The effect on the South Korean economy of a 1 percentage point increase in the Japanese economic growth rate has remained fairly low, under 0.1 percentage points. The effect of the European Union (EU) was around 0.2 percentage points before the financial crisis, but since then it has fallen below 0.1 percentage points.

“The effect of China’s domestic growth rate has increased a lot since 2010, and it now has the biggest effect of any major country. This reflects the tighter economic connection [between China and South Korea], with the share of South Korean exports bound for China increasing from 15% in 2002 to 26% last year,” Lee Dong-jin said.

The effect of international oil prices on the South Korean economic growth rate is much lower than it used to be, the report found. In the first quarter of 2005, a 10% increase in crude oil caused South Korea’s economic growth rate to fall by 0.25 percentage points, but last year, this effect had decreased to 0.1 percentage points.

Since international prices of raw materials remain low, those prices had a small effect on South Korea, which depends on imports for its raw materials, the report concluded.

A 1 percentage point rise in global trade volume causes the South Korean growth rate to increase by 0.2 percentage points, the report said.

By Lee Jeong-hoon, staff reporter

Please direct questions or comments to [english@hani.co.kr]