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The Beijing headquarters of the People's Bank of China (Reuters)

China's easy money policies have the effect of increasing South Korean exports and lowering interest rates, an analysis shows.

Cho Yu-jeong, an associate research fellow with the Bank of Korea Economic Research Institute, published a report Tuesday titled "The Effects of Chinese Monetary Policy Changes on the South Korean Economy."

In it, she wrote that "China's easy money policies were found to increase South Korea's Chinese exports and cause decreased interest rates, increased stock prices, and inflation."

The People's Bank of China has implemented easy money measures with the introduction of various selective liquidity provision measures as it responds to the economic slowdown caused by the COVID-19 pandemic.

To begin with, the decline in the value of the yuan amid China's easy money measures results in rising Chinese exports to advanced economies. According to the report, an accompanying increase was found in exports for South Korea, which accounts for a large 73.2 percent share of intermediate goods exports to China.

In contrast, the analysis did not find any significant effects in South Korean exports falling as the decrease in the yuan's value leads to an appreciation of the won's value. The rise in Chinese consumption and imports was also found to have a minor effect in increasing South Korean exports of final goods.

China's easing measures were found to lead to a decrease in South Korean interest rates due to inflows of investment funds. As interest rates fall, the present value of companies' future earnings increases, leading to rising stock values as investment funds from around the world flow into the South Korean stock market.

In contrast, the rise in international raw material prices as Chinese demand increases was found to cause inflation pressure as expenses mount for domestic companies.

"As the financial connections between South Korea and China intensify, so too will the effects of Chinese economic fluctuations and changing trends in investment funds on the South Korean financial market," Cho said.

By Han Gwang-deok, finance correspondent

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