The Federation of Korean Industries pointed out that the China’s financial and real economic risks attributable to the slowdown of its Chinese economy are likely to continue for a while and South Korean companies would be well advised to make a proper response to those risks in setting up their business plans for next year in view of the South Korean economy’s significant reliance on the Chinese economy.
According to the Bank for International Settlements (BIS), China recorded a corporate debt-to-GDP ratio of 170.8% as of the end of last year after a continuous increase since 2010. This ratio is much higher than emerging economies’ average (104%) and G20 countries’ average (92%).
In the meantime, the China Banking Regulatory Commission (CBRC) recently announced that Chinese banks had 1.4 trillion yuan in non-performing loans (NPLs) along with an NPL ratio of 1.83%, a 10-year high, in February this year. Standard Chartered commented that the Chinese government would have to rely on a relief loan of US$1.5 trillion, equivalent to 15% of China’s GDP, if the banks failed to deal with the NPLs.
In 2014, the value of the sale of daily consumer goods in China increased by 3.5% from a year ago but the sales volume fell by 0.9%. China’s retail sales growth rate as a whole jumped from 9.7% to 21.6% between 2000 and 2008 but dropped to 10.6% in the first half of 2016.
Besides, China posted an increase in fixed asset investment of 9% in the first half of this year, which is the lowest level since 2000. That in the private sector, in particular, stood at 2.8% to reach the lowest level since 2012.
Moreover, China’s export growth rate, which had been as high as 31.3% in 2010, dropped to negative 2.7% last year and then to negative 7.1% in the first half of this year. During the first five months of this year, China’s imports from Japan fell by 5.5% and from South Korea by 11.2%, implying that the latter is more vulnerable to the slowdown of the Chinese economy and the following shrinkage in trade.