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South Korean Economy at Risk with Chinese Economic Crisis Looming Large
Krugman Warns of Economic Trouble in China
South Korean Economy at Risk with Chinese Economic Crisis Looming Large
  • By Jung Suk-yee
  • September 11, 2019, 13:01
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Paul Krugman, professor of economics at the City University of New York, has warned that the ongoing trade war between the United States and China may lead to a Chinese economic crisis

Paul Krugman, professor of economics at the City University of New York, said on Sept. 9 that the ongoing trade war between the United States and China may lead to a Chinese economic crisis and any escalation of the trade war may become a tipping point for China.

The South Korean economy takes a direct hit in that case. Last year, South Korea’s export and import-to-gross national income ratio rose 2.2 percentage points to 82.4 percent, the highest level since 2014. This means the South Korean economy is heavily dependent on the outside. For the first eight months of this year, South Korea’s exports to China and Hong Kong accounted for no less than 30.4 percent of its total exports and the ratio amounted to 21.6 percent on the import side.

A large number of companies in South Korea import materials from Japan to export intermediate goods to China. Many Chinese companies and South Korean companies in China produce finished products by using the intermediate goods and supply the products to the Chinese and overseas markets. This structure is the reason why the South Korean economy is especially vulnerable to an economic crisis in China.
 

Hyundai Research Institute recently pointed out that a one percentage point decrease in China’s economic growth rate results in a 1.6 percentage point decline in South Korea’s export growth along with a 0.5 percentage point decline in South Korea’s economic growth. “With the Chinese economy deteriorating fast, its financial insolvency, the trade war, the Hong Kong protests, and so on may trigger an economic crisis,” said Yonsei University professor Sung Tae-yoon, adding, “This means the South Korean economy is currently exposed to significant uncertainties on the real economy and financial sides alike.”