BOK sees low risk of China’s economic hard landing

The chance of a hard landing for China’s economy is low but its slowdown will inevitably have a negative impact on South Korea’s exports down the road, Seoul’s central bank said Tuesday.

In a biannual report submitted to the National Assembly, the Bank of Korea (BOK) said volatilities in the global financial market will continue to increase for some time due to uncertainties related to China.

“This is because a slowdown in China’s economy will lead to greater concerns over a global economic slowdown as the Chinese economy already contributes greatly to the growth of the global economy, while the growth momentum of the world economy has significantly weakened,” the BOK report said.

The central bank noted that the slowing Chinese economy will further hurt South Korea’s exports.

“This (China’s slowing growth) will especially lead to greater concerns over economic downturns in Asia’s newly emerging market countries that are closely linked to the Chinese economy,” it said. “Our country, too, may expect negative impacts on exports due to a cut in China’s imports of finished goods and economic slowdowns in newly emerging market countries of Asia.”

South Korea’s exports have dipped every month since the start of the year. China is by far the world’s single largest importer of South Korean products, accounting for over 25 percent of South Korea’s total exports in 2014.

Still, the BOK said the impact from China’s slowing growth will likely be limited with the possibility of a hard landing for the Chinese economy still slim.

“Despite a slowdown in the rate of growth, the possibility of a hard landing appears to be slim, considering the strong growth of China’s service industry, continued expansion of investment in infrastructure, and the strength of the Chinese government and central bank to counter future developments,” the report said.

One such development that may require due attention may come when, or if, the United States raises its key rate while the Chinese economy continues moving south, the bank said.

“There is a possibility a capital outflow from newly emerging market countries and financial market volatilities will expand if a U.S. rate hike and China’s economic slowdown take place simultaneously,” it said.


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