Thursday, July 24, 2014

Economic Dependence: Korean Economy Increasingly Subordinate To China

24 JULY 2014
The Korean economy’s dependence on China is accelerating in almost all fields ranging from trade to domestic consumption, finance, and real estate.
According to the Bank of Korea, exports to China accounted for 21.9 percent of Korea’s total exports of US$617.1 billion for last year. During the same period, 16.3 percent of the total imports of US$536.6 billion was from China.
At present, China is the largest trade partner for Korea. The ratio of China skyrocketed from 7.7 percent to 58.8 percent when it comes to the goods balance surplus. This means that both the export and import sides of Korea could be shaken without China.
The domestic market relies heavily on China, too. Store owners in Myeongdong would have to shut down their businesses without Chinese tourists. Shinhan Card big data shows that tourists from China spent 82.7 percent more last year when compared to a year earlier. The 4.3 million Chinese visitors spent 3.8 trillion won (US$3.69 billion) by credit card in 2013, which is equivalent to 48.1 percent of the total credit card payments by foreigners.
Chinese funds are exerting great influence in the financial sector as well. Chinese investors purchased Korean marketable securities worth a total of 1.412 trillion won (US$1.372 billion) between December 2013 and May this year to record the highest net purchase by country.
The yuan deposit balance has recently exceeded US$10 billion, and the ratio of it to the foreign currency deposits of domestic residents broke the 20 percent mark for the first time last month. The yuan deposit increased 50-fold during the past year. Under the circumstances, an increasing number of industry insiders are predicting that the Korean economy will revolve around the yuan, instead of the U.S. dollar, in the future, once direct won-yuan transaction is accelerated by capitalizing on the recent state visit of President Xi Jinping.
The area of the land in Jeju Island owned by Chinese increased 2.2-fold to 3.15 million square meters as of the end of last year. Americans own 3.74 million square meters of land on the island now. Chinese private equity fund Meitung is going to invest 5 trillion won (US$4.8 billion) in the real estate market of Korea. The Greenland Holding Group, which is planning to set up a building worth 1 trillion won (US$971 million) in Jeju, is targeting real estate properties of the Korea Electric Power Corporation, too.
“We now need to open the gate only after examining the characteristics of Chinese capital, instead of blindly welcoming them,” said Hyundai Research Institute analyst Han Jae-jin.
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