[GLOBAL EYE]Don’t rely too much on China

The Chinese economy has recently drawn attention from the international community after the “China shock.”
In the 1980s, the world became interested in China because of its market of 1 billion people, and in the 1990s as a threat to the world economy, when it voraciously absorbed raw materials as “the world’s factory.” Since then, China has been regarded as a big player in the world economy. Over recent years, China has led the global economic recovery as the “growth engine of Asia,” but the engine has become overheated, and as a result, the world worries about whether China’s economy will make a soft or hard landing.
China is still the land of opportunities, but plenty of risks are there. The recent “China shock” effect eloquently speaks to this point. We should neither overestimate nor underestimate the Chinese economy.
Until some time ago, China was filled with rosy expectations, feeling triumphant after its successful launch of a manned spaceship, being the first in the world to commercialize magnetic levitation trains, and winning the 2008 Beijing Olympics and the 2010 World Fair in Shanghai.
China could attract foreign investment and advanced technology with its masses of low-cost labor and considerable diplomatic power, and utilizing business connections of overseas Chinese groups. It also has the power to resist the pressure on trade and international concessions in the area of finance and foreign exchange.
On the other hand, China has not a few vulnerabilities. Its per capita gross domestic product is about $1,000. About 200 million make only $1 a day.
China is called a country of “300 million versus 1 billion.” Around 300 million living in the coastal region and 1 billion poor people inland live in almost completely different countries economically. Japan estimates the actual market size of China at 40 million people based on 15 million higher-class households in the coastal regions. The talk of a huge market with a population of over 1 billion is an illusion.
China has maintained a high growth rate thanks to its consumer goods-centered exports to the United States. Of these exports to the United States, 80 percent are products made in China by U.S. companies. More U.S. companies have been moving their manufacturing operations to China because of the cheaper labor.
Japan exports to China construction equipment and machine tools for car parts, which is indispensable to China’s industrial development. As its growth continues, China will become more dependent on exports to the United States and technology from Japan.
Although it has achieved a macroeconomic miracle over the past 25 years, China has a long way to go in accomplishing a microeconomic miracle because it has few indigenous companies, inefficient state-run corporations and insolvent financial institutions.
Korea’s dependence on China is problematic. China is like a lifeline to the Korean economy because it is our largest export partner; our exports to China accounts for 86 percent of the total trade surplus, and 50 percent of the increase in exports last year came from China, including Hong Kong.
But of total exports, only 12 percent is consumer goods and the other 88 percent is the supply of raw and subsidiary materials to the Chinese manufacturing industry for finished goods. A decline in new establishments and extensions in China would hit Korea hardest.
We moved our factories to China and complacently exported unimportant products that required no technology. As a result, the structure of our economy has become vulnerable to China’s every move.
It is only a matter of time before the hollowness of the manufacturing industry will weaken our growth potential, and our investment in China will backfire as China makes inroads into our domestic market, exporting its products to Korea.
China aims to achieve the French model, in which a country achieves democracy and a market economy and then effectively challenges the hegemony. But the grim reality is that the Chinese economy is difficult to separate from the United States and Japan.
Korea should reduce risks arising from our rapidly increasing dependency on China and at the same time expand and strengthen cooperative relations as a partner with China.
It would be a great mistake if we try to turn to China as an alternative to the United States, thinking that it is the answer to our economic woes and to our relationship with North Korea.

* The writer is the editor-in-chief of the monthly magazine “NEXT.” Translation by the JoongAng Daily staff

by Byun Sang-keun