[EDITORIALS]Defenses needed for economyChina’s central bank raised borrowing costs Thursday for the first time in nine years, indicating the Chinese government’s determination to engineer an economic soft landing. Beijing announced its intentions to guide its heated economy to a path of slower growth last April and had used central directives to slow investment and lending. By raising interest rates in earnest this time, the Chinese government has sent out the message that it is determined to cool its heated economy down by trying out various measures. Although the interest rates were hiked a mere 0.27 percent this time, the effects of this raise on the world economy could be considerable.
Many international economists forecast that China will hike its interest rates further and eventually revalue its pegged currency. Such measures are expected to help the stability of the world economy in the longer run, but for the time being, China’s economic growth rate is bound to be stunted. This has significant consequences for Korea’s economy.
In particular, should the yuan be revalued, the pressure for Korea to revalue the won will doubtless grow. The slowdown of China’s economy growth forecasts gloomy prospects for our exports to China. Should pressure grew to revalue the won, the negative effect this will have on the price competitiveness of our exports will also be great.
For the last few years, exports were the driving force in the Korean economy, where domestic demand and investment have been faltering. Now even this might be compromised by changes in China’s economy and currency. The exchange rate of the won has already fallen to 1,120 won per dollar, the lowest in four years. Unless we start preparing for the effect the yuan might have on the won, we might find ourselves in a situation almost too difficult to handle.
The most urgent thing for us now is to minimize the Chinese and currency factors on our exports while finding fundamental solutions to revive domestic demand and investment. In particular, we must get rid of this veil of “uncertainty” over our society that is driving our economy into a dire situation.
Unless we change now we will fail in this fast-changing world economy. It is time not only for the government but the political community, civic groups and every individual to participate in efforts to save our economy.