Changes in China

China’s economy registered 6.9 percent growth in the third quarter. It’s the first time the figure fell below 7 percent since it dropped to 6.2 percent in the first quarter of 2009 shortly after the global financial meltdown in 2007-2008. Though the growth exceeded a market estimate of 6.8 percent, economists continued to express deepening concerns about the slowdown of the Chinese economy.

More worries come from specific indicators like a 20 percent reduction in imports and a decrease in electricity consumption, not to mention weak figures for both industrial production and investment. Some market watchers present the pessimistic analysis that China can barely maintain seven percent growth, which China vowed to do this year.

Yet the Chinese government’s attempt to transform its export-driven economy to a domestic demand-oriented one appears to be taking root. Thanks to the move toward a “new normal,” China’s services sector showed 8.4 percent growth compared to a meager 6 percent growth for the manufacturing sector. The share of household final consumption expenditure in China’s gross national product also has soared to 58.4 percent in the third quarter, a 9.3-percentage point increase over the year-ago period. That shows China’s economic structure is rapidly veering to consumption away from production, and to services from manufacturing.

Such a dramatic shift is both a crisis and opportunity for us. Korea’ exports to China account for a fourth of our total exports. But those exports have been declining since 2014 after annual 20 percent growth since 2000. Moreover, Korea has been suffering even bigger damage from China’s dwindling share of the processing trade. China’s imports for the processing trade were nearly cut in half - from 50 percent in 1997 to 26 percent last year. The problem is that 73 percent of Korea’s exports to China are intermediary goods, which are made into final products in China. The government and the business sector must continue to raise the share of consumer and capital goods, which currently account for only a quarter of total exports to China.

Our government and corporate sector must find effective ways to tap into China’s domestic demand through the services sector including tourism and education. Chinese tourists and students annually spend as much as $10 billion in Korea. Despite all the hoopla over the Middle East respiratory syndrome (MERS) breakout in Korea, which led to a fall Chinese tourists, they are now returning. Korea must wisely take advantage of such trends.

JoongAng Ilbo, Oct. 20, page 34