Tackling China’s challenges

China has a huge impact on our economy. If the economy of our largest trading partner slows down by 1 percent, it lowers our growth rate by 0.21 percent. The government must closely watch the downward trend in China to be fully prepared.

China has lowered its 2016 growth rate target to the 6.5 to 7 percent range at the National People’s Congress, which opened on March 5. The start of mid-speed growth after decades of dazzling growth is evidence that the Chinese economy is in serious trouble. The dramatic shift in China represents a keen sense of crisis in Beijing that China has no future if it does not strengthen its economic fundamentals through restructuring - without blindly obsessing about growth rates as in the past.

China is making every effort to avoid the “middle-income trap,” in which a country with a per capita income of about $10,000 gets stuck at that level without making further progress. But the troika of vibrant exports, consumption and investment - which served as the engine for China’s rapid growth - is losing steam. China finds the answer in what Xi Jinping called reform of the supply side. The Chinese government plans to encourage corporate innovation to help companies produce high-end products capable of creating new demand on their own - just as Apple’s iPhone did - and cut taxes on businesses to alleviate their costs. At the same time Beijing ambitiously plans to drive out a number of so-called zombie companies surviving on government subsidies.

China is both a challenge and opportunity for us. On the one hand, shrinking consumption stemming from the increasing instability of labor in its three northeastern provinces and the overall slowdown in exports put a heavy burden on our economy. China’s relentless push for manufacturing high-tech products also rings alarm bells for our industries, sandwiched between advanced economies and emerging ones. We must find effective ways to minimize our China risk.

On the other hand, the five areas - knowledge, information, culture, finance and services - China wants to develop through supply-side reforms offer a fresh opportunity given our comparative strength in those categories. As we have seen in Chinese people’s increasing demand for Korean milk due to their distrust of Chinese dairy products, we must take advantage of China’s increasing appetite for our fresh agricultural and fishery products as well as beauty products. Our government and corporate sector must chart a new path after carefully studying China’s reform drive.

JoongAng Ilbo, March 8, Page 30