China's tech strides challenges Korea's exports amid growth woes: BNP Paribas

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China's tech strides challenges Korea's exports amid growth woes: BNP Paribas

Published: 23 Feb. 2025, 09:24 Updated: 23 Feb. 2025, 17:40

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

BNP Paribas South Korea Head of Territory Dorothee Regazzoni, right, and Senior Economist Yoon Jee-ho pose for a photo during an interview with the Korea JoongAng Daily on Feb. 11 at the bank's Korean headquarters in central Seoul. [PARK SANG-MOON]

[INTERVIEW]

Korea’s recent economic struggles have been no secret as the country grapples with a multitude of challenges — from U.S. President Donald Trump’s tariff threats to high-stakes political struggles at home.

But beyond the headlines lies another tectonic shift reshaping the country’s economic landscape: the rise of China as an industrial rival.

“We tend to say that around 70 to 80 percent of our exports to China are intermediate goods,” said BNP Paribas South Korea Senior Economist Yoon Jee-ho.

A booming Chinese economy once meant strong business for Korea, but the situation is now “very different,” Yoon pointed out, noting that China’s recent strides in technological development have made the country a stronger competitor. Such trends have added to Korea's mounting growth concerns, fueling calls for the Bank of Korea (BOK) to deliver a rate cut at its upcoming meeting on Tuesday to help boost the country's waning economic momentum.

Still, while the shift signifies harsher competition from its much larger neighbor, it may also open new doors for Korea.

Dorothée Regazzoni, head of territory at BNP Paribas South Korea, expressed cautious optimism for the year ahead, pointing out that the seemingly ever-growing list of downside risks facing Asia’s fourth-largest economy may serve as an opportunity as well.

“We see opportunities as the fundamentals in Korea continue to be strong,” said Regazzoni.

The corporate banking veteran most recently served as the global head of Multinational Corporate Coverage, Corporate and Institutional Banking at BNP Paribas’ Paris headquarters before taking the helm of the Seoul office in March of last year.

The Korea JoongAng Daily sat down with the regional head and the senior economist of BNP Paribas South Korea on Feb. 11 at its regional headquarters in central Seoul to discuss macroeconomic imperatives facing the country, as well as the Paris-based bank’s strategy and outlook for the year ahead.

The interview has been edited for length and clarity.

Q. How will U.S.-driven uncertainty impact the economy and BNP Paribas operations both in Korea and globally?

A. Regazzoni: There are still many uncertainties, and it is unclear where they are heading. They will affect Korean companies and certainly exports. Korean companies have been investing very heavily in the United States, which could be a mitigant.

There might also be consequences because the whole trade flow might divert. But Korean might suddenly have access to flows that are not going to the United States, which will make certain things easier in Korea.

In terms of environment, social and governance (ESG), U.S. policy shifts will certainly affect our clients, but our strategy is not related to the Trump administration. Rather, it is based on a deep conviction that this is the way that we should take going forward, and therefore, as the bank for a changing world, we are very committed to being part of that change.

We also need to make distinctions between announcements and what is really happening. The reality is that, for example, certain renewable energies today are very competitive on a stand-alone basis. The same goes for EV cars. You see a continuation of sensible investments, not just for the sake of ESG values, but for their inherent competitiveness in the market.

Yoon: We expect 10 percent increased tariffs on China, which may expand to another 15 percent starting from the third quarter of this year, and also unilateral tariffs to be implemented from the fourth of this year, phased over four quarters.

Based on such assumptions, we think there will be an inflationary impact on the United States, which will lead the Federal Reserve to begin cutting rates no sooner than the second half of 2026.

This would have various impacts, one of which is the strong dollar environment for an extended period. Potential retaliatory measures from each country or government may also hamper global trade momentum, which could have a downside impact, especially for countries like Korea.

Another impact we may see is through China. China is still an important trading partner to Korea, although the country has become a competitor, in some ways, in recent years, given its technological advancements. Still, we believe that a negative impact on China’s trade is likely to have a downside impact on Korean exports.

BNP Paribas South Korea Head of Territory Dorothee Regazzoni, speaks during an interview with the Korea JoongAng Daily on Feb. 11 at the bank's Korean headquarters in central Seoul. [PARK SANG-MOON]

How do you assess Korea’s growth outlook?

Yoon: In the near term, we expect growth will post 1.6 percent this year, lower than last year’s 2 percent. But we think the trajectory of growth will gradually improve as we head to the second half of this year.

From a long-term perspective, Korea is an aging economy with low birthrates. The potential growth will head down.

Some of the risks that we also see are from increased competition from China. China can produce goods at a much cheaper cost compared to Korea, and they have made many advancements in the technology side as well.

We tend to say that around 70 to 80 percent of Korea’s exports to China are intermediate goods. Thus, whenever there's a positive impact to China, Korea tends to benefit.

As of 2022, however, the situation is very different, with Korea importing more advanced technology goods from China. China has become more of a competitor for Korea.

Therefore, we think the importance of finding new growth engines outside IT products such as chips will be very important to delaying potential growth decline.

How will the emergence of China’s DeepSeek affect Korea and its competitive dynamics?

Yoon: Advancements in AI will be broadly supportive of the overall semiconductor industry, which will be positive for Korea's economy and exports, although at a corporate level, it could have mixed effects on certain companies.

Regazzoni: AI is a driver — and will be a driver. It will shape the way we're doing business and, for the Korean economy, it will create both opportunities and challenges.

This concept of Korea’s constant reinvention — this capacity to adapt and to reinvent — applies here, which I believe is a strength of the Korean ecosystem.

How do you expect the local currency to move this year?

Yoon: We do see scope for the won-dollar exchange rate to rise, especially in the first half, given our global views. A broad, stronger dollar environment, rather than the currency’s weakness by itself, will lead to a weaker won, as the domestic situation is gradually improving.

The won is also vulnerable to certain tariffs that the U.S. may impose, for instance, in the auto and semiconductor sectors. Korea does enjoy a lot of trade surplus against the U.S., which may put it in a vulnerable situation.

On that basis, we think the won-dollar rate will rise to around 1,500 per dollar by the end of 2025.

For the BOK, it's always a trade-off between growth and foreign exchange rates at this point. So, domestically, we think the BOK needs to deliver additional rate cuts and expect two additional rate cuts, likely to happen in the upcoming February meeting, and also one in the second quarter of this year.

Have Korean financial regulators become more tolerant of the weak won?

Yoon: In 2022, when inflation was soaring, there was a greater urgency to react to currency weakness. But this time around, from the inflation standpoint, we think policymakers are a bit less concerned because of the relatively stable inflation situation, although authorities should remain cautious.

BNP Paribas South Korea Senior Economist Yoon Jee-ho speaks during an interview with the Korea JoongAng Daily on Feb. 11 at the bank's Korean headquarters in central Seoul. [PARK SANG-MOON]

How do you evaluate the recent foreign exchange deregulation measures announced by the government and the BOK? Do you have any suggestions for further improvement?

Regazzoni: Generally, we really welcome the deregulations. It opens the market, creates more stability, interconnects the market and attracts foreign capital. As an active participant in the market, and also for foreign investors in Korea, we will implement those changes to the extent we can.

I would recommend keeping an open mind, to see what is happening in other places and to continue on that path. It is also important to communicate with the public why this is important and share with them what the opportunities are, not just the threats.

Yoon: The Korean financial market is very well known with a lot of clients having access to the market, and these announcements will only make it more accessible. While these are not for the purpose of index inclusions, eventually we think this will help Korea’s inclusion in major indexes such as the developed market index of Morgan Stanley Capital International.

The Kospi was one of the worst performers last year. Do you see any change in investment sentiment this year?

Yoon: From the valuation perspective, we think Korea’s stock market, because of the domestic political turmoil, has been maybe somewhat weaker than its fundamentals. So we think there are opportunities to invest in the Kospi. In January, the Kospi was already one of the outperformers in the financial market.

Overall, the consistent implementation of the government's initiatives, such as the Corporate Value-up Program and other policy measures aimed at stabilizing capital flow, should help Korean equities as well.

Regazzoni: Predictability and consistency are probably the two words that we would like to associate with government efforts, and they would help mitigate concerns.

I think people realize, not just with respect to market activity, that the fundamentals and consistency in Korea are there.

Beyond certain circumstances, the underlying fundamentals are strong, and there’s a commitment from the authorities to continue on the path that has been designed. There’s this confidence that comes out of that understanding.

What’s your business focus and outlook for BNP Paribas’ Korean operations, and the Korean economy in general?

Regazzoni: Our goal as a financial institution is to support our clients and the economy in their global businesses, leveraging our diversified and integrated model. I want to position BNP Paribas as the “go-to bank” for our clients’ businesses around the globe.

Europe in particular is an important market and will continue to gain in weight for the Korean economy, and we have a true role to play in bringing Korean clients to the European market.

We are also accompanying our clients in adapting their business models to new realities, through advisory for their capital markets activities and through the mergers and acquisitions part of our business.

One thing that I would like to highlight is our strong commitment to ESG and sustainable finance — a key component of who we are as a bank.

For Korea, it is a particularly important topic, with its EV industry and more. We see that the push for carbon neutrality remains the focus here. Beyond the transition component, renewable energy projects are critical for Korea’s reliance and domestic energy supply.

Yoon: In the near term, there are downside risks from the ongoing political uncertainty, which could delay the recovery of private consumption. But heading toward the second half of the year, we think domestic demand has scope to support growth, partly on the back of policy support.

Exports could be a bit difficult compared to last year, mainly due to uncertainty related to Trump’s policies. Given the uncertain nature of tariffs, potential implications on Korea’s exports may vary depending on what sectors or countries are targeted.

We work with Korean companies to address and mitigate the challenges, seek investments and respond to questions from the market.

Will the year 2025 be a promising one for BNP Paribas?

Regazzoni: I think it could be, though it won’t necessarily be a simple year. The fact that we're in the year of the snake is very telling, as this year will bring a transition and opportunities as well, which will require a certain wisdom in navigating those challenges.

BY SHIN HA-NEE [[email protected]]