SEOUL - An interest rate
hike by China is likely to have a limited short-term
impact on the South Korean economy which depends heavily
on the neighboring country for its exports, analysts
said Friday.
In a surprise move Thursday,
China's central bank raised one-year lending and deposit
rates by 0.27 percentage point for the first time in
nine years in an effort to cool its economy.
Stock analysts said South Korea's exports, the
main driver of the economy amid weak consumer spending,
may lose steam at a faster pace due to the rate
increase.
"China's unexpected rate hike is
expected to have a negative impact on exporting
companies," said Kim Sung-joo, an analyst at Daewoo
Securities Co.
China is South Korea's largest
export market.
If the rate increase leads to a
fall in South Korea's exports, it will be another blow
to local exporters already hit by the won's appreciation
against the dollar, he said.
Still, other
economists and government officials said fallout from
the Chinese move may be limited and that the rate hike
bodes well for the Korean economy because it points to
the possibility of an economic soft landing by China.
In a report, Hanwha Securities Co expressed a
similar opinion.
"The move is likely to give a
short-term shock to the economy, but its impact will be
limited."
Chung In-bo, an official at the
Ministry of Finance and Economy, said the rate increase
will not make a big dent in Korean exports to China.
"China's rate increase is likely to have only a
limited impact on South Korean exporters," he said.
"Companies which have borrowed from Chinese banks may be
affected slightly."
Over the mid- and long-haul,
China's latest cooling move is expected to have a
positive effect on the Korean economy, the official
pointed out.
"The rate hike is considered a
signal that the Chinese government will try to engineer
an economic soft landing," Chung said. "In that respect,
it's a good sign for the Korean economy."
His
view was echoed by Lee Joo-yul, an official at the Bank
of Korea, the country's central bank.
"If the
Chinese economy can make a soft landing thanks to the
rate hike, it will benefit the Korean economy as well as
the global economy," Lee said.
Nam Young-sook, a
researcher at the Korea Institute for International
Economic Policy, expressed a similar view.
"South Korean steel makers and property
developers may be influenced slightly by China's rate
hike," Nam said. "Still, the move is desirable because
it will help curb China's overinvestment."
However, some private economists warned any
slowdown in the Chinese economy would deal a harsh blow
to South Korea in light of its huge demand for
Korean-made industrial parts and raw materials.
"The worst-case scenario for the Korean economy
is China's economic hard landing," said Bae Sang-keun,
an economist at the Korean Economic Research Institute.
If there is excessive Chinese economic
overheating, a hard landing could ensue, dealing a
severe blow to the Korean economy, he said.
The
Korean economy remains stuck in a slump because of
feeble local demand sparked by the collapse of a
consumer credit bubble last year.
It grew an
annual 5.4% in the first half of this year, but some
economists warn its full-year growth rate may fall below
5%.
(Asia Pulse/Yonhap)
Oct 30, 2004
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