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Economic disorder with China should be entangled

Posted February. 11, 2016 07:39,   

Updated February. 11, 2016 07:43

한국어

Finance Minister Yoo Il-ho spoke Wednesday about the impact of THAAD deployment on the Korean and Chinese economy, saying, "What is reported in media is all I know," adding, "I'm not in the position to speak about diplomatic issues and I believe there is a channel for Korea-China economic relations." At the emergency macroeconomic and financial meeting on the day, Vice Finance Minister Choi Sang-mok forecast that North Korea risk will have limited impact on Korea's markets given past cases. With the nation in a crisis state, it appears to be a too casual comment by high-ranking economic officials.

It is okay if the remarks were deliberately toned down as they believe "economy is about sentiment." Looking so peaceful without a sense of crisis could also encourage investment and consumption. They should not forget, however, that the current economic nervousness comes from a mixture of external and internal factors, aggravated by foreign affairs issues.

While a sense of instability spread since the beginning of the year due to Middle East problems and Chinese economic slowdown, Japan's Nikkei stock index plunged below 16,000 yen for the second straight day on Wednesday amid Japan's negative interest rates. Economic instability in emerging markets has caused strengthening of yen, which in turn caused Japanese stock markets to tumble. As a result, Korea's financial markets are in alarms even during the Lunar New Year holidays. French multinational financial services company Société Générale recently released a report, which forecasted the Korean won will be the most hit currency if the Chinese yuan falls faster than expected. At the end of last month, Bank of Japan Governor Haruhiko Kuroda said the bank is discussing currency swaps with China's central bank, hinting Japan is preparing an economic and diplomatic safety net. Korea's economic team also needs to send clear messages to markets to overcome this difficult situation.

If Yoo thinks a separate economic line will mobilize keeping in mind Korea-China free trade deal, it is a naive thinking. It is a diplomatic accomplishment that Korea joined the Asia Infrastructure Investment Bank and the won-yuan direct trading market was opened in Shanghai currency market. In 2000, however, when Korea raised tariff rates on Chinese garlic by more than 10 times, China retaliated by going against the international law to ban imports of Korean mobile phones and polyethylene.

China has recently announced a regulation that electric buses equipped with new batteries produced by Samsung SDI and LG Chemicals within China are not eligible for subsidy, which fears has come true. Yoo must consider a scenario that North Korea's provocation could lead to economic retaliations due to strained Korea-China diplomatic relations, and preemptively create step-by-step measures.