China’s focus on stability to create opportunities for Korea

China’s new drive for sustainable growth raised expectations of bigger opportunities for Korean exporters, with some advising more aggressive investment to target mainland consumers.

Chinese Prime Minister Wen Jiabao on Saturday pledged to make the country’s growth more sustainable over the next five years with a lower GDP target of 7 percent, a sign Beijing intends to fight inflation and strengthen social security.

Wen said the government aims for an 8 percent economic expansion this year, a target Beijing maintained and the economy has exceeded for the past seven years.

Korean economists said the policy shift will benefit Korean exporters selling products to the world’s second largest consumer market.

“China is signaling to strengthen their consumer market and infrastructure which would benefit Korean exporters. Korean products are already being supplied for a lot of China’s inland state projects,” Rhee Tae-hwan, a research fellow at Samsung Economic Research Institute said.

Korea’s Finance Ministry also projected a rosy picture for exporters, saying increased domestic consumption in the country’s biggest trading partner would mean higher surplus.

“China’s policy growth policy change shows it will run its economy stably. It will have a positive effect on the Korean economy,” said Joo Hyung-hwan, head of the International Economic Affairs Bureau at the Ministry of Strategy and Finance.

During the opening of China’s annual legislative session, Wen said combating inflation would be Beijing’s top priority. China aims to cap the rise in the consumer price index around 4 percent this year, a target lower than the 4.9 percent increase in January.

“Recently, prices have risen fairly quickly and inflation expectations have increased. This problem concerns the people’s well-being, bears on overall interests and affects social stability,” Wen said. “We must therefore make it our top priority in macroeconomic control to keep overall price levels stable.”

But Wen also planned to create 9 million jobs annually while raising the minimum wage by 13 percent, which some economists said would toughen Beijing’s inflation fight.

Economists expected the moves to help pace price surges in other emerging markets but predicted China’s wage increases to weigh down the inflation combat.

“Increased wages would mean increased cost burdens for Korean companies operating in China. This would be a growing challenge for Korean exporters shipping their final products to a third country,” Rhee said.

A growing number of companies are moving away from China to avoid rising labor costs, a report by Aon Hewitt, a global human capital consulting company said.

Jung Dae-sun of the SERI said wage increases in China could nevertheless help the yuan appreciate against the U.S. dollar which would help reduce trade gap with its major trading partners.

“Wage increases will increase purchasing power of Chinese nationals which then would push up the real foreign exchange rate of the yuan,” Jung said.

The U.S. and other advanced countries have been accusing China of deliberately keeping the yuan undervalued to boost exports.

The yuan’s appreciation could work to make Korean goods more competitive in the global market, but the would-be advantage should still be considered alongside other economic variables, he said.

Others advised retooling investment strategies to target Chinese assets.

“Fresh investment opportunities could emerge from China’s new growth strategies across culture, service, environment and energy. Korean investors should diversify their investment and tap into their consumer market,” Om Jung-myung of SERI said.

By Cynthia J. Kim  (cynthiak@heraldcorp.com)