A growing reliance on capital from China may soon become a major concern for South Korea’s financial market, according to industry watchers on Monday.
China’s foreign direct investment into the nation reached $1 billion in the January-September period, a 230 percent rise from the same period last year, according to the Ministry of Trade. The nation’s investment in Korea’s stock and bond markets was 23 trillion won ($21 billion) in August ― more than 50 times the 470 billion won recorded in December 2008.
It may be beneficial for the economy to have access to diversified foreign capital, as in the past Korea relied mostly on the United States and the United Kingdom, the experts said. However, concerns are mounting about the growing influx of investment as it could lead to growing Chinese influence on policy and capital flight in the local market.
“China’s capital will continue to flow into the local market due to its latest policy to expand foreign investment, geographical factors and Korea’s extensive economic ties with other countries,” said Lee Chi-hoon, a researcher at the Korea Center for international Finance.
“China’s policy change on currency and foreign investment may greatly affect the local financial market due to its growing government-led investment, such as the sovereign wealth fund,” he said.
Others are concerned about a possible economic downturn in China, which would trigger a sudden capital outflow from local financial markets.
“An economic slowdown in China may bring about a huge financial shock in the domestic market,” said Lee Chang-sun, a researcher at LG Economic Research Institute.
The government should step up monitoring of Korea’s currency value, and also of the current account and foreign exchange reserves in order to cushion such impacts, he said.
By Shin Ji-hye (
shinjh@heraldcorp.com)
