Impending Revaluation of Yuan Government, Businesses Should Prepare for 'China Risks'
Impending Revaluation of Yuan Government, Businesses Should Prepare for 'China Risks'
  • archivist
  • 승인 2005.06.01 12:01
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The appreciation of the Chinese yuan increasingly appears to be a matter of when and how much amid the escalating U.S. pressure. So the two contrasting reports issued May 31 to analyze its effects on the Korean economy deserved some attention. One, released by the Bank of Korea, was rather positive, while the other, by the Federation of Korean industries, was negative. As the old saying goes, however, they'd better provide for the worst, as the best seems to be hiding itself. According to the BOK report, a 10-percent increase in the value of the Chinese currency would increase Korea's trade surplus by $2 billion. Even if the Korean won is simultaneously revalued by 2 percent, the nation's trade balance would still improve by $800 million, it forecast. Most central bank officials appear to be playing down the impact of the yuan's upward movement. BOK Governor Park Seung said positive and negative effects would offset each other to leave limited changes. The FKI, a business lobby, sees it quite differently. It said the same 10-percent rise in yuan would deal a hard blow to Korea's main export industries, like steel, machinery and petrochemicals, which heavily rely on shipments to China. The yuan's appreciation is also unlikely to raise Korean exports' price competitiveness, as there are not many Korean export items directly competing with Chinese products outside China. If anything, the views of many regional analysts are closer to the FKI's. A possible slowdown in the Chinese economy as the result of a currency revaluation is to reduce Korea's exports to its largest market and main source of foreign earnings. China's slump can also lead to the sluggishness of major economies, forcing them to step up trade pressure in a "beggar-thyneighbor" competition. Korea may prove to be one of the biggest victims of renewed global trade war. If the U.S. and EU include Korea in targets of currency appreciation, the damage will redouble. There are rampant guessing games going on the Beijing's next currency moves. Predominant predictions are that the timing will be either in July or September and the scope, between 5 to 15 percent. If these prove to be correct, the overall impact on the nation's economy will not be that great. Again, however, things may not always go as expected and it is imperative for government and business officials to ferret out and minimize potential "China risks." There are still little signs of domestic demand recovering. If and when exports also hit a snag, few will be able to remain optimistic about the economy. Astute officials should have found such a signal in the sharp drop in April's exports.

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