February 04, 2020 13:13
Korean car parts makers who set up factories in China have started halting production there due to the coronavirus outbreak. The closure is affecting Korea's automobile production. Ssangyong decided to halt its assembly lines in Pyeongtaek on Tuesday, while Hyundai and affiliate Kia began cutting down on production at its plants in Ulsan, Hwaseong and Gwangju last weekend.
The parts from China cannot be easily replaced, which could cause huge complications if the epidemic drags on, although some carmakers like Renault Samsung and GM Korea, which have supply sources elsewhere, are unaffected. This is the result of excessive dependence on China. If the domestic market in China falls into a slump and production and supplies come to a halt, Korea stands to lose the most. China accounts for nearly a quarter of Korea's exports and 21 percent of imports. The Korean economy has been smugly reliant on China's insatiable appetite for products, resulting in a lop-sided structure. China buys 60 to 80 percent of Korea's export items including clothing, cosmetics, household products and agricultural produce. Korea's tourism industry catches a debilitating cold each time China sneezes, with Chinese visitors accounting for around 35 percent of all tourists, while Chinese laborers make up 36 percent of all foreign workers here. Building sites, low-paying industries and care facilities for the elderly will not be able to operate without Chinese workers. Half of all foreign students at universities here are Chinese, while some colleges outside of the capital would practically have to close without them.
If China's economic growth drops just one percentage point, Korea's growth is said to decline by half a percentage point and 130,000 jobs are lost. If the coronavirus epidemic drags on, Korea's private consumption could drop between 0.3 and 0.4 percent, according to some forecasts. China would have no qualms about using this as leverage against Korea, whose economy suffered a W10 trillion loss due to China's unofficial boycott over the deployment of a Terminal High Altitude Area Defense battery here a couple of years ago (US$1=W1,194). There is no telling when another China risk will emerge. Coronavirus is just one example of these risks. Korea must come up with a long-term plan to wean itself from China.
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