Korean businesses remain wary of China’s reopening: survey

China’s reopening could deepen inflationary pressures, with limited impact on boosting exports, KCCI warns

This photo shows a street in city center of Beijing, China, Thursday (Yonhap)

Many Korean businesses are unsure about the actual profits that will come from the reopening of the Chinese economy and are maintaining a conservative stance in business expansion, a recent survey by Korea’s top business lobbying organization showed Thursday.

In a survey of 440 export-focused manufacturers conducted by the Korea Chamber of Commerce and Industry, 54.4 percent of the respondents said the reopening will not have much effect on their businesses, while 38.2 percent said it will lead to "positive effects." Another 7.2 percent said it will lead to “negative effects.”

Among those who remain uncertain of the effects of the reopening, 54.7 percent said exports to China will not increase much, 34.1 percent were concerned of jumps in prices of raw materials and energy, while 4.5 percent said they were concerned of the resurgence of COVID-19.

More than half of those with an optimistic outlook, 56 percent, listed an increase of exports to China as promising effects of the reopening. Some 24.2 percent said they are expecting stabilization of the supply network from China.

The KCCI backed the concerns, saying the economic effects of the reopening have been limited in China, as domestic consumption has not expanded as much as expected. On the contrary, the prices of raw materials have been on the rise due to increased demand from the resumption of production in China.

In early April, the price of copper rose by 23 percent compared to the lowest point in a year marked in July, while prices of iron peaked by nearly 50 percent since its dip in November.

"The survey shows though businesses have had vague expectations on the spillover effect of China's reopening, there haven't been visible results in business performances," an official from the KCCI said.

"While the export coupling between Korea and China has been weakening, the concept of 'peak China' has surfaced, claiming China's economic growth has hit the limit. Concerns are growing that the benefits of the reopening could be limited while we could suffer damages such as the rise of raw material prices,” the official noted.

Though China's economy is in recovery mode, not many Korean businesses have plans to expand their business in the neighboring country, the survey showed.

Some 72.7 percent of the respondents said they will maintain their businesses in China at the current level, while 18 percent said they are planning for a downsize. Another 18 percent said they have plans to expand their China businesses.

Despite the mixed reaction in how China’s reopening will affect their businesses, 60.8 percent of respondents said they are expecting the reopening to boost the Korean economy.

For China's reopening to become an opportunity for local businesses, 32 percent said improvements in Korea-China ties are needed, while 30.6 percent said uncertainties such as the US-China rivalry should be alleviated. Others mentioned proactive marketing and eased restrictions as necessary measures.

“The global value chain breakdown from the rise of the neo-protectionism in international trade threatens not just the national growth but the survival of businesses," Kim Hyun-soo, head of the industrial policy team at KCCI, said.

“To restart the growth engine of our economy through export recovery, strengthening of national ties on the base of trust is needed, not just the resolution of supply and demand for products.”

The survey was conducted from Feb. 21 to March 17.

By Im Eun-byel(silverstar@heraldcorp.com)