Korean gov’t beefs up monitoring of Chinese property market amid crisis fears

From left: Financial Supervisory Service (FSS) Governor Lee Bok-hyun, Financial Services Commission (FSC) Chairman Kim Joo-hyun, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, and Bank of Korea (BOK) Governor Rhee Chang-yong. [Courtesy of Ministry of Economy and Finance]

The South Korean government has decided to implement bolder measures to deal with the impacts of China’s real-estate woes on the global economy.

The government will form a dedicated task force comprising financial authorities, including the Ministry of Economy and Finance and the Financial Services Commission, to perform real-time monitoring of the overall situation. The Bank of Korea is projected to maintain the country’s policy rate at the current level at its policy meeting on August 24.

A meeting presided over by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho on Sunday focused on evaluating the repercussions of the recent real estate turmoil in China on both domestic and global markets.

The meeting was attended by Bank of Korea (BOK) Governor Rhee Chang-yong, Financial Services Commission (FSC) Chairman Kim Joo-hyun, and Financial Supervisory Service (FSS) Governor Lee Bok-hyun.

The officials concluded that the current Chinese turmoil would have a limited impact on the Korean economy despite growing uncertainty in the global financial sector and the rising volatility of the U.S Treasuries.

The risk exposure facing local financial companies against Chinese property developers is estimated at 400 billion won ($298.2 million), according to government data.

The officials agreed on implementing strengthened monitoring of financial sectors at home and abroad, as potential repercussions can be far-reaching depending on future developments.

The government will tap the economic taskforce team, which was set up in the second half of last year, to enhance capabilities in real-time monitoring of critical risks.

If necessary, quick measures for market stabilities will be implemented. Choo has ordered the creation of a dedicated team of staff responsible for monitoring economic conditions in China. The team, part of the Ministry of Economy and Finance, will engage officials from various financial authorities, including the central bank, FSC, and FSS.

The Ministry of Economy and Finance will also ramp up focus on Chinese economic situations through its regular meetings, such as that of the emergency economic response taskforce that is held twice a week.

The BOK, in the meantime, is projected to keep the current policy rate amid rising skepticism of a potential economic recovery in Korea. The central bank is highly likely to revise downwards its projected economic growth for this year, initially set at 1.5 percent.

“As Korea’s chip industry is deeply tied to the Chinese economy, China’s worse-than-expected slowdown heavily affects economic forecasts for the Korean economy,” said Hur Joon-young, an economics professor at Sogang University. “China’s recent resumption of group tour services is expected to have limited impact on the Korean travel industry.”