Korea to continue monitoring situation in China

It is too early to determine how cracks in China’s property market will impact the Korean economy, Finance Minister Choo Kyung-ho said.

Bank of Korea Gov. Rhee Chang-yong, right, speaks to Finance Minister Choo Kyung-ho at a plenary session held at the National Assembly in Yeouido, western Seoul, on Tuesday. [NEWS1]

It is too early to determine how cracks in China’s property market will impact the Korean economy, Finance Minister Choo Kyung-ho said.

“We have to comprehensively review the response by the Chinese authorities and situations at financial companies,” Choo said during a parliamentary session at the National Assembly in Yeouido, western Seoul, on Tuesday. “Korea’s exposure to China’s property market is extremely weak, and the impact will be limited.”

Chinese property giants have recently run into turbulent waters, with Evergrande filing for bankruptcy protection in the United States and Country Garden missing a payment on its multibillion-dollar debt in August.

“China accounts for around 20 percent of the global economy and a large portion of Korea’s exports, so we always have to stay vigilant on what is happening in China.”

Choo added Korea's trade balance will return to surplus in September, with exports beginning a full-fledged recovery

Choo also vowed to manage growing household debt strictly.

Korea’s household credit soared in the second quarter, according to the Bank of Korea’s preliminary data on Tuesday. Outstanding household credit reached 1,862.8 trillion won ($1.4 trillion) at the end of June, up 9.5 trillion won from three months earlier.

Household credit, which refers to credit purchases and loans to households by financial institutions, rose due to the recovery in transactions for houses, the central bank said. Seasonal factors, such as Children’s Day and Parents’ Day in May, also contributed to the upward trend.

The credit grew despite a policy interest rate that jumped to 3.50 percent from 0.50 percent in July 2021 as inflation remains above the target 2 percent rate.

Bank of Korea governor Rhee Chang-yong projected inflation to stabilize beginning in the second half of next year.

“Although there are multiple overseas factors, Korea is the only advanced country where inflation slid below 3 percent,” Rhee said at the session.

Korea’s inflation fell to 2.3 percent on-year in July after it peaked at 6.3 percent in July 2022, but the central bank estimates the rate to bounce back in August.

“There will be ripple effects if the price of petroleum rises, but consumer prices will reach above 3 percent passing through August and September, falling to a mid-2-percent in the second half of 2024,” Rhee said.

“The Monetary Policy Board will take the Fed's Jackson Hole Economic Symposium, FOMC, speed of China’s economic recovery and household debt for the policy rate into consideration.”

The board will hold a rate-setting meeting on Thursday. According to the Korea Financial Investment Association, 92 percent of bond experts, including analysts, projected the board to hold the rate steady at the meeting.

BY JIN MIN-JI [jin.minji@joongang.co.kr]