Korean companies on alert as China faces slowdown in economy: analysis

People’s Bank of China in Beijing, China. [Photo by UPI-Yonhap]

South Korean companies are monitoring closely the developments taking place in the Chinese economy amid sluggish production and consumption.

According to an analysis by Maeil Business Newspaper and the Korea Economic Research Institute of major stock markets in 11 countries on Tuesday, the combined market capitalization of China-listed companies, including those on the Shanghai, Shenzhen and Beijing Stock Exchanges, plunged 12.2 percent to $9.75 trillion as of August 18 from $11.11 trillion in August last year.

Th decline is in contrast to how the market capitalization rose in Germany (17.8 percent), India (3.4 percent), Korea (2.3 percent), the U.S. (1.4 percent), and Japan (1.1 percent) over the same period.

The analysis covers 37,515 non-financial listed companies in 11 countries across Asia the Americas, and Europe.

China’s market capitalization reached a year-on-year growth rate of 53 percent in August 2020 during the pandemic and grew by 24.6 percent in 2021. However, after experiencing negative growth of 3.4 percent last year, it has been declining for the second year in a row with a deeper drop this year.

“As the crisis in China’s real estate market has spread to the financial sector, anxiety is growing in both the capital market and real economy,” said Sung Tae-yoon, a professor at Yonsei University. “The growing stock market shocks that are dragging down the economy mean that it is difficult to be optimistic about the economic situation going forward.”

Of particular note is the accelerating decline in the revenue and operating profit of Chinese listed companies.

Among the countries analyzed, China was the only one to record negative revenue growth rate of 1.2 percent last year. Its operating profit decline rate (-6.2 percent) and other profitability indicators fell to the bottom of the list, showing a significant gap with the average of 10 other countries at 7.5 percent.

As major Chinese companies are struggling with significant losses, there are concerns that Korea’s barely recovering exports could take a hit.

According to the Ministry of Trade, Industry and Energy, Korea’s trade balance narrowly posted a surplus for two consecutive months in June and July after 15 months in the red. Particularly, the trade balance with China recorded a deficit of $1.27 billion in July.

The country’s exports to China fell by 25.1 percent on year to $9.9 billion in July.

The Korean government, in the meantime, is cautious about excessive concerns.

“Our exposure to the Chinese real estate market is very minimal, so the direct impact is limited,” said Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho during a meeting at the National Assembly’s Planning and Finance Committee on Tuesday. “Even if the trade balance shows a small deficit in August, it will return to surplus from September, and exports will gradually rebound.”