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China is emerging as the biggest downside risk to Korea's economic growth as the world's second-largest economy is losing steam much faster than expected due to falling exports and mounting debts, according to global economists.
They said that of possible crises that may originate from the U.S., Europe and China, one from China will be particularly damaging as the country's largest trade partner accounts for about a quarter of Korea's export.
"The risks to Koreas are global or regional crisies. A regional crisis is likely to be led by China and a global crisis could originate in the U.S. or Europe," said Antonio Fatas, economics professor at INSEAD.
"There is no certainty that a crisis will happen but there are risks that are already visible through a potential further slowdown of the Chinese economy and a good number of risks apparent."
His assessment reflects growing concern about China's much-feared slowdown.
China's Premier Li Keqiang said March 5 that the country's economic growth in 2019 was revised down to a range of 6 percent to 6.5 percent from an earlier target of 6.5 percent over the past two years.
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China's exports tumbled the most in three years in February while imports fell for a third straight month. Chinese customs data showed the country's February exports fell 20.7 percent from a year earlier, the largest decline since February 2016.
According to the South China Morning Post, in December, Xiang Songzuo, an outspoken professor from the Renmin University of China, cited unidentified internal reports as saying that China's GDP growth for 2018 could be 1.67 percent or worse, in contradiction of official figures.
The daily also reported that a group of four economists published a paper arguing that China might have overstated its annual growth rate by 2 percentage points on average from 2008 to 2016.
Korea's China-dependent export will be hit further as the volume of global trade continues to diminish, according to Sohn Sung-won, a professor of economics at California State University-Channel Islands.
"With the ongoing trade friction between the U.S. and China, Korea's exports including cell phones, autos and specialized shipbuilding have lost market share to China. Korea has not found replacements for the lost market share," he said.
Korea is the most China-exposed country in the Asia Pacific region, and high reliance on China for export effectively widened the risk premium for investors, according to Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis Global Market Research.
"The heavy reliance on China not only magnified the spillover of the trade war on Korea but also exposed the country to the risk of a slowdown in both manufacture and services, given the slowdown of the regional giant," she said.
The only bright side, she added, is a recovering domestic demand, but doubts hover on the long-term prospect of private spending.
"Korea displayed a clear slowdown in 2018 with a persistent dent in investment. Three quarters of shrinking private investment served as the main drag in the data. Little improvement has been observed in the labor market and household debt remains high," she said.
Furthermore, she pointed out the deceleration of China coupled with softening global demand ― especially that of semiconductors ― is also a cause for concern.
"In 2019, Korea is expected to face persistent headwinds both externally and internally. Even if a ceasefire between the U.S. and China is reached, the slowdown of the global semiconductor cycle is also a critical risk for Korea," she said.
Such a sentiment is largely echoed by Xiao Chun Xu, Economist at Moody's Analytics.
"Semiconductor exports, normally a top earner, have also seen consecutive falls. The reduction in foreign trade coincided with a downward trend in Korea's terms of trade. Coinciding with the waning foreign demand cycle, manufacturing jobs have been also shrinking."
Thomas Rookmaaker, director of Asia Pacific Sovereigns at Fitch Ratings, said slowing growth in China and global trade tensions makes the county's economic growth outlook bleak.
"Exports could deteriorate faster than forecast by Fitch, as semiconductor shipments, which underpinned the export recovery in recent years, have fallen significantly in the last few months."
