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Korea on alert over Chinese cities' Omicron slowdowns

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By Lee Kyung-min

Concern is spreading over a highly probable spillover of China's slowdown into the Korean economy, as foreshadowed by partial or full lockdowns of a number of major cities in the world's second-largest economy, a firm believer in the "zero-COVID" strategy.

The prospect of Korea's largest trading partner suffering a major setback in economic growth is a major red flag for Korea's export-reliant economy, given that the Omicron variant has also led to stricter social distancing measures here for months, with private consumption weakening rapidly.

Economists say that the situation may not be a matter of immediate concern, since it will take a while for China's downturn to dent Korean exports, but Korea's growth momentum can be undercut if and when a decline in the demand from Chinese buyers materializes. Others warn that China will grow about 4 percent this year, only about half the 8 percent from a year earlier, if it refuses to revise the current zero-COVID policy.

The world's second-largest economy planned to bolster private consumption in the first quarter of this year, in a state-led campaign to counter a slump in exports, after two years of explosive growth amid the shutdowns of competing nations due to global supply disruptions. But the unexpected rapid spread of Omicron is making it impossible for consumers to resume outdoor activities.

"Whether and by how much the China slowdown will hit Korea's exports will be reflected in the annual year-on-year growth rate," Seoul National University economist Lee In-ho said. "Korea itself is experiencing the fallout of the Omicron-induced gathering bans and reduced operating hours, so the recovery in consumption and improved business conditions for small merchants in the first quarter has already become a distant dream. How fast the containment is brought under control will determine the degree of recovery."

Certain major cities and provinces in China have been under full lockdowns since late last year, including Tianjin and Henan, where economic activities have ground to a halt.

Tao Wang, chief China economist and head of Asia Economic Research at UBS, said in a recent report that the biggest uncertainty in the Chinese economy stems from COVID-19 developments and the authorities' subsequent restrictions.

China's prolonged zero-COVID strategy could put downward pressure on the labor market, causing a slowdown in consumption and disruptions in production and logistics, the economist added.

China's growth has been weakening since the second half of last year, brought on by soaring commodity prices and an energy shortage crisis.

China's first-quarter growth of last year soared to 18.3 percent, mostly due to the base effect from a year earlier, before dropping to 4.9 percent in the third quarter and down further to around 3 percent in the fourth quarter.



Lee Kyung-min lkm@koreatimes.co.kr


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