The Korea Herald

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China rebound to benefit Korea

By Korea Herald

Published : Dec. 27, 2012 - 19:28

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China’s economy will create a juicy opportunity for South Korean consumer firms, as the Chinese authorities resolved to boost the world’s No. 2 economy, analysts said Thursday.

South Korea’s companies that have set their eyes on the Chinese consumer industry will be one of the biggest beneficiaries of China’s move to ramp up domestic consumption, they said.

“Chinese authorities have realized the limits of economic growth driven by exports and government investment,” said Kim Kyung-hwan, an analyst at Hyundai Securities.

“China is facing massive overcapacity in manufacturing, notably in heavy industries.”

China’s economic growth has been losing steam amid the eurozone debt crisis and other global uncertainties.

The gross domestic product grew 7.4 percent on-year in the July-September period, slowing from a 9.1 percent on-year increase during the same period a year earlier.

The figure also compares with the 7.6-percent on-year expansion in the second quarter and the 8.1-percent gain in the first quarter.

The portion of end-product consumption in contribution to the Chinese GDP growth has already surpassed that of fixed asset investment in 2012, Kim said.

He also noted that Xi Jinping, who was named the top leader of China last month, has stressed the importance of “xiaokang,” a Chinese term that can be translated as a society composed of a functional middle-class.

“During his inaugural speech, he mentioned ‘people’ about twenty times,” he said. “The leadership understands the urgency of growing a domestic market.”

Kim predicted that South Korea’s clothing retailers, technology gadget makers, cosmetics firms and confectioners would bask in China’s new economic policy.

Ma Ju-ok, a strategist at Kiwoom Securities, said China’s urbanization will also further foster domestic demand.

In the annual Central Economic Work Conference held earlier this month, a new urbanization plan was proposed, aimed at improving the welfare of rural residents.

The meeting, which is presided over by the country’s paramount leader, is considered China’s most important economic decision-making gathering.

“Urbanization in the less developed western region will mitigate a regional imbalance in China,” Ma said.

By 2022, China will complete urbanizing 60 percent of the country, tripling the current consumption level, he predicted.

Ma expected South Korean automakers, auto parts makers, online and TV shopping mall operators, fashion and cosmetics firms, and food companies that have already entered into the Chinese market will see robust growth.

Jin Ling at IBK Investment & Securities emphasized China’s domestic consumption has large room to expand.

“China’s income level has been rapidly rising, but its savings rate has been gradually falling,” Jin said.

“The savings rate peaked in 2009 with 53 percent and declined to 50 percent in 2011.”

The IBK analyst said, however, Chinese people have a higher inclination to save, compared to South Korea with 31.7 percent, Japan with 21 percent and the U.S. with 12 percent.

“The Chinese consumption is expected to burgeon, when the savings rate continues to drop,” she said.

South Korea makers of cosmetics, confectioneries and baby formula will grow the most in China, Jin expected. (Yonhap News)