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(LEAD) BOK chief cites China as cause of local slump

All News 13:59 January 27, 2016

(ATTN: UPDATES with outcome of the meeting in paras 11-15)

SEOUL, Jan. 27 (Yonhap) -- South Korea's central bank chief called for a careful watch for changes in the Chinese economy Wednesday, noting that the ongoing troubles in the local economy may have been partly caused by a slowdown in the world's second-largest economy.

"Considering its impact on the global economy, we cannot but be sensitive to changes in the Chinese economy," Bank of Korea (BOK) Gov. Lee Ju-yeol said in a monthly meeting with economists.

The top central banker noted that should there be a new global recession, it will have been caused by slowing growth in China.

Lee said the difficulties his country currently faces may have also been caused by uncertainties concerning the future of the Chinese economy.

"The economy is continuing to show signs of instability with the global financial market showing great fluctuations at the beginning of the year, while in the local market stock prices plunged and the won-dollar exchange rate continued to drop," the BOK chief said.

"The reason may have been the result of many elements, such as the possibility of oil prices continuing to fall and uncertainty over the direction of U.S. monetary policy, working together, but the instability in the Chinese economy may have also been a reason," he added.

Since the beginning of the year, foreign investors have remained net sellers of South Korean shares, continuing their record selling streak for 37 consecutive sessions as of Tuesday.

The local currency also continues to remain weak against the U.S. dollar, once dipping to the lowest level since July 29, 2010.

"We are always carefully watching the Chinese economy but believe we must more closely analyze any changes in the Chinese economy and begin taking necessary measures," Lee said.

On Tuesday, the central bank reported South Korea's economic growth dipped to a three-year low of 2.6 percent in 2015, hurt by slumping exports and sluggish domestic consumption.

Later, the BOK said Lee and seven economists agreed there was little chance of the Chinese economy making a hard landing, but noted the volatility in China's foreign currency and financial markets will likely continue for some time.

"They agreed such volatility in China's financial market will not only affect the country's own financial market but also its exports, and said the country therefore must especially focus on maintaining stability," the central bank said in a press release.

The economists included Kang In-soo, head of private think tank Hyundai Research Institute, and Park Jong-kyu, a senior researcher at the state-run Korea Institute of Finance.

Touching on the issue of growing household debt, the participants stressed a need for what they called an "articulate management" of risks centered around restructuring.

"In addition, they noted an improvement in banks' profitability may help maintain the fiscal soundness of the entire financial system," the BOK said.


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