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(EDITORIAL from Korea Times on Feb. 6)

All News 07:31 February 06, 2020

Growing China risk
Heavy reliance on one country troubles Korea

The global public health emergency arising from the new coronavirus reminds South Korea of how dangerous it is to have a heavy reliance on a certain country for economic growth. It is all the more so because the country is taking the brunt of the epidemic which originated in China's central city of Wuhan.

The rapid spread of the flu-like virus has already begun to disrupt the global supply chain as more than a few manufacturing firms in China have shut down their factories. This disruption has had a direct impact on Korea. The domestic auto industry is one of the manufacturing sectors most severely hit by the virus outbreak. Major carmakers are suspending their production due to a halt in the supply of components from Chinese auto parts makers.

Hyundai Motor, the country's largest automaker, has decided to fully idle all its assembly lines here from Friday for four or five days. The decision came after the company began to reduce operations last week. The idling is inevitable because three Chinese firms have stopped the supply of wiring harnesses.

The problem is that Hyundai and its affiliated Kia Motors have set up their parts supply network in China. This makes it difficult for the local carmakers to secure parts in case of an emergency such as the virus outbreak taking place in the world's second-largest economy.

Whenever an economic crisis or a diplomatic row with other countries erupts, the government and local businesses warn themselves of the Korean economy's excessive dependence on China and other major economies. They usually call for a reduction of such a heavy reliance and diversification of the country's export markets.

One of the latest developments is Japan's restriction of the exports of key materials crucial to Korean firms manufacturing semiconductors and display panels. Tokyo imposed the trade measure last July in apparent retaliation for the Korean Supreme Court's ruling that ordered Japanese firms to pay compensation to South Korean victims of forced labor during World War II. However, Korean companies have fared well by finding new suppliers in other countries or localizing materials and parts.

China is South Korea's largest trading partner. About 25 percent of Korean exports go there, while 21 percent of its imports come from the Asian giant. This shows that Korea is too dependent on China. The flip side is that China poses an ever-greater risk to Korea in the event of a regional or global economic crisis as well as geopolitical conflicts in East Asia.

A case in point is a diplomatic dispute over the U.S. deployment of a THAAD antimissile battery in Korea in 2017. The conflict resulted in Beijing's economic retaliation against Korea which cost local businesses more than 10 trillion won ($8.5 billion). The virus outbreak is feared to cause further damage to Korean firms if the epidemic persists for an extended period.

At stake is how to minimize the economic fallout from the virus. It is important to work out fundamental measures to manage the growing China risk effectively. Reducing the country's undue reliance is imperative although this is easier said than done. We should work hard to prevent the health emergency from turning into a perfect storm.

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