Lecture at the 46th Korea Chamber of Commerce Jeju Forum
"Expectations for Growth in the Chinese Economy, Becoming Familiar
Missed the Timing for Restructuring
Now Need Trade Diversification and Restructuring"
Lee Chang-yong, Governor of the Bank of Korea, is giving a lecture at the '46th Korea Chamber of Commerce and Industry Jeju Forum' held on the 14th at the Haevichi Hotel Resort in Seogwipo-si, Jeju. Photo by Korea Chamber of Commerce and Industry
Lee Chang-yong, Governor of the Bank of Korea, diagnosed that the Korean economy must break away from the 'China special' and undergo a paradigm shift and restructuring.
At the lecture of the '46th Korea Chamber of Commerce and Industry Jeju Forum' held on the 14th at the Haevichi Hotel & Resort in Seogwipo, Jeju, Governor Lee said, "The Korean economy has become too accustomed to the 'China special,' which showed significant growth after China joined the WTO (World Trade Organization) in 2001," adding, "When per capita GDP rises above $10,000 to $20,000, the manufacturing sector usually declines, but Korean companies continued to grow by building factories in China and maintaining manufacturing." He explained that there is a side that missed the timing to foster higher-level industries such as services after manufacturing.
Regarding changes in the trade structure with China, he emphasized the need to respond through diversification. "Our economy earned a large surplus by exporting intermediate goods to China, but now China produces intermediate goods itself," he said. "The decline in exports to China is not only due to the conflict between the U.S. and China. We must now pursue diversification." He also stated that restructuring is necessary across industries and all sectors to match the rapidly changing industrial structure.
Lee Chang-yong, Governor of the Bank of Korea, is giving a lecture at the '46th Korea Chamber of Commerce and Industry Jeju Forum' held on the 14th at the Haevichi Hotel Resort in Seogwipo, Jeju. Photo by Korea Chamber of Commerce and Industry
Governor Lee said, "We must undergo numerous changes as we move toward a low-carbon society in response to climate change, but our industries are struggling to quickly restructure." He added, "In the labor market, temporary unemployment and layoffs may occur during the industrial transition. Social safety nets are needed during unemployment periods, but our society does not have a structure favorable to (industrial restructuring). Even if there is social resistance, restructuring is necessary, and I believe this will determine our future."
Regarding interest rate cuts, Governor Lee bluntly said, "Do not expect a cut within this year." He explained, "The inflation rate targeted by the Bank of Korea is about 2%, but if we start lowering rates at the current 2.7%, prices could rise again," adding, "If monetary policy fluctuates, the entire macroeconomic framework will be shaken. It is a risky matter."
He explained the difficulty in lowering interest rates by saying, "We need to observe because there is no certainty that inflation will sufficiently decrease technically." According to the Statistics Korea report, the consumer price inflation rate in June was 2.7% year-on-year, dropping to the 2% range for the first time in 21 months since September 2021. He also said, "Since the U.S. may raise rates twice, if we lower ours, the gap will widen significantly, raising concerns about what will happen to the foreign exchange market." He cited the 'household debt problem' as another reason for the difficulty in lowering rates. Governor Lee said, "Household debt increased over three months," adding, "It is unavoidable in the short term, but the large amount of household debt is a significant burden in the long term."
After the lecture, in response to an audience question about whether Korea could experience a 'lost 30 years' like Japan, Governor Lee explained, "Our young people seem more dynamic than Japan," adding, "If we can solve the restructuring tasks visible to us now, I believe we can escape the low-growth trap without suffering like Japan."
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