By Kim Jae-kyoung
Staff Reporter

The nation’s top economic policymaker on Monday stressed that South Korea should not be overreacting to China shocks triggered by Beijing’s move to cool down its economy.

At a news conference held at the Kwachon Government Complex, Finance-Economy Minister Lee Hun-jai said China’s actions will be a plus for the Korean economy in the long run because such measures may ensure a soft landing for the Chinese economy.

``Although the nation will be affected by China’s tightening policies in the short run, there is no need to overreact,’’ Lee said.

``Controlling the overheating economy will help the world’s fastest-growing economy avoid a hard landing, which will be beneficial for us,’’ he added.

He pointed out that even if China takes measures to cool down its economy, the Chinese economy is expected to grow by 8 percent this year, with domestic demand likely to remain robust.

In an interview with Reuters Wednesday, Chinese Premier Wen Jiabao said China was committed to forceful measures to slow its economy, noting it could face resurgent inflation due to unchecked expansion in money supply and bank credit.

Wen added that China has restricted lending, clamped down on cement, steel and aluminum projects to curb excess development, and implemented land-use rules to slow industrial growth.

In a preemptive measure against possible China shocks, Lee, who is also the deputy prime minister, said that the government will hold inter-ministerial talks this week.

``Since the nation’s economy, especially exports, depends heavily on China, we should be careful about the future development of the Chinese economy,’’ he said.

Export dependency on China is expected to hit an all-time high this year as the ratio of exports to China in total export volume reached 18.5 percent in the first quarter of this year, higher than 15.5 percent for the U.S. market.

China became Korea’s largest export market in 2003, taking in 18.1 percent of Korean exports, pushing the U.S. to the number two post with a 17.7 percent share.

``Economic ministers will assess the long-term effects of China shocks, while seeking micro, short-term countermeasures,’’ he added.

Analysts said that China’s policies to slow its dangerously fast-growing economy will have a negative effect on the Korean export firms, especially those operating in China.

``Restricted credit and money supply in China will affect Korean firms with factories in China,’’ Mauro F. Guillen, professor of The Wharton School at University of Pennsylvania, told The Korea Times.

``Korea needs to continue looking for ways to compete in global markets not on the basis of cost but technology and product differentiation,’’ he added.

Touching on his road shows in Hong Kong, London and New York, the top policymaker said that foreign experts and investors predicted that the U.S. will likely increase its interest rate by 0.25 percentage points in August or in 2005.

He added that even if U.S. interest rates rose, this will be conducted gradually and will not affect growth.

In the meantime, the minister said that foreign investors shared the view that the economy will grow by more than 5 percent this year, but the recovery of private spending will be slow throughout the year.

``Household debt and credit delinquency problems are key to the recovery of domestic demand,’’ he said. ``Private spending will not pick up until these problems are resolved.’’

kjk@koreatimes.co.kr