By Kim Yon-se
Staff Reporter

Should the Chinese economy go directly from a period of expansion to a downturn due to the retrenchment policy, South Korea will see its annual exports decrease by $5 billion, the Bank of Korea (BOK) predicted on Wednesday.

The central bank also forecast a drop of 0.3 percentage point in economic growth and a 0.1 percentage point in consumer price in Korea with China’s possible failure in the policy. Last year, China alone took in $35.7 billion worth of Korean products.

In its report, the BOK said it couldn’t rule out the possibility of a ``hard landing’’ for the Chinese economy.

Hard landing is the opposite term of soft landing, or a smooth slowdown of sustainable growth with little inflationary pressure.

According to the BOK report, the Chinese economic growth rate may fall from the estimated 9 percent level this year to 5-6 percent next year in case of the hard landing.

``If Asia’s powerhouse fails to see the economy enjoy a soft landing, Korean stocks will plummet and the Korean won will depreciate against the U.S. dollar,’’ BOK official Koh Yong-soo said.

To brace itself for the worst case scenario, Korea should diversify its overseas markets to the European Union (EU) and BRICs economies, or Brazil, Russia, India and China, BOK officials said.

In particular, Korean exporters were advised to strengthen marketing activities against other countries in the steel, metalworking and chemical sectors who have a high ratio of export to China as soon as possible, the report said.

The number of employees in the steel, metalworking and chemical industries account for 24.1 percent of Korean manufacturing workers.

But the report predicted Korean financial services companies will not be hit by the Chinese government’s policy as their exposure to China is relatively small.

``Korean banks there will be almost immune from the policy from the Chinese government’s action to curb lending,’’ BOK officials said. ``So, Korean companies there, whose creditors are mainly Korean banks or banks from the United States, will not have difficulty raising funds for their businesses.’’

If China achieves the soft landing, the world’s economic recovery pace will not be upset, according to the report. The central bank also said the soaring raw materials prices will cool off thanks to an expected decrease in the demand in China.

kys@koreatimes.co.kr