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| Coins and banknotes of China's yuan are seen in this illustration picture taken February 2022. Reuters-Yonhap |
By Lee Yeon-woo
China's full-swing reopening has long been viewed as a potential boost for the global manufacturing industry. However, changes in the country's economic structure, coupled with the real estate crisis, are expected to result in a diminished impact on the global economy compared to previous years, as noted by the Bank of Korea (BOK) on Friday.
Concerns are rising that China's waning growth could hinder progress in the global manufacturing industry, including in Korea.
"A significant spillover effect on the global economy was expected followed by China's reopening, due to the country's surge in infrastructure investment and alleviation of supply chain disruptions," a report from the BOK's research department stated.
"However, China's once-dominant role in the global manufacturing industry has waned, with demand for durable goods being low and that for service consumption rising."
Uncertainties surrounding China's economic direction amid its recent real estate crisis are causing both individuals and firms to become risk-averse, resulting in a slowdown in external demand.
The changes are also driven by major economies restructuring their supply chains post-pandemic, with an emphasis on advanced industries to maintain dominance in their technological and production capabilities. Consequently, China's trade volume with technologically advanced countries is declining, as the nation grapples with restricted access to advanced technologies stemming from its conflicts with the U.S.
"The production indices of major economies, Korea, Taiwan and Japan ― countries where a significant proportion of the manufacturing industry revolves around China and IT ― are experiencing sluggishness. In contrast, the U.S., Mexico, and India have reshaped their supply chains and display a more stable status," the report stated.
The U.S. is channeling 1.8 percent of its gross domestic product (GDP) towards the IT sector over the next decade through various subsidies. This initiative aims to establish a comprehensive advanced industry supply chain domestically. Similarly, Germany and Japan are actively enticing global semiconductor giants like TSMC to invest within their borders.
The global manufacturing industry is expected to see gradual improvement after 2024, the report noted.
"To effectively navigate the shifts in the manufacturing landscape and bolster the economy's growth potential, it's imperative to diversify export markets and enhance industrial competitiveness. Accelerating the transition to environmentally friendly practices is essential," the report suggested.
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