South Korea's Finance Ministry said on August 20 that it has set up a special team to step up monitoring amid concerns about the spillover effects of China's property crisis.
The move comes after Chinese real estate giant Evergrande filed for bankruptcy in the US, while another major company, Country Garden, has also struggled with debt problems.
According to another official from the South Korean Finance Ministry, South Korean banks are not directly affected by the latest crisis involving Chinese real estate companies. However, experts say the crisis could have an indirect impact on South Korea if it causes anxiety in global financial markets, potentially leading to a global recession.
“As the South Korean economy becomes more sensitive to issues related to China, we are strengthening our monitoring of related issues,” another ministry official said.
However, this is just a hedge, as many market experts believe the impact on the South Korean economy will be limited, due to fundamental differences in China's banking and financial systems compared to those of other advanced capitalist markets.
“The current situation does not represent all Chinese developers. The problem is largely limited to Evergrande, Country Garden and a few other Chinese companies. The risks of default have been known and anticipated by the market for years,” said Seung Yeon-ju, a China strategist at Shinyoung Securities.
Country Garden, China's largest real estate company, is facing billions of dollars in losses and $200 billion in unpaid debts. Photo: NY Times
Evergrande's filing for bankruptcy in the US is seen as the company's attempt to continue delaying interest payments to foreign creditors while protecting its assets abroad, rather than a desperate reflection of the company's dire situation, the analyst explained.
Moreover, the latest indicators show that the Chinese economy has entered a recovery phase after hitting a low point late last year. The current debt crisis is unlikely to spread to the entire financial system, given the fundamental differences between the Chinese banking system and other capital markets, Mr. Seung stressed.
His views are shared by other experts.
“I think the Chinese real estate crisis will have a negligible impact on the Korean economy. Of course, the worsening global real estate outlook could have a negative impact on the Korean real economy. This could also affect the financial market, but its direct impact is expected to be relatively limited,” said Kim So-young, vice chairman of the Financial Services Commission (FSC), South Korea’s top financial regulator.
South Korean Finance Minister Choo Kyung-ho also said that the impact of China's real estate crisis on the Korean economy will be very limited, but the ministry will closely monitor the market, alert to any negative effects it may have on Korea .
Nguyen Tuyet (According to Yonhap, Korea Times)
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