Office of Commercial Affairs,
Royal Thai Embassy in Korea
1. Subject: FSC wants East Asia to cooperate on green finance
Date: October 18, 2010
Source: Yonhap News
The vice chairman of Korea’s Financial Services Commission urged increased cooperation between Korea, China and Japan to develop green financial products and services, the commission said yesterday.
Kwon Hyouk-se also said the support of Chinese leaders, including President Hu Jintao, for green financial services will be the basis for global leadership of Northeast Asian nations in the new financial sector, according to the commission. Kwon is currently on a visit to Shanghai to take part in the 7th China International Financial Forum that ended yesterday.
“We need to actively seek ways to increase cooperation between Northeast Asian nations, including Korea, China and Japan, in the green growth and green financial service sectors,” Kwon was quoted as saying in an interview with a Chinese newspaper.
In the interview, he said the three countries have struggled relatively as industrialization in the region started slower compared to western countries.
The Korean official also urged China’s support for Seoul’s plan to set up a carbon emissions trading market here, saying the countries can become “good friends in the green sector as they are in the economic sector.”
2. Subject: Strong won could hit GDP
Date: October 19, 2010
Source: JoongAng Daily Newspaper
Korea’s economy could lose as much as 7 trillion won ($6.25 billion) if exchange rate conflicts among major economies continues, a ruling-party lawmaker said yesterday.
Citing a Samsung Economic Research Institute report, Grand National Party Lawmaker Cheong Yang-seog said during the National Assembly’s annual audit of the Ministry of Strategy and Finance that Korea’s exports will decline by between 1.3 and 2.5 trillion won and its gross domestic product will shrink by between 3.5 and 6.8 trillion won.
The estimate is based on the institute’s research that the won’s value is expected to rise between 3.5 percent and 7.5 percent next year against the U.S. dollar, compared to the current year’s average. The won appreciated 6 percent from 1,198.1 won to 1,130.4 won between Aug. 31 and Oct. 1 this year, according to the report.
“The exchange rate issue is already reflected on the won,” the report said. “The won’s value is expected to increase by an additional 1 percent to 3 percent by the end of this year,”
According to the report, the won’s appreciation is going to hurt Korea’s exports. “Since Korea’s reliance on exports is high, the negative effect from exports is expected to be more serious,” the report said.
If the won’s value increases by 1 percent, the export growth rate will drop by 0.05 of a percentage point and the economic growth rate will decrease by 0.07 of a percentage point.
Appreciation will also have a huge impact on the country’s financial markets as investors seeking exchange rate gains invest in the country. Foreign investment in domestic stocks and bonds is growing rapidly, just like in 2003 when there was a similar dispute over exchange rates. In September alone, net foreign investment in local stocks and bonds stood at $3.7 billion and $2.7 billion, respectively.
However, if the won strengthens further and local exporters see their profits drop, capital is likely to leave the country.
3. Subject: Biz leaders urge FTA with China
Date: October 21, 2010
Source: Yonhap News
Business leaders from Korea and China agreed yesterday to cooperate for an early launch of free trade negotiations between the two countries, the Federation of Korean Industries said yesterday.
A Korean delegation led by Hanwha Group Chairman Kim Seung-youn met a group of Chinese business leaders in the northeastern Chinese city of Tianjin.
“They shared the view that economic cooperation between the two countries should be further increased, and agreed to provide full support for a free trade agreement between Seoul and Beijing,” an FKI official said.
In May, the two countries completed a nearly four-year joint feasibility study on a possible bilateral free trade agreement and reached an agreement to exchange their views on sensitive issues that arose.
Last month, trade officials from both countries also held two-day-long preliminary talks on their free trade agreement in Beijing. In Korea, there are growing calls for a free trade agreement with Beijing as a similar trade deal between China and Taiwan has recently taken effect. China is the largest buyer of Korean-made goods, and Korea is China’s No. 3 trading partner after the U.S. and Japan.
4. Subject: “S. Korea will Deal with Forex Issue in G20 Finance Meeting”: Finance Minister
Date: October 22, 2010
Source: Mail Business Newspaper
Minister of Strategy and Finance Yoon Jeung-hyun remarked on Tuesday that the South Korean government will actively deal with the foreign exchange rates issue at the Group of 20 Finance Minister Meeting which is scheduled to take place on October 22nd in Gyeongju.
Yoon received a question in a National Assembly audit for the Ministry of Strategy and Finance (MOSF) on that day about whether there is any scenario prepared to be proposed at the ministers’ meeting to put an end to the ongoing currency war.
“A framework session for sustainable balanced growth has been set up to address imbalances between countries with trade surpluses and countries with trade deficits, and between financially sound countries and deficit-stripped countries. The foreign exchange rates issue will be discussed in this session. Despite differences from each country, Korea will do its best as the host country of the G20 Summit. We do have various measures but specific things cannot be revealed yet,” Yoon answered.
As for social welfare costs, “I agree with the notion that high quality social welfare requires higher tax rates. Our goal for tax relief is to foster a virtuous cycle where active corporate investment leads to economic growth, and eventually increases tax revenues,” Yoon said.
About the employment issue, he pledged, “the recent employment strategy focuses on institutional improvement that can actually pave the way for new jobs. The second round of the employment project is under preparation to supplement the first project.”
5. Subject: China’s rate hike seen as hurting Korean exports - Analysts say the move may delay a similar rise by the BOK
Date: October 21, 2010
Source: Yonhap News
Beijing’s surprise rate hike is expected to impact Korea’s economic growth by possibly reducing demand in China. But it could also ease pressure on the Bank of Korea to raise interest rates this year. China’s central bank late Tuesday announced a 0.25 percentage point increase in its benchmark one-year lending and deposit rates to 2.50 percent. It was the first Chinese rate hike since December 2007 and was done in response to rising inflationary pressure, particularly in asset prices, and to encourage banks to cut back on excessive lending.
A Bank of Korea official said Korean exports would not benefit much from the possible appreciation of the renminbi in terms of competing with Chinese goods in overseas markets. Instead, export growth might slow since the interest rate hike could result in a slowdown in the Chinese economy, reducing demand for Korean products, the BOK official said. Korea’s export dependence on China has grown significantly in recent years. China accounted for 25.1 percent of Korea’s total exports in August, making it Korea’s largest overseas market.
This compares with exports to the European Union at 11.3 percent, the United States at 10.7 percent and Japan at 5.9 percent.
As a result of the possible slowdown in Korea’s economy, the Bank of Korea may decide to keep the country’s interest rate at the current 2.25 percent until the second half of next year, according to a report yesterday by Nomura Securities, the Japanese investment bank.
“We do not expect the BOK to follow the People’s Bank China’s hike for a long time,” Nomura said. “We believe that the BOK faces a dilemma between slowing growth and higher inflation, and that it will consider China’s rate move as another downside risk to economic growth.”
Nomura predicted the recent appreciation of the Korean currency will allow the BOK from being forced to hike the rate since currency appreciation can also help curb inflation.
“We are less positive on the export outlook, given that we look for the Korean won appreciation to eventually erode competitiveness, while our China economist expects Chinese import growth to slow to 12 percent in 2011 from 36 percent in 2010,” Kwon Young-sun, an economist at Nomura’s Hong Kong office, told Yonhap News Agency.
Nomura believes the BOK will resume hiking rates in the second half of 2011, with a 0.50 percentage point boost to 2.75 percent and a further 0.25 percentage point increase to 3 percent in 2012. The Chinese rate hike could help cool China’s recent controversy with the U.S. over the value of the renminbi, which in turn would also allow Korea to keep current rates steady. A continued low interest rate would help support Korea’s economic growth in the face of a possible slowdown in the Chinese economy.
The Korean government is currently expecting the nation’s growth rate next year to be 5 percent, but it could be lower if growth in China and Korea’s other major trading partners slows. However, the Korean stock market appeared to take the Chinese rate hike in stride despite a sharp fall in the U.S. stock market, international oil prices and gold prices overnight.
The Kospi index ended at 1,875.09, up 17.23 points. In contrast, the Dow Jones fell 165.07 points. Some analysts claimed that the rate hike will not substantially affect China’s economic growth. “In April 2006, after China raised its policy rate, the Chinese stock market enjoyed a bull rally that lasted for three weeks, and even the Korean market was on a bull rally for two weeks,” said an analyst at Eugene Investment Securities.
6. Subject: Korea may seek linking FX issue with IMF quotas - Proposal seen as breaking deadlock on currency dispute ‘The exchange rate issue is a zero sum game - someone is going to lose.’
Date: October 22, 2010
Source: Newsis
“As the host of the G-20 meeting, we will consult the nations that are involved in the currency dispute,” a senior government official said. “If it does not work, the heads of state will have to strike a deal at the G-20 Summit in Seoul.
“The exchange rate issue is a zero sum game - someone is going to lose and it will be difficult to reach a conclusion,” he said. “Thus, we are mulling over tying the International Monetary Fund quota and the exchange rate issues.”
China and other emerging countries hope to increase their clout in the IMF, but European countries, which are viewed as overrepresented at the organization, are strongly opposed to a quota shift to emerging markets.
The official’s comments suggest that Korea may propose that China and other emerging countries be given increased voting power at the IMF in return for promising to allow their currencies to appreciate.
The G-20 finance ministers and central bank governors will meet at the Hilton Hotel in Gyeongju, North Gyeongsang today. Debate is expected to be heated on the exchange rate issue in the first afternoon session. Over 100 officials, including U.S. Secretary of the Treasury Timothy F. Geithner and IMF Managing Director Dominique Strauss-Kahn, will attend the meeting.
Currency manipulation is another contentious issue.
Developed countries including the United States and Japan are pressuring China to increase the value of the yuan, but China has resisted a speedy appreciation of its currency. The Korean government is considering asking developed countries and emerging economies to make concessions.
Vice Finance Minister Yim Jong-yong expressed optimism, saying the G-20 nations are likely to reach a compromise. “China just increased its key interest rate and is showing sincerity,” Yim told the press yesterday.
On measures discussed to regulate the inflow of excess foreign capital, Yim refused to give a timeline, but hinted that it could be after the G-20 summit wraps up. “There would be a significant impact if we restricted non-savings liabilities,” he said. “We may target short-term foreign debt.”
At the Financial Stability Board meeting on Wednesday, financial supervisors and central bankers from G-20 member countries agreed on a draft of financial regulations, which will be presented at the finance ministers’ meeting and the G-20 Seoul Summit.
They agreed to strengthen supervision on “too big to fail” banks by mandating additional capital and liquidity requirements, the head of the international supervisory body said. “It is crucial to take actions to reduce moral hazards of systemically important financial institutions [SIFIs],” FSB Chairman Mario Draghi told the press after the meeting.
The exact definition of SIFI and the timeline for the new rule’s implementation will be decided at later FSB meetings. The FSB is discussing options, including contingent capital, bail-in bonds, capital surcharges and resolution mechanisms, which are still being debated. The FSB also discussed ways to regulate global derivatives markets, which have proved risky during the recent crisis, as well as curbing market participants’ dependence on credit rating agencies.
Source : http://www.depthai.go.th