[The Editors' Verdict] Korean Economy Faces the Test of 'China Risk'

Government Must Exercise Diplomatic Power to Prevent Disadvantages
Companies Should Seek New Strategies for Marketing in China

August 24, 2015. This day is recorded as the day the global financial markets panicked due to the 'China Shock.' The Shanghai Composite Index turned entirely red within 30 minutes of opening, and over 1,600 stocks plummeted to their lower limit. Although the Chinese government mobilized pension funds to manage the crisis, stock indices across Asia and even currency values tumbled one after another. It was so severe that The Wall Street Journal warned, "The upcoming economic crisis will be Made In China."

The day the global financial markets trembled in fear also became a turning point in US-China relations. While the US and China are now engaged in a hegemonic struggle, from the 1990s to the early 2000s, the two countries maintained a relationship akin to allies?at least economically. A representative example is when President Bill Clinton, who introduced tariff policies in 1993 to improve China's human rights issues, withdrew those policies the following year and granted China Most Favored Nation status. American companies, acting as behind-the-scenes lobbyists, played a significant role in this. At that time, the Chinese government provided various benefits to US companies, and in return, these companies acted as special envoys to mediate tensions between the two countries whenever issues like human rights arose.

However, the situation changed rapidly after the 2010s as China's economy slowed down. The Chinese market turned into a battleground for companies, and the Chinese government began openly supporting domestic firms. Dissatisfaction among US companies that had played lobbying roles inevitably grew. Furthermore, starting from late 2014, with China's Belt and Road Initiative, US companies found themselves forced into zero-sum competition with Chinese firms even in third countries, leading to a decline in corporate lobbying efforts. It was also around this time that the US began adopting laws and policies to address geopolitical conflicts and human rights issues with China. China's economic slowdown not only plunged the global economy into chaos but also negatively impacted US-China relations.

The problem is that the China risk, which resurfaced after eight years amid worsening US-China relations, could once again shake the entire world. With the Biden administration planning to restrict Chinese investments not only in semiconductors but also in quantum computing and artificial intelligence (AI), the conflict between the two countries could escalate further. There are no American companies left to mediate the relationship between the two nations.

The US-China war is a perfect storm directly linked to our fate. Soon, we may face a moment of choice, forced to take sides by the two countries. This is likely why the entire nation held its breath watching the Korea-US-Japan summit held on the 18th (local time) at Camp David in the United States. However, there is much to lose regardless of which side we choose. Even though recent diplomatic and economic policies have shifted to 'Anmi-Kyeongmi' (security with the US, economy with China), the US will not safeguard our national interests. China is no pushover either.

In times like these, our government and companies must devise more sophisticated and meticulous response strategies. The government should exercise diplomatic power to ensure that our companies do not suffer disadvantages in either China or the US and prevent the risks of the US-China conflict from spilling over into the Korean economy. Companies should also pay close attention to the fact that, unlike the US and Japanese companies that are confronting China, Korean companies are actively pursuing marketing in China. It is not an easy task. However, if we fail to find a balance between the US and China, our economy, which is expected to "recover from the second half of the year," will be unable to escape the quagmire of low growth.

This content was produced with the assistance of AI translation services.