International Instability China Deflation Exchange Rate Fluctuations Weak Won ‘Worst’ Since Financial Crisis

International Instability China Deflation Exchange Rate Fluctuations Weak Won ‘Worst’ Since Financial Crisis

As international instability grows, funds are pouring into US Treasury bonds, gold, and the dollar, and the possibility that the rapid changes in Korea could spread throughout Asia has increased, the won has weakened by about 10% since the end of September, hitting a two-year low last week.

If the won weakens and breaks through 1,445 won per dollar, it is likely to be the lowest level since the global financial crisis in early 2009.

The consumer price index (CPI) for November announced by China’s National Bureau of Statistics rose 0.2% year-on-year, far below the 0.3% increase in October and the 0.5% increase forecast in a Reuters poll of economists, and was diagnosed as a ‘sign of deflation.’ South Korea recorded a record high of $12.2 billion in exports to China in October, the highest in 25 months since September 2022, as exports of semiconductors and petrochemicals, the top two export items to China, increased significantly, but in November, exports fell sharply to a growth rate of 1.4%, lower than the previous month (4.6%).

On the 4th, six opposition parties, including the Democratic Party, presented President Yoon's foreign policy as the main reason for their impeachment motion against the president, stating that "under the pretext of so-called value diplomacy, he ignored geopolitical balance and antagonized North Korea, China, and Russia, and insisted on a strange foreign policy centered on Japan," and included "spreading the ideology of freedom to North Korea" and "changing the national policy of freedom for Korea" in "diplomacy." Regarding the announcement by Minister of Strategy and Finance Choi Sang-mok that “market stabilization measures will be managed stably,” Forbes used the definitive expression “If the December 3 civil war permanently damaged the trust of overseas companies and investors, then Deputy Prime Minister Choi’s opinion was wrong” on the 6th.

In its economic outlook for next year, Forbes cited situations such as the re-election of US President-elect Trump and the slowdown in exports, and judged it as “zero response to international instability,” saying, “It is virtually impossible for the South Korean government to act quickly to implement policies to prepare for this.” Reuters gave a negative outlook for South Korean exports, saying that “imports were minimized as China transferred its inventory overseas in preparation for Trump’s tariff offensive in November.”

Reuters reported on the 9th that “South Korea, a key import indicator for China, saw its export growth slow for the fourth consecutive month in November, hitting its lowest level in 14 months as exports to the U.S. and China decreased amid tariff uncertainty,” and “China’s exports increased in November, which is slower than the results announced last month, but it is expected to continue the optimistic trend as Chinese exporters are more likely to bring forward shipments amid growing tariff risks from the next U.S. administration.”

Economists expect that Chinese exporters will be loading their shipments in advance when President-elect Trump takes office, and U.S. manufacturers are also expected to be pushing forward imports to ease the expected cost pressure. Chinese factories have been “cutting prices” to attract orders even before the November presidential election to prepare for tariff risks from the U.S., their largest trading partner.

Reuters said the fall of Syrian President Bashar al-Assad, the uncertainty in the already unstable Middle East, the criminal indictment of President Yoon Seok-yeol and political turmoil in France are potential reasons why investors cannot invest safely.

 

China on the 5th added 13 US companies to its sanctions list, including US defense contractors RapidFlight and BRINC Drones.

Six executives, including Raytheon’s President of Naval Forces Barbara Borgonovi and BRINC Drones founder and CEO Blake Resnick, were also sanctioned.

China’s Foreign Ministry said last month that the US approval of a $387 million defense package for Taiwan, including fighter jet spare parts, “seriously harmed China’s sovereignty and territorial integrity.”

The New York Times reported on the 5th, “The issue of arms sales has been one of the most controversial aspects, depending on how Washington and China interpret Taiwan’s status,” and “President-elect Trump has sent mixed signals about his support for Taiwan’s democracy, urging Taiwan to sharply increase its defense spending while complaining about Taiwan’s dominance in the global semiconductor industry, while at the same time nominating Taiwan-friendly Cabinet members, such as Senator Marco Rubio (Florida) as Secretary of State,” foreshadowing changes in the defense industry.

 

Yonhap News Agency reported on the 9th, citing defense industry sources, “It has been reported that the Polish government’s contract for additional purchase of K2 tanks, which was initially seen as imminent, is now uncertain whether it will be concluded within the year.” “It has been reported that, due to the aftermath of President Yoon’s declaration of martial law, it has become uncertain whether the contract for additional exports of K2 Black Panther tanks to Poland, expected to reach 9 trillion won, will be concluded within the year. In addition, as the vacuum in government functions such as diplomacy and trade is expected to be prolonged due to the inability of the president to perform his normal duties in the aftermath of the December 3 martial law incident, there are concerns that this could have a negative impact on defense industry exports, which have the characteristic of government-to-government transactions, and thus slow the growth of K-defense industry exports.”

 

The Forbes article, titled “Why Yoon Seok-yeol’s Desperate Stunt Show is a GDP Killer for South Korea,” stated, “The declaration of martial law has proven global investors’ suspicions that ‘Korean stocks are still not up to the global market standard,’” and “President Yoon’s martial law will deepen the political paralysis in South Korea, forcing 51 million citizens to pay the price of selfish political gambling in installments,” and stated, “The vulnerability of the debt economy under the security umbrella is exposed.”