The People’s Bank of China devalued the yuan by 1.86 percent on Aug. 11, 1.62 percent on Aug. 12, and 1.11 percent on Aug. 13. Under the circumstances, Korean companies in various sectors are trying to find out how to cope with the currency war.
In the Korean automobile industry, which has taken a hit from the weak yen, the devaluation of the Chinese yuan is likely to have a negative impact in the long term, although it can be helpful in terms of price competitiveness for a short while by entailing some depreciation of the Korean won. This is because global automakers that are expanding their facilities in China are likely to make use of the facilities to penetrate the Korean market, with consumption in China expected to shrink. Then, non-Korean cars made in China can be supplied to Korea, with the price gap between Korean cars and the others narrowing.
The steel and shipbuilding sectors, which have already faced a serious challenge from Chinese rivals, are predicted to be even more affected by the devaluation. In the shipbuilding industry, smaller firms relying more on less expensive ships such as bulk carriers are likely to take a blow. The Chinese shipbuilding industry has beaten that of Japan to become the second-largest in the world. Most Korean shipbuilders are currently suffering from adverse business conditions, and the larger ones have incurred huge losses while diversifying their portfolios to high value-added ships and offshore plants in order to outplay Chinese companies.
The IT industry is also vulnerable due to its high dependence on exports to China. Samsung Electronics and LG Electronics have increased their market shares in China by means of less expensive smartphones and consumer electronics, but this strategy does not work amid the devaluation of the Chinese currency.
In the display industry, in the meantime, Chinese companies such as BOE are expected to become more competitive in price. Korean companies’ share in the Chinese market may be significantly affected, with Chinese players already boosting their shares in the global market.