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Further Stimulus in South Korea? Depends on China

South Korea's plan to stimulate its weak economy via government spending and policy measures depends on how China's economy performs this year, the finance minister of Asia's fourth largest economy said.

"If China doesn't achieve 8 percent growth this year then that will affect Korea and the rest of the world. The Korean economy is quite resilient, but should Chinese growth far underperform expectations then I'm sure the government could adopt additional fiscal budget and other policies," South Korea's Bahk Jae-wan told CNBC in an interview.

South Korea's economy has been hurt by weak overseas demand. Economic growth in China, the largest destination for South Korean exports, weakened last year, while the debt crisis in the euro zone weighed on the global economy generally.

The country's central bank on Friday cut its 2013 growth forecast to 2.8 percent from a previous estimate of 3.2 percent, its third downgrade in a year, reinforcing expectations for another interest rate cut in South Korea in the months ahead.

"The government believes that growth will be slower in the first half than the second half. That's why we will be front-loading 60 percent of our budget expenditure in the first half," Bahk said.

South Korea in September unveiled a $5.2 billion economic stimulus plan in a bid to shore up its weakening economy. That followed a $7 billion package last June.

Bahk added that in case China comes up with weaker-than-expected growth in 2013 it will be met with further economic stimulus measures from Seoul.

China's economy has showed signs of recovering from a slowdown last year and many economists expect gross domestic product growth of about 8 percent this year from an anticipated rate of about 7.5 percent in 2012.

(Read More: World's No. 2 Economy Is Setting Itself Up for Solid 2013)

The ruling conservative party's Park Geun-hye, who narrowly won South Korea's election in December and will be president until 2018, has not yet unveiled the new government's economic policies but had campaigned to help ease the burden of high household debt, create more well-paid jobs and increase support for small businesses.

(Read More: Is South Korea Ready for 'Madam President)

"The new government's plans to promote SMEs (small and medium enterprises), boost welfare programs, create jobs are an extension of the current government's measures so there is policy continuity. I don't foresee much difficulty ahead," he added.

Asked about his advice to his successor in the new government, which takes over the reins next month, Bahk urged the need to boost South Korea's "economic resilience and financial soundness."

"Korea has its unique characteristics as an open economy yet without a reserve currency, so there needs to be a concerted effort to build up external soundness," he said. "In the face of ardent calls to boost welfare, expenditure might go up but the new government must persuade the public that the right amount gets spent in the right areas in a tailor-made program."

Contact Asia Economy

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