[COVID-19 Transformation] Shift in China-Centered GVC Begins... Devise a Sophisticated Exit Strategy

Post-Corona Era Roundtable
Concerns Over Environmental and Labor Retaliation in Korea

Photo by Yonhap News

[Asia Economy Reporter Moon Chaeseok] As countries around the world are expected to reorganize the global value chain (GVC) with a focus on decoupling from China after the novel coronavirus disease (COVID-19), there is a claim that South Korea needs a meticulous exit strategy for decoupling from China.

At a print roundtable hosted by Asia Economy on the 14th under the theme "The Era of Post-COVID Great Transformation - GVC at a Crossroads," participants identified "reshoring" and "decoupling from China" as the biggest characteristics of GVC reorganization after COVID-19. The pandemic has shaken China's status as the "world's factory," and with the rekindling of US-China trade conflicts, countries such as the United States, Europe, and Japan are reducing their dependence on China and readjusting supply chains centered on their home countries. Consequently, the South Korean government and companies face a situation where they cannot avoid considering a decoupling-from-China strategy while reorganizing the GVC in the post-COVID era.

Professor Heo Yoon of Sogang University Graduate School of International Studies stated, "Due to the severe acute respiratory syndrome (SARS) and COVID-19 incidents, the Chinese government has suffered a significant blow to its credibility in the international community, and the possibility of renewed clashes with the United States is increasing, causing China's national risk to follow an upward curve," adding, "It is a time when a reasonable alternative to hedge against China risk is needed." Professor Choi Wonmok of Ewha Womans University Law School said, "Due to coordinated pressure on China by major countries, domestic companies are likely to suffer long-term damage," and "Our government should also adopt reshoring policies to induce decoupling from China."

However, South Korea cannot ignore the precedent of domestic companies such as Lotte suffering retaliation due to the Korean Wave restriction order (Hanhanryeong) in China following the 2016 Terminal High Altitude Area Defense (THAAD) incident. Moreover, South Korea may have conflicts with China over diplomatic and security issues such as North Korea.

Participants in the roundtable emphasized the urgent need for the government’s diplomatic support to ensure that domestic companies do not suffer disadvantages, along with companies’ meticulous exit strategies. Professor Heo advised, "I agree that we need to accelerate decoupling from China, but doing so will incur considerable costs," and "Since the Chinese government might retaliate against companies decoupling due to environmental or labor issues, if the decision to decouple is made, a gradual and meticulous exit strategy over several years should be established."

Professor Jeong Ing-gyo of Inha University Department of International Trade explained, "From South Korea’s perspective, discussions about decoupling from China are much more burdensome than for other countries," and "It is important whether China takes measures to restore trust, and if it does not, our companies will have to consider a fundamental (decoupling) direction."

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