"Rapid Changes in GVC Due to COVID-19... South Korea Must Support Localization of Materials and Components"

The view of Gamman Pier at Busan Port, the hub of our exports [Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Amid the rapid changes in the Global Value Chain (GVC) due to the spread of the novel coronavirus infection (COVID-19), the Bank of Korea advised that South Korea should secure its domestic supply chain by supporting the localization of core materials and components.

The Bank of Korea's Economic Research Institute's International Economic Research Division researchers, Choi Moon-jung and Kim Myung-hyun, analyzed this in their report titled "The Impact and Implications of the COVID-19 Pandemic on the GVC" (BOK Issue Note) on the 25th.

GVC refers to an international division of labor production system where stages of production such as raw materials, intermediate goods production, and finished product processing and assembly are divided among multiple countries.

The researchers stated, "The decline in international trade due to the COVID-19 pandemic will be greater than that during the 2008 financial crisis, which was mainly affected by demand shocks," and forecasted that "the spread of COVID-19 may lead to reshoring of companies to their home countries, regionalization of the GVC, and risk reduction through cooperation among companies, thereby changing the GVC."

Earlier, the World Trade Organization (WTO) projected in April that the scale of international trade this year would decrease by 13 to 32%. The World Bank (WB) also predicted in June that the international trade growth rate for this year would be -13.4%, which is 15.3 percentage points lower than the forecast made in January.

The researchers emphasized that countries like South Korea, where the export industry's participation in the GVC is high and supply chains are concentrated in certain countries, need to seek mid- to long-term response measures.

They added, "Along with risk diversification through supply chain diversification, it is necessary to secure the domestic supply chain by supporting research and development (R&D) for the localization of core materials and components," and "It is also necessary to provide information on potential risks of the GVC, conduct stress tests, and support companies in utilizing Fourth Industrial Revolution technologies for supply chain risk management."

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