Since COVID-19, Closer Korea-China Relations... Increased Non-Face-to-Face Exports and Bio FDI

[Asia Economy Reporter Kim Hyewon] An analysis has emerged that South Korea's economic dependence on China has increased since the outbreak of the novel coronavirus infection (COVID-19). Not only exports to China but also the share of foreign direct investment (FDI) from China has expanded.

According to the Federation of Korean Industries on the 2nd, the share of exports to China from January to July this year recorded 25.8%, up 1.5 percentage points from 24.3% in the same period last year. During the same period, overall exports decreased by about 11% due to the impact of COVID-19, but exports to China turned positive from June. This is the first time in six months that South Korea's exports to China have shifted to an upward trend.

This is largely due to China's economic recovery. Since investment, consumption, and production hit their lowest points in February and March, China has been rapidly recovering from COVID-19 with a time lag. In particular, at the Two Sessions held last May, China decided to expand investment in new infrastructure such as 5G, artificial intelligence (AI), Internet of Things (IoT), and Internet Data Centers (IDC), increasing demand for related products.

Looking at the export performance to China by major items from January to July, key products such as petroleum products and LCDs declined by 5.1% compared to the same period last year, while semiconductors (3.8%) and computers (38.3%) showed growth due to the establishment of untact culture and the spread of demand for 5G smartphones. The Federation of Korean Industries analyzed that if this trend continues, semiconductor exports to China, which fell by nearly 30% last year, could increase by double digits this year.

Not only exports but also FDI inflows from major countries to South Korea in the first half of this year decreased across the board, except for China, which recorded a 184.4% increase. South Korea's FDI in the first half of this year was $7.66 billion, down 22.4% based on reported figures. Among these, only China showed simultaneous increases in both FDI amount and share. China's FDI in South Korea rose 184.4% year-on-year to $856 million, and its share increased by 8.2 percentage points from 3.0% in the first half of last year to 11.2% in the first half of this year.

The Federation of Korean Industries attributed this to the fact that while major countries were unable to conduct normal industrial production or overseas investment due to COVID-19, China entered a stabilization phase after March, allowing relatively normal domestic and international economic activities. They also interpreted this as a base effect following a 64.2% decrease in China's FDI to South Korea last year.

By industry, FDI growth was notable in non-face-to-face sectors such as bio-pharmaceuticals and electrical and electronics due to the impact of COVID-19. Compared to the same period last year, pharmaceuticals increased by 7,372.55%, and electrical and electronics by 3,805.5%. Supported by this, overall manufacturing investment in South Korea surged by 290%. This is also seen as a sign of change in the investment pattern that had been centered on finance and real estate.

The Federation of Korean Industries advised that early normalization of Korea-China economic relations should be pursued through Chinese President Xi Jinping's visit to South Korea within this year, and business opportunities between the Chinese New Deal and the Korean New Deal should be sought.

Kim Bongman, Director of International Cooperation at the Federation of Korean Industries, said, "We hope that President Xi's visit to South Korea within this year will be realized, leading to the lifting of China's restrictions on group tourism to Korea and the normalization of the Korea-China economic relationship framework to the pre-2016 THAAD incident level," adding, "We must discover new business opportunities between the Chinese New Deal (兩新一重) and the Korean Green New Deal to overcome the COVID-19 crisis."

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