"Global Value Chain (GVC) Restructuring... Production Base Must Be Established in China"

[Asia Economy Reporter Hwang Yoon-joo] In response to changes in the global value chain (GVC) caused by the novel coronavirus disease (COVID-19) and the US-China trade dispute, there is a call for domestic companies to establish production bases in China.

The Korea International Trade Association's International Trade Research Institute stated in a report titled "Global Trade Environment and GVC Changes" that a new supply chain passing through China should be created as a countermeasure to the reorganization of the GVC.

Exports of raw materials and parts to China are mainly used for domestic consumption (78.1%) rather than for re-export purposes (21.9%). However, over the past 4 to 5 years, South Korea's exports to China have rapidly shifted from processing trade utilizing China's low wages to a parts supply system targeting the domestic market.

The International Trade Research Institute emphasized, "It is difficult for domestic companies to give up the foothold in China," and added, "A 'two-track' strategy is necessary, which maintains the existing supply chain focused on the Chinese domestic market while separating a supply chain that connects to third countries via China."

The biggest background for this change is that China has risen from a factory assembling consumer goods to a manufacturing powerhouse. As China's manufacturing develops, it is expanding exports by sourcing intermediate goods domestically. This has weakened South Korea's competitiveness in key industries such as shipbuilding, steel, and chemicals.

Moreover, the intensification of protectionism, such as the US-China trade dispute, is also one of the factors affecting South Korean exports. With China's export routes to the US blocked, competition with China within the ASEAN region is intensifying.

The International Trade Research Institute pointed out, "China holds an advantage in generic products exported by Korean companies," and stated, "Since China is a driving force of Korea's trade, a stable GVC should be established through two strategies: targeting the Chinese market and establishing production bases in China, rather than reducing production within China."

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