Tensions in South Korean Industry over China's 'Taiwan Blockade' Military Drills (Comprehensive)

Significant Burden on Trade with Greater China Including China, Taiwan, and Hong Kong
Flight Schedules to Taiwan Already Starting to Change

[Asia Economy reporters Sunmi Park, Hyunseok Yoo, and Dongwoo Lee in Sejong] As China announced military exercises in the maritime and airspace areas surrounding Taiwan in protest of U.S. House Speaker Nancy Pelosi's visit to Taiwan, South Korea faces significant burdens in trade with Greater China regions including China, Taiwan, and Hong Kong.

On the 4th, the industry noted that China's military exercises effectively block Taiwan until the 7th in the surrounding maritime and airspace areas, which could disrupt trade with Taiwan. According to the Korea International Trade Association, the trade volume with Taiwan in the first half of this year totaled $28.289 billion, a 28.2% increase compared to the same period last year ($22.061 billion). Although Taiwan accounts for only 4% of South Korea's total trade volume, it ranks 6th among all trading partners after China, the U.S., Vietnam, Japan, and Australia. The trade balance recorded a surplus of $529 million, and trade, which had slowed since COVID-19, had been revitalizing since last year.

Particularly concerning is that trade between South Korea and Taiwan is concentrated in semiconductors. In the first half of this year, South Korea's exports of memory semiconductors to Taiwan amounted to $2.152 billion, the largest share among export items. While Taiwan is strong in foundry (semiconductor contract manufacturing), it relies on Korean companies such as Samsung Electronics and SK Hynix for memory semiconductors like DRAM and NAND flash. Additionally, global IT companies and component manufacturers have production bases concentrated in Taiwan, so if military exercises in Taiwan's maritime and airspace areas become frequent and prolonged, there is concern that supply chain disruptions for semiconductors and IT devices could occur again.

In fact, as China announced military exercises around Taiwan, changes have occurred in passenger and cargo flights to and from Taiwan, making concerns about logistics disruptions a reality. For flights to Southeast Asia, Korean Air and Asiana Airlines have devised alternatives by rerouting flights to avoid Taiwan's airspace. Flight schedules to Taiwan have begun to change. Asiana Airlines operated a flight 3 hours earlier on the day of the announcement, and the direct flight to Taiwan scheduled for the 5th was canceled. Since China's military exercises are scheduled from 1 p.m. to 1 p.m. Korean time from the day of the announcement until the 7th, Asiana Airlines plans to decide on the operation of flights on the 6th and 7th by monitoring the situation a day in advance.

[Image source=Yonhap News]

An industry official said, "Most Korean memory semiconductors exported to Taiwan are transported by air, so if the air routes are blocked, exports will be disrupted." The Korea International Trade Association stated, "So far, no direct damage to exporting companies has been reported due to China's large-scale military exercises, but if the military demonstrations are prolonged, export delays and other damages to some companies could increase, so we are closely monitoring the situation."

The U.S. move to block advanced semiconductor investments in China and promote the so-called ‘Chip 4 Alliance’ including Taiwan, South Korea, and Japan also poses a burden for South Korea. Especially, Korean companies operating semiconductor production plants in China have no choice but to be cautious amid U.S.-China tensions.

South Korea's trade balance with China has already been shaken, recording a deficit for three consecutive months for the first time in 30 years. If trade with China and the Greater China region, including exports to China, is disrupted, it is expected to inevitably impact South Korea's overall trade balance. Professor Ingyo Jung of Inha University's Department of International Trade said, "With Nancy Pelosi's visit to Taiwan, the U.S.-China conflict, especially the decoupling in advanced technology sectors, will accelerate," adding, "For South Korea, there is great concern about the impact on exports to China in advanced industrial sectors."

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