"China's Trade Deficit, Dependence on Secondary Batteries as 'Chronic Issues'...Urgent Need for Supply Chain Diversification and Technological Superiority"

Martial Arts, Report on 'Recent Diagnosis of Trade Deficit with China'
83% Dependence on Chinese Secondary Battery Lithium Hydroxide Imports, 404% Increase in First Half

[Asia Economy Reporter Moon Chaeseok] An analysis has emerged that South Korea has recently been unable to avoid a trade deficit with China due to its excessive dependence on China for raw materials used in electric vehicle batteries, which are considered future growth engines. This suggests that the issue could become a chronic problem for the Korean economy rather than a temporary phenomenon. Diversifying key material import sources and achieving a technological "super-gap" are identified as the keys to improving the deficit.

The Korea International Trade Association's International Trade and Commerce Research Institute analyzed in its report "Diagnosis of the Recent Trade Deficit with China," released on the 18th, that the trade balance with China is structurally worsening. This is due to a short-term surge in imports of lithium hydroxide for secondary batteries, which have a high dependence on Chinese imports. Even China's import demand has weakened. For Korea, this means negative situations have occurred on both production and sales fronts.

The report pointed out that while domestic demand for lithium hydroxide, a core material for secondary batteries, is rapidly increasing due to the spread of electric vehicles, the dependence on Chinese imports reaches 83.2%, making diversification of import sources and alternative production urgently necessary. The problem is that China, Australia, and Chile together account for 86% of global lithium production. Although POSCO is investing in a lithium plant in Argentina with an annual capacity of 25,000 tons (enough for 600,000 electric vehicles), scheduled for completion in 2024, it is expected to take some time before actual supply is secured. Therefore, achieving diversification of import sources in the short term is unlikely.

The decline in China's imports due to economic slowdown was also cited as a cause of the worsening trade balance. Due to lockdowns to prevent the spread of COVID-19, China's import growth rate in the second quarter of this year plummeted to around 2.4%, and imports from China's four major trading partners?Taiwan, South Korea, Japan, and the United States?all turned to a downward trend starting from the second quarter.

Along with the slowdown in China's imports, the causes of sluggish exports to China in the first half varied by product. For semiconductor manufacturing equipment, China's self-sufficiency rate in equipment rose sharply from 21% last year to 32% in the first half of this year, resulting in a 51.9% decrease in semiconductor equipment exports in the first half. Additionally, sales of Korean brand new cars in China dropped by more than 37% until last month, and local production in China decreased by over 42% in the first half, causing automobile parts exports to shrink by 23.5%.

LCD (liquid crystal display) suffered from a worsening trade balance as major domestic companies reduced their business scale, significantly cutting domestic production, and the insufficient domestic LCD demand was replaced by imports from China and Taiwan. For petroleum products, export conditions deteriorated as China imposed local import consumption taxes from the second half of last year for carbon reduction reasons. As multinational companies withdrew their refining plants, domestic companies diversified export destinations to countries like Australia, which is experiencing an energy shortage, causing exports to China to fall by 47.8% in the first half.

Among consumer goods, cosmetics, which had maintained steady growth, also saw exports decline by more than 20% in the first half due to the spread of the Guochao (patriotic consumption) trend centered on China's "2030 generation."

Hong Jisang, a research fellow at the Korea International Trade Association's International Trade and Commerce Research Institute, advised, "To improve the trade balance with China, it is necessary to secure a stable import supply chain system for core materials related to next-generation export new industries," adding, "Maintaining the technological gap with China in technology-intensive industries to secure export competitiveness and strengthening customized export marketing strategies that can flexibly respond to changes in local conditions in China at the corporate level are also necessary."

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