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Changes in the Top 10 Industries with High Export Shares to China. Photo by Korea Chamber of Commerce and Industry

[Asia Economy Reporter Choi Seoyoon] Over the past 20 years, the industry with the largest increase in export dependence on China has been the semiconductor industry.

According to the "Report on Changes and Implications of Export Dependence on China by Industry," released by the Korea Chamber of Commerce and Industry (KCCI) on the 30th anniversary of Korea-China diplomatic relations on the 21st, the industries with the highest export share to China as of last year were precision instruments (42.5%), fine chemicals (40.9%), semiconductors (39.7%), glass (39.3%), and petrochemicals (38.9%). This ranking is distinctly different from that of 2000, when industries with high export shares to China included wood (42.3%), leather and footwear (38.8%), petrochemicals (33.4%), and other electronic components (27.2%).

The KCCI analyzed, "While the export dependence on China for consumer goods has relatively decreased, exports of technology-intensive industries to China have significantly increased," adding, "This is a natural result of the structural changes in the industries of both Korea and China."

The industry with the largest increase in export share to China over the past 20 years is semiconductors. In 2000, the semiconductor industry's export share to China was 3.2%, but by 2021, it had risen to 39.7%, an increase of 36.5 percentage points, approximately 13 times higher.

The next industries with significant increases in export share to China were precision instruments (7.5% → 42.5%, up 35 percentage points), displays (2% → 35.2%, up 33.2 percentage points), ceramics (5.6% → 32.3%, up 26.7 percentage points), and telecommunications equipment (1.5% → 27.9%, up 26.4 percentage points).

The KCCI emphasized, "The increase in dependence on China for high value-added domestic industries also means that if the technological gap with China narrows, these industries are likely to suffer significant impacts," and added, "Companies and the government must put all their efforts into technological innovation to outpace China's pursuit."

It further stated, "High-tech industries directly linked to economic security are much more sensitive to external risks," and added, "Strategies such as export diversification must be prepared to prevent China from weaponizing this dependence."

According to the report, trade with China has rapidly increased since the establishment of diplomatic relations, acting as a driving force for Korea's economic growth. Eight years after establishing diplomatic ties, in 2000, Korea's export volume to China was $18.5 billion, accounting for only 10.7% of total exports. However, by 2021, it had increased nearly ninefold to $162.9 billion, representing 25.3% of total exports. Considering that Korea's total export volume increased 3.7 times during the same period (from $172.3 billion to $644.4 billion), this is a very significant increase. China surpassed the United States, Korea's largest export destination in 2003, and has maintained its position as the top export market ever since.

Korea's import volume from China was $12.8 billion in 2000, accounting for about 8%, but by 2021, it had increased more than tenfold to $138.6 billion, representing 22.5%. Meanwhile, Korea's total import volume increased 3.8 times, from $160.5 billion to $615.1 billion.

Top 10 Industries with the Largest Increase in Public Export Share Over the Past 20 Years. Photo by Korea Chamber of Commerce and Industry

However, the trade balance is deteriorating. The report analyzed that this phenomenon occurred because imports from China, especially in raw materials and intermediate goods, increased sharply, while exports to China increased relatively less due to decreased demand caused by China's economic growth slowdown under the zero-COVID policy.

The report also highlighted changes in the pattern of direct investment in China. Direct investment in China was only $800 million in 2000 but surged to $6.7 billion in 2021, reaching a record high. The cumulative amount reached approximately $81.6 billion. The report evaluated that although Korea's share of direct investment in China is about 2.5?3%, which is not large in absolute terms, it is among the highest levels of pure foreign investment excluding ethnic Chinese capital, alongside Japan.

The most significant change is the purpose of investment. More than half of the direct investment in China in 2000 (51%) aimed to promote exports. It was a kind of stepping stone investment for entering third countries. However, in 2021, investments aimed at entering the local market accounted for 67%, the largest share, confirming that Korean companies' perspective on China has shifted from a production base to a demand market.

Woo Tae-hee, Executive Vice Chairman of the KCCI, said, "Since the establishment of diplomatic relations between Korea and China, the economies of both countries have experienced various ups and downs such as the THAAD incident and the COVID-19 pandemic, but have achieved remarkable development through mutually beneficial relations," adding, "However, the sense of crisis felt by companies regarding the current Chinese market is greater than ever."

Vice Chairman Woo emphasized, "It is a time when comprehensive measures are needed to address the triple challenges of the possibility of China's economic slowdown, China's technological pursuit, and the intensifying US-China hegemonic competition."

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