"Be Cautious of Import Structure Changes and Supply Disruption Risks Following China's Carbon Neutrality Drive"

Bank of Korea, Overseas Economic Focus Report

[Asia Economy Reporter Seo So-jung] An analysis has emerged that South Korea's economy, which has a high proportion of trade with China, should pay attention to changes in the structure of goods imports due to China's carbon neutrality push and the risk of supply disruptions of some Chinese products.

Seungho Lee and Hyunbo Hwangbo, researchers of the China Economy Team at the International Economy Department of the Research Bureau of the Bank of Korea, stated in the report "Current Status of China's Carbon Neutrality Policy and the Economic Impact of Pollution Prevention Investment," published on the 11th in the weekly publication Overseas Economic Focus, "It is necessary to establish export strategies responding to changes in China's economic structure and to diversify supply chains for items with high dependence on China, such as solar power."

The Chinese government is expected to flexibly adjust the pace of policy implementation for the time being due to unexpected side effects arising during the carbon neutrality promotion process. Especially since the proportion of trade with China is high in our economy, the impact of China's carbon neutrality policy is also expected to be significant. According to the report, as the carbon neutrality policy promotes the service sector in the Chinese economy, the change in China's goods import structure is also likely to accelerate.

China's economy is transitioning to a growth structure centered on domestic demand due to the expansion of the tertiary industry sector. The export ratio to China's gross domestic product (GDP) (%, based on yuan) decreased from 24% in 2012 to 19% last year. The proportion of consumer goods in total imports has also gradually increased from 6.5% in 2011 to 9.6% last year. Over the past decade, the annual average growth rate of China's consumer goods imports was 8.9%, surpassing the growth rate of intermediate goods imports (5.7%).

Additionally, there is a risk of price increases or supply disruptions for some Chinese products in sectors such as renewable energy. For lithium hydroxide, an essential product for manufacturing batteries for electric vehicles, the import ratio from China was 84% as of last year, and the price rose 112% from 220,000 yuan/ton at the end of the previous year to 470,000 yuan/ton at the end of July this year. The risk of supply disruptions for some products with high dependence on China, such as the urea water shortage incident at the end of last year, also remains.

The report emphasized, "In response to China's shift to a domestic demand-centered growth structure, it is necessary to expand the export ratio of final goods such as consumer goods and diversify import sources in fields such as solar power and secondary batteries." Specifically, since Chinese consumers show high awareness of environmental issues by income level in the high-income class and by product in cosmetics and food products, it is explained that our companies need to respond by developing high-end consumer goods using eco-friendly raw materials and packaging.

Furthermore, it added, "Since the dependence on China for solar power products exceeds 90%, attention should be paid to the possibility of supply disruptions of raw materials such as polysilicon in the mid- to long-term perspective."

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