Public Exports Shrink for 5 Consecutive Months... Shaking the 'Dollar Box'

Continued 'Negative Growth' in Public Exports... Trade Deficit in October
Semiconductor Exports Down 23.3%... Background: China's Real Estate Market 'Ice Age'
Lee Chang-yang "Downside Risks Expand... Short-term Export Rebound Difficult"

Korean Economy Faces Dark Clouds
(Busan=Yonhap News) Reporter Jo Jeong-ho = On the 3rd of last month, containers loaded with export and import cargo were piled up at Busan Port's Sinsundae Pier and Gammam Pier. South Korea's trade balance recorded a deficit of 3.7 billion dollars in September as well. This marks the sixth consecutive month of trade deficits, the first time in 25 years since the 1997 International Monetary Fund (IMF) financial crisis. 2022.10.3
ccho@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Jun-hyung] Trade with China, which has served as Korea's 'dollar box,' is shaking. Exports to China have been in negative growth for five consecutive months, and the outlook is not bright due to the global economic downturn. There are no clear rebound factors, such as the continued decline in semiconductor prices, which are the mainstay of exports, deepening the government's concerns.

According to the Ministry of Trade, Industry and Energy on the 6th, exports to China last month amounted to $12.16 billion, down 15.7% compared to the same period last year. Exports to China have been shrinking for five consecutive months since June. On the other hand, imports from China have steadily increased every month. Last month, imports from China also rose 11.9% year-on-year to $13.41 billion.

With exports declining, the trade balance with China is at risk of falling into a deficit. Last month, the trade balance with China recorded a deficit of $1.25 billion. The trade balance with China had been in deficit for four consecutive months from May to August, then recorded a surplus of $680 million in September this year, but returned to a deficit in just one month. There are also expectations that it will be difficult for the trade balance with China to turn to surplus within this year.

China's Real Estate 'Ice Age'... High Possibility of Prolongation

The main reason for the dark clouds over trade with China lies in the recent 'ice age' in the Chinese real estate market. As the Chinese real estate downturn intensifies, consumer sentiment is shrinking, leading to a decrease in external imports. According to China Real Estate Information Corporation (CRIC), a market information company, the new housing sales of the top 100 real estate developers in China last month amounted to 556 billion yuan (approximately 108 trillion won), down 28.4% compared to the same period last year. China's housing sales have been in negative growth for 16 consecutive months since July last year.

This is why exports of major items such as semiconductors to China have all shrunk simultaneously. In particular, semiconductor exports, which account for the largest share of exports to China, amounted to $2.82 billion last month, down 23.3% year-on-year. Due to China's 'zero COVID' policy, which locks down major cities, some local construction projects have been delayed, causing exports of steel to China ($290 million) to decrease by 4.9%. The situation is similar for major export items such as petrochemicals (-20.5%) and displays (-25%).

The problem is that this situation is likely to be prolonged. The International Monetary Fund (IMF) recently lowered China's economic growth forecast for this year from 4.4% to 3.2%, a 1.2 percentage point cut, analyzing that the Chinese real estate downturn is unlikely to be resolved soon. This is based on the judgment that the liquidity crisis triggered by successive defaults of Chinese real estate developers could spread to the banking system.

Semiconductor Exports Also 'Red Light'... Price Decline Continues

To make matters worse, semiconductor prices are also declining. This is due to reduced semiconductor demand caused by the global economic slowdown and accumulated inventories of companies. According to the Ministry of Trade, Industry and Energy, the fixed price of DRAM last September was $2.85 for 8GB, down 30.5% from $4.1 a year earlier. During the same period, the fixed price of NAND flash dropped 10.6% from $4.81 to $4.3 for 128GB. The export price index for memory semiconductors has also continued to decline for four consecutive months from June to September this year.

Given the bleak outlook for the largest trading partner and export items, there are also predictions that the annual trade deficit could approach $50 billion. The Korea Economic Research Institute forecasted that Korea's trade deficit this year would reach $48 billion. The previous maximum annual trade deficit was $20.62 billion recorded in 1996, just before the foreign exchange crisis. Additionally, the institute projected the trade deficit ratio to trade volume (sum of exports and imports) this year to be 3.3%, the highest since 1996 (7.4%).

With no signs of improvement in trade conditions, government concerns are growing. Minister Lee Chang-yang of the Ministry of Trade, Industry and Energy said, "Downside risks are expanding due to inflation, the Russia-Ukraine war, and other factors, and major institutions are mentioning the possibility of an economic recession next year," adding, "It is not easy to reverse our exports in the short term."

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