Martial Arts: "Trade Deficit with China Is a Temporary Phenomenon"

Martial Arts 'Analysis of Recent Trade Deficit Factors with China and Future Prospects' Presentation

[Asia Economy Reporter Kim Pyeonghwa] The recent trade deficit with China has been evaluated as a temporary result caused by external factors such as rising raw material prices and economic slowdown. However, since it is expected to be difficult to turn a surplus and expand profits in the future, it is advised to actively target the Chinese domestic market.

The Korea International Trade Association's International Trade and Commerce Research Institute announced on the 17th that it will release a report titled "Analysis of Recent Factors of Trade Deficit with China and Future Prospects" containing these details.

According to the report, the trade balance with China recorded a deficit of 300 million dollars in the third quarter of this year. Unlike the decrease in exports to China, imports increased, resulting in a deficit for the third quarter following the second quarter of this year. This is the first time since the establishment of diplomatic relations between Korea and China in 1992 that there has been a deficit for two consecutive quarters.

The report sees structural factors behind this phenomenon. It explains that as China increases its localization rate and reduces its role as a production base, both imports for domestic use (intermediate goods + final goods) and imports of intermediate goods for re-export to third countries have decreased. In particular, the decline in imports for export purposes is significant. In fact, the proportion of domestic use and indirect export in Korea's exports to China changed from 6:4 in 2007 to 8:2 last year.

Economic factors include ▲international raw material prices ▲investment within China ▲Korea's investment in China ▲Chinese consumption. The report analyzes that these factors have a major impact on exports to China. Regarding imports from China, the sharp price increases of major imported items such as semiconductors, fine chemical raw materials, and computers had an effect. The special circumstances such as economic recession after the spread of COVID-19 and the Russia-Ukraine war also influenced the surge in import prices.

Senior Researcher Kang Naeyeong of the Korea International Trade Association said, "If China's real economy recovers, inflation (price rise) is resolved, and raw material prices and trade prices stabilize following the end of the Ukraine situation, the trade balance with China will also turn to a surplus." However, he evaluated, "Even if the Chinese economy recovers in the future, it will not be easy for exports to China to rapidly expand as in the past and quickly widen the trade surplus."

Therefore, he suggested, "To turn the trade balance with China to a surplus, it is necessary to target the Chinese domestic market following the increasing trend of imports of intermediate and final goods for domestic use in China, to add high value to high-tech intermediate goods through technological innovation, and to establish a stable supply chain for core materials and parts and other high-tech items.”

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