China's Economy Stretches Out... "IT Revival Needed for Positive Impact on Korean Economy"

To Attract China, Real Estate, Consumer Sentiment, and IT Demand Must Recover

Although some factors influencing the effects of China's reopening have shifted to a recovery trend, the demand for IT, which accounts for the largest share of exports to China, has not revived, leading to an uncertain ripple effect on the South Korean economy, according to an analysis.

In the report titled 'Analysis of Major Factors Affecting the Effects of China's Reopening and Response Measures,' released by the Korea Chamber of Commerce and Industry (KCCI) on the 27th, it was stated that for the South Korean economy to gain positive effects from China's reopening, the following must occur first: ▲ recovery of the 'real estate market,' which had been in decline for 16 consecutive months ▲ full-scale restart of 'industrial production,' which showed a downward trend last year ▲ improvement in 'consumer sentiment,' which had been depressed due to COVID-19 lockdown measures and income reductions ▲ recovery of 'IT sector demand,' including semiconductors, which account for 33.4% of exports to China.

The report analyzed recent trends of these four factors and noted that while the real estate market, industrial activity trends, and consumer indicators have bottomed out and are rebounding, semiconductor prices and IT product inventories remain sluggish. It emphasized that if IT demand does not revive, the reopening effect on the South Korean economy will weaken.

In fact, South Korea's exports in the first quarter showed a significant decline, with intermediate goods including semiconductors down 19.5% year-on-year, and exports to China falling by 29.6%.

The report stated that new housing prices in China have rebounded since November last year and are on an upward trend. After 16 months of continuous decline, housing prices turned upward in November last year, recording increases of 0.3% and 0.44% in February and March this year, respectively. A KCCI official said, "The real estate sector and related industries account for 25% of the Chinese economy. If the asset value of real estate rises and real economy indicators such as consumption and investment improve, the reopening effect could become visible quickly."

Additionally, the report noted that following the reopening, economic activities have normalized and factories have restarted, leading to continued strong performance in industrial and service production in March. Industrial production rebounded from December last year, when the reopening began, increasing by 3.9% year-on-year in March this year, while service production surged by 9.2% supported by consumption recovery. The manufacturing Purchasing Managers' Index (PMI), which gauges economic trends, exceeded the baseline of 50 at 50.1 in January and continued positive economic outlooks with 52.6 in February and 51.9 in March for three consecutive months.

Consumer indicators also showed signs of rebound. According to the report, retail sales, which had decreased by 2.7% year-on-year in the fourth quarter of last year, turned to a growth trend of 5.8% in the first quarter of this year. The Consumer Confidence Index, reflecting Chinese consumers' purchasing sentiment, recorded 94.7 in February and has been rising since December last year. Consumer sentiment, which had been depressed due to restrictions on consumption activities from COVID-19 and lockdowns, income reductions, and increased precautionary savings due to employment insecurity, is reviving as face-to-face activities increase after reopening.

Consumer indicators also showed signs of rebound. According to the report, retail sales, which had decreased by 2.7% year-on-year in the fourth quarter of last year, turned to a growth trend of 5.8% in the first quarter of this year. The Consumer Confidence Index, reflecting Chinese consumers' purchasing sentiment, recorded 94.7 in February and has been rising since December last year. Consumer sentiment, which had been depressed due to restrictions on consumption activities from COVID-19 and lockdowns, income reductions, and increased precautionary savings due to employment insecurity, is reviving as face-to-face activities increase after reopening. The IT sector, which accounts for the largest share of exports to China, remains a stumbling block... Memory prices at bottom level, IT inventories also on the rise.

According to the report, the price of semiconductor DRAM has not risen above approximately $1.60 per unit since peaking in 2021. IT industry inventories in China have increased by more than 60% compared to the end of 2019, still exceeding past trends.

Kim Hyun-soo, head of the Economic Policy Team at KCCI, said, "If semiconductor exports do not recover, the effects of China's reopening will inevitably diminish. We can only hope that China's real estate market and domestic consumption revive, leading to the depletion of IT inventories in China and the emergence of new demand."

With the effects of China's reopening on the South Korean economy remaining uncertain, the report, based on opinions from China experts, emphasized the importance of response measures to maximize ripple effects, including ▲ export strategies by product aligned with consumption recovery timing ▲ regional marketing strategies targeting China ▲ securing supply chains focused on high-tech intermediate goods ▲ entering service markets such as culture and silver industries ▲ and efforts to leverage the US-China rivalry as an opportunity to secure technological gaps with China.

Professor Kim Dong-ha of Busan University of Foreign Studies said, "The effects of China's reopening on the domestic market are expected to first appear in sectors such as dining out, cosmetics, clothing, and entertainment in the first half of the year, while consumption in furniture, large home appliances, and interior sectors is expected to increase with the recovery of the real estate market. Therefore, tailored strategies by industry are necessary." He also pointed out, "It is important to establish marketing strategies by paying attention to the differentiated growth rates across 31 provinces, and to note that China's import structure is shifting toward high-tech intermediate goods as it increases the domestic share of general-purpose intermediate goods."

Lee Chi-hoon, head of the Emerging Economies Department at the International Finance Center, stated, "Attention should be paid to the growth potential of various service industries such as culture, silver, and healthcare, which align with China's aging population, as well as the government-led expansion of the government procurement market through economic stimulus. In advanced technology fields such as semiconductors, a strategic approach is needed to minimize losses in the Chinese market while securing technological superiority over China."

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