56% of Semiconductor Companies Say Export Recovery to Pre-China Lockdown Levels Difficult Even After Second Half of Next Year

Structural Factors... Semiconductor Recovery Slower Than Expected

More than half of domestic semiconductor companies forecast that exports will be unlikely to recover to the levels before China's lockdown measures even after the second half of next year. Additionally, 41.4% of manufacturers predicted that the negative impact of the US and Europe's protectionist policies will increase further after the third quarter of this year.

According to the regional economic report released by the Bank of Korea on the 26th, in a survey of export companies, domestic firms stated that China's reopening (resumption of economic activities) has had a positive effect on exports so far, but the ripple effect remains limited and is expected to gradually expand from the second half of the year onward.

To examine the impact of China's reopening and supply chain risks on exports and the response measures of companies, the Bank of Korea conducted a survey from the 11th to the 31st of last month targeting 343 companies nationwide.

Among the surveyed companies, 56.3% responded that exports have already recovered to pre-lockdown levels in China or will recover within this year, 31% expected recovery after next year, and 12.7% anticipated that exports would find it difficult to fully recover even after the second half of next year.

Lee Jaewon, head of the regional economic survey team at the Bank of Korea's research department, stated, "Some companies viewed the rise in raw material prices due to China's reopening as a constraint on future export recovery," and added, "The majority of companies expressed concerns about the improvement in technological competitiveness of Chinese export firms."

By industry, exports in secondary batteries, shipbuilding, automobiles and parts, and steel have mostly already recovered, and export recovery is expected to proceed in the order of petrochemicals, machinery, mobile phones and parts, displays, information devices, and semiconductors.

In particular, the recovery of the IT sector, which competes closely with China, has generally been delayed due to structural factors such as the deterioration of global demand and protectionist policies in the US and Europe. Among semiconductor companies, 55.8% judged that exports would be difficult to recover to pre-lockdown levels in China even after the second half of next year. Lee said, "In the case of semiconductors, structural factors are significant," adding, "With the worsening global demand and the emergence of US and European protectionist policies, it seems difficult to fully recover to the levels before China's lockdown."

Protectionist policies such as the US Inflation Reduction Act (IRA) have already negatively affected exports, especially among some companies, and firms expect the negative impact to increase further after the second half of this year.

Among the surveyed companies, 21.6% reported experiencing negative effects from US and European protectionist policies up to the second quarter of this year. By industry, companies in information devices, automobiles and parts, secondary batteries, and semiconductors were found to be affected.

Furthermore, the proportion of companies responding that major countries' protectionist policies would negatively impact exports after the third quarter of this year increased to 41.4%. Of the companies, 30.6% expected significant effects within this year, 22.4% within next year, and 12.8% from the year after next onward.

Preparation for protectionist policies also showed significant differences by company size. Large companies plan to prepare by expanding local production, whereas more than half of medium-sized and small companies either do not feel the need to prepare or are not making separate preparations.

Additionally, the Bank of Korea assessed in this regional economic report that "In the second quarter, regional economies remained flat in manufacturing production due to delayed effects of China's reopening and sluggish semiconductor industry despite strong performance in automobiles and shipbuilding, and service production also remained flat with a moderate recovery in consumption, maintaining the previous quarter's level."

Looking ahead, regional economies are expected to improve slightly in both manufacturing and service production compared to the second quarter. The report added, "The easing of the IT sector downturn and expanded infrastructure investments by major countries are driving manufacturing recovery, while the slowdown in inflation and gradual improvement in consumer sentiment are positive factors for service production."

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