Trade Deficit with China More Than Doubles... "Reversal Difficult"

Hankyung Research Institute: "Without Aggressive Investment in Semiconductors, Situation Reversal Difficult"

As the trade deficit with China continues to widen, there are claims that without aggressive investment in leading sectors such as semiconductors, it will be difficult to reverse the expanding deficit situation.

On the 29th, the Korea Economic Research Institute stated in its report titled 'Current Status of Poor Exports to China and the Possibility of Prolonged Deficit Trends' that South Korea's trade balance with China has been steadily deteriorating since 2013, when it recorded the largest-ever surplus. This is because exports stagnated while imports surged, and exports to China began to decline significantly after the fourth quarter of 2022.

The trade deficit with China increased more than twofold from a deficit of $5.2 billion between May and December 2022 to a deficit of $11.8 billion from January 2023 to the present. As a result, the contribution of the trade deficit with China to the overall trade deficit expanded from 12.8% in 2022 to 43.2% in 2023.

In particular, among China's trading partners, South Korea's exports to China, along with Taiwan's, showed the largest decline. In May of this year, South Korea's and Taiwan's exports to China decreased by 23% compared to the same month last year. Due to this impact, South Korea's export volume to China fell two ranks from second place behind Taiwan in May 2022 to fourth place behind the United States and Australia in May 2023.

The trade deficit is heavily influenced by the export structure, where heavy and chemical industrial products account for 89% of total exports. The export value of heavy and chemical industrial products to China decreased by 24% year-on-year, with the largest decline seen in electrical and electronic products (-29%), including semiconductors. Following this, all categories within heavy and chemical industrial products showed poor performance, including steel products (-23%), chemical products (-20%), and machinery and precision instruments (-12%).

The stagnation in both quantity and quality of South Korea's exports to China is due to a complex mix of factors, including China's localization policies improving self-sufficiency in intermediate goods and the narrowing technological gap with China, which has weakened South Korea's export competitiveness. The Korea Economic Research Institute diagnosed that without securing a super-gap in core sectors such as semiconductors under these circumstances, it will be difficult to reverse the worsening trade balance with China for a considerable period.

Lee Seung-seok, a senior researcher at the Korea Economic Research Institute, advised, “South Korea's technological development lags behind major countries such as the United States and the European Union (EU) by up to eight years. While it is necessary to diversify export items focusing on promising sectors from a long-term perspective, currently, to avoid missing the golden time for trade balance recovery, intensive investment and support in sectors where South Korea has comparative advantages, such as semiconductors and secondary batteries, are more important than anything else.”

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