[Column] Sweet but Dangerous 'Jungguk Teuksu'... It's Time to Break Free

"The current Korean economy faces problems whether China does well or not. This is the result of excessive dependence on China over the past several decades."

Last week, during an interview for the investigative series "China's Economy in a Trap," an expert described the state of our economy this way. Due to neglecting structural reforms while being intoxicated by exports to China over the past 20 years, the economy has become vulnerable to the point where even a sigh from China shakes Korea’s economy. In fact, China, once called the "export hero," has now emerged as the biggest risk to our economy. As China’s exports and imports decline and concerns about deflation arise, the export outlook for the second half of the year has worsened, and the won-dollar exchange rate has surged. The fact that our economy and the won are faltering as China wobbles indicates the weak fundamentals of the Korean economy.

Opinions among experts about China’s economic outlook vary. One expert said, "China will suffer serious damage due to the U.S. semiconductor export restrictions," while another predicted, "China will overcome the crisis through semiconductor technology localization and its vast domestic market." However, regardless of China’s economic prospects, the common consensus is that "it is difficult for Korea to expect the same China-driven boom as in the past." The improvement in China’s self-sufficiency in intermediate goods and the U.S. pressure on its allies to join export restrictions against China are likely to become obstacles to future trade with China.

Exports are a problem, but the high dependence on imports is an even bigger issue. If China begins export controls on gallium, germanium, rare earths, lithium, graphite, and other materials as retaliation for semiconductor regulations, serious damage will be inevitable. The government must actively diversify export destinations beyond China to reduce dependence, while also investing in technology development and supply chain diversification for imports. If necessary, diplomatic flexibility should be shown through cooperation with China in various fields such as economy, culture, and sports. Professor Kim Han-kwon of the Korea National Diplomatic Academy referred to this as "strategic autonomy."

The government should heed the market’s call to seize the growing risks surrounding China as an opportunity to embark on full-scale structural reforms. The most important thing is for the government to express its commitment to reducing China-related risks in the long term. Although exports to China may partially recover in the second half of the year and the lifting of group tour restrictions may increase the number of Yukeo (Chinese tourists), improving the travel balance, the government must not delay structural reforms by being satisfied with this. Even if there are short-term losses due to structural reforms, the government and industry must seriously prepare for the "post-China" era so that Korea will not have to worry about China-related risks again in 5 or 10 years.

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