"Won-Dollar Exchange Rate, Minimal Impact on Exports... Need to Prepare for Weakening Chinese Yuan"

Domestic Exports More Influenced by China Than the US

Analysis shows that China's and the United States' industrial production indices have a greater impact on South Korea's exports than the won-dollar exchange rate. As China emerges as a competing export country, a continued depreciation of the yuan could adversely affect domestic exports, so it is advised to prepare for this possibility.

The Korea International Trade Association's Institute for International Trade published a report titled 'Analysis of Recent Factors Affecting South Korea's Exports' on the 24th, containing these findings.

The report noted that although the won/dollar exchange rate rose after the U.S. raised its benchmark interest rate four times this year, domestic exports declined from January to September. It also predicted that even if the won continues to weaken, exports are unlikely to increase. Empirical analysis showed that the won/dollar exchange rate did not have a significant impact on exports.

Instead, ▲China's industrial production index ▲U.S. industrial production index ▲international oil prices were found to have meaningful effects on export fluctuations in that order. In particular, the rise in China's industrial production index contributed to the decrease in South Korea's exports. This means that South Korea's exports and China's industrial production index showed a negative (-) relationship.

In fact, as China increased its self-sufficiency rate for intermediate goods and reduced related imports, not only South Korea's exports of intermediate goods to China but also its exports of intermediate goods to the world were directly impacted. This contrasts with the positive (+) relationship observed between U.S. industrial production and South Korea's exports.

The report pointed out that since China is emerging as a competing export country, it is necessary to closely monitor the yuan/dollar exchange rate going forward. This is because yuan depreciation could affect the decline in exports of major items. If the yuan weakens, within a year, export values of domestic semiconductors, automobiles, chemical products, food and beverages, and home appliances could decrease.

Jo Eui-yoon, a senior researcher at the Korea International Trade Association, said, "Until now, only the won/dollar and yen/dollar exchange rates have been considered regarding their impact on South Korea's exports, but now attention should be paid to the yuan/dollar exchange rate."

He added, "If the strong dollar phenomenon continues and China's economic downturn persists, leading to further yuan depreciation, negative effects may appear in items where South Korea and China compete intensely in exports, and countermeasures to enhance export competitiveness are necessary."

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