"Reduce Dependence on China"... South Korea Should Refer to Germany's De-China Policy

Korea Institute for International Economic Policy (KIEP) Presents 'Causes and Responses to the Recent German Economic Recession'

Germany, whose economic structure is similar to that of Korea, has begun structural reforms to reduce its trade dependence on China. The movement to break away from an industry structure reliant solely on manufacturing is also accelerating. There are claims that Korea should refer to the German case to promote economic structural improvement.

According to the report "Causes and Responses to the Recent German Economic Recession" by the Korea Institute for International Economic Policy (KIEP) on the 1st, the German federal government has started policies to reduce trade dependence on China to overcome the economic recession. This is due to concerns that Germany's high trade dependence on China could lead to a simultaneous economic downturn following a slowdown in China's economic growth.

In July, Germany passed a "Comprehensive China Strategy" for the first time, which includes the need to reduce dependence on China. The strategy clearly states that China is both an economically important partner and a competitor, maintaining ties in trade, commerce, and investment, but reducing dependence on China in advanced strategic industries.

The German federal government adopted a comprehensive public strategy for the first time in history on July 13, 2023, establishing basic principles to reduce dependence on China. The photo shows Olaf Scholz, Chancellor of Germany, speaking at a joint press conference with President Yoon Suk-yeol during the Korea-Germany summit held at the Yongsan Presidential Office building in Seoul last May. [Image source=Yonhap News]

It also defines China as a systemic rival and expresses concerns about human rights abuses and attempts to change the international order. German Foreign Minister Annalena Baerbock explained when announcing the China strategy that it seeks "risk reduction" rather than "economic decoupling" from China.

To break away from the traditional manufacturing-centered structure, expansion of eco-friendly technology infrastructure and research and development investment is also underway. Germany has strengths in traditional manufacturing but relatively weak competitiveness in advanced industries. For example, in the global electric vehicle market, German companies Volkswagen (8%) and BMW (4%) have lower market shares compared to Tesla (USA, 13%) and BYD (China, 18%). Moreover, their shares have continuously declined over the past three years.

The German government plans to include a climate change fund worth 211.8 billion euros (approximately 303 trillion won) in next year's budget and invest in the hydrogen economy, clean energy, and climate-friendly mobility through fund management. Of this fund, only next year, a program worth 21.6 billion euros (approximately 31 trillion won) will be developed to support the Renewable Energy Act and be used for mobility development, including expansion of charging infrastructure.

KIEP emphasized, "Considering that Korea's economic structure is similar to Germany's, the possibility of economic stagnation in Korea in the short and long term cannot be excluded, so measures should be established by referring to Germany." It diagnosed that Korea should devise strategies to significantly reduce dependence on China like Germany to minimize economic shocks from external risks. It also added, "By referring to the German case, Korea should actively enter the eco-friendly technology market through expanded investment in eco-friendly industries such as renewable energy infrastructure."

Korea's economic structure is similar to Germany's. According to KIEP, last year, the manufacturing share (based on value added) of Korea and Germany was 28% and 20.4%, respectively, which is considerably higher than other advanced countries such as the UK (9.4%), France (10.7%), and the USA (11.1%, based on 2021). The fact that China is the largest trading partner is also a similarity. The share of China in total trade volume is almost the same: Korea 21.9%, Germany 22.7%. Both exports and imports show a high dependence on China.

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