Bank of Korea: "Difficult to Benefit from China Special Demand Going Forward... Must Enhance Export Competitiveness"

The Bank of Korea emphasized that as China's self-sufficiency in intermediate goods and technological competitiveness increase, it may become difficult to enjoy the China boom as in the past, and that South Korea must also enhance its export competitiveness through technological development.

On the 4th, the Bank of Korea stated this in a report titled "Review of China's Growth Structure Transition Process and Its Ripple Effects."

According to the Bank of Korea, China has been continuously implementing policies to advance manufacturing, such as "Made in China 2025," since the mid-2010s to shift its growth structure from real estate-centered investment to high-tech industry-centered growth.

Accordingly, traditional industries such as textiles, clothing, and computers are shrinking, while new growth industries such as electric vehicles, secondary batteries, and solar power are rapidly developing.

In fact, China recently surpassed Germany and Japan to become the largest automobile exporter, driven by strong exports of electric vehicles. Additionally, China maintains a high global market share in secondary batteries and solar power, with the export proportion of high-tech products steadily increasing.

However, the Bank of Korea explained that it expects it will take considerable time for these new growth industries in China to achieve results sufficient to replace existing industries such as real estate.

The Bank of Korea forecasted, "Due to conflicts with the West, including the United States, over advanced technology, direct investment in China is shrinking and access to advanced technology is restricted, which may limit the growth of advanced industries in the future."

Chinese President Xi Jinping is making a toast at the National Day reception held on the afternoon of September 28 at the Great Hall of the People in Beijing, China. [Image source=Yonhap News]

Nevertheless, this growth structure transition in China is expected to have a significant impact on the South Korean economy, which is highly dependent on exports to China.

This is because it may lead to a contraction in real estate investment and an increase in the self-sufficiency rate of intermediate goods, thereby reducing the import-inducing effect from growth within China.

The Bank of Korea pointed out, "Looking at China's input-output table, the import-inducing coefficient of final demand such as consumption, investment, and exports in 2020 declined compared to 2017," adding, "this suggests that as China's investment, which has a high import-inducing effect, shrinks and intermediate goods imports decrease due to technological development, exports to China from South Korea and neighboring countries are likely to decline compared to the past."

According to the Bank of Korea's analysis using the international input-output table, the impact of China's growth structure transition on the growth of neighboring countries through trade channels has also diminished.

The Bank of Korea emphasized, "Going forward, as China's importance as a consumer market increases and the technological level and competitiveness of Chinese exports improve, competition with South Korea in the global goods market is expected to intensify."

It added, "To respond to the structural changes in the Chinese economy, our economy needs to expand exports to China from intermediate goods to consumer goods and enhance the external competitiveness of export products through technological development," and "furthermore, efforts to diversify export markets and improve the export structure overly concentrated on China must continue."

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