Mu-hyup: "Significant Improvement Expected in IT Recovery and Large-scale Exports This Year... Trade Surplus Difficult to Anticipate"

Among the Top 20 Export Items, Market Share Declines in 13
220 Trillion Won Deficit Only in Electric Power Items
Challenges Include Weakened Competitiveness and Increased Imports of Batteries and Materials

With the recovery in demand for information and communication technology (IT) products, exports to China, which had recently been sluggish, are expected to improve significantly this year. However, there are also negative views that, due to structural changes such as the weakening competitiveness of our products, it will be difficult to expect a unilateral trade surplus with China as in the past.

The Korea International Trade Association's International Trade and Commerce Research Institute stated in its report titled "Diagnosis and Evaluation of the Causes of Recent Trade Deficit with China," published on the 18th, that "China's IT demand recovery rate this year is expected to be 9.3%, faster than the global recovery rate of 6.8%," adding, "Accordingly, South Korea's IT exports to China are expected to increase significantly."

The recent sluggishness in exports to China is attributed to the decline in exports of IT products, including semiconductors, which are a major export item. The recovery in China's IT demand is expected to lead to a clear recovery in overall exports to China. In fact, last year, exports to China decreased by $31 billion compared to the previous year, with the decrease in IT product exports alone accounting for $19.8 billion, or 64% of the total export decline. However, the KITA forecasted, "Although exports and trade balance with China are expected to improve significantly, it will not be easy to maintain a large-scale trade surplus with China as in the past."

KITA pointed out that the competitiveness of South Korean products in the Chinese import market is relatively weakening compared to other countries. Last year, the share of imports from South Korea in China's total imports was 6.3%, down 1.1 percentage points from 7.4% the previous year. This is the lowest level in 30 years since 1993, the year after the establishment of diplomatic relations between South Korea and China in 1992.

According to an analysis using the Constant Market Share (CMS) model, which decomposes a country's export changes into competitiveness factors and structural change factors, the share of China's demand reduction in South Korea's export decline to China last year was only 30.1%, while the shares of competitiveness weakening and product composition weakening were 31.9% and 37.9%, respectively. This trend led to a decline in market share for 14 out of the top 200 imported items from South Korea in China last year. From January to November last year, South Korea's market share in China's import market declined by 1.5 percentage points for semiconductors, along with declines in semiconductor equipment (3.2 percentage points↓), computers (3.8 percentage points↓), cosmetics (0.5 percentage points↓), synthetic resins (1.5 percentage points↓), and displays (4.9 percentage points↓) compared to the previous year.

The rapid increase in imports of secondary batteries and secondary battery materials from China is also analyzed as a factor that changed the trade balance with China. As the electric vehicle and secondary battery industries develop, imports of finished secondary batteries and battery materials such as cathode materials, precursors, and lithium from China are surging. In particular, because China has long-established influence in upstream industries of secondary batteries such as lithium and precursors, it is difficult to reduce dependence on China in the short term despite domestic companies' efforts to diversify supply chains and achieve self-sufficiency. The trade deficit in "electrification items," which combine cathode materials, lithium-ion batteries, and electric vehicles, was around $4 billion until 2020, but increased to $7.8 billion in 2021, $12.9 billion in 2022, and reached $16.4 billion (approximately 22 trillion won) in 2023. This amount is comparable to last year's total trade deficit with China of $18 billion.

Kim Woo-jong, a researcher at KITA, said, "The recent rapid increase in imports of electrification items, the decline in market share of Korean products in China, the increased dependence on imports of key raw materials, and China's expansion of self-sufficiency will be obstacles to turning the trade balance with China into a surplus in the future," adding, "Efforts to diversify import sources and promote localization to reduce dependence on Chinese imports of key minerals such as battery raw materials must be accelerated."

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