Korea runs trade deficit with China

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 17:59

Economy

Korea runs trade deficit with China

Posted : 2022-07-03 16:13

Updated : 2022-07-04 18:33

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By Anna J. Park

Korea suffered a deficit in trade with China in June, remaining in the red for the second straight month. The lackluster performance reversed Korea's trade surplus with China that lasted for nearly three decades.

According to the trade ministry earlier this month, the nation's trade balance with China registered a monthly deficit of $1.21 billion in June, following the previous month's deficit of $1.1 billion.

June's monthly trade deficit with China stemmed from a year-on-year increase in imports from the country, which surged 24.1 percent to $1.41 billion, mostly for general machinery, textiles and chemicals compared to the same month last year.

Korea's exports to China in June, meanwhile, fell 0.8 percent to $1.29 billion. Exports of semiconductors increased 11.5 percent, but was not enough to offset a 29.4 percent plunge in exports of display panels and appliances.

The reversing trend comes as a shock to the Korean economy, whose trade balance with China had long been posting a monthly surplus from August of 1994 to April of 2022.

Market watchers explain that the most salient factor behind the decreased exports to China lately is attributed to a prolonged lockdown in Chinese cities due to COVID-19 infections. However, they warn that the worsening trade balance might be difficult to overcome for the Korean economy, as China's industrial development over the long term will no longer necessitate Korean export items.

"Chinese chipmakers' revenues and growth rates are continuously increasing, based on the country's strong domestic market," Park Soong-chan, professor at Yongin University, said. "Concerns exist that Korea's exports of display panels, steel and ships could dwindle further, as China strengthens its own local value chain system," he added.

As China has been seeking economic development focusing on supporting domestic companies and its local market since the 2010s, experts point out that the pattern of Korea-China trade is fast shifting from Korea's unilateral trade surplus based on its technical superiority to a more equal one involving the exchange of goods. It means that the trade surplus Korea enjoyed during the past 28 years might not be repeated in the future.

During the five years since the Korea-China FTA became active in 2015, China's proportion of Korea's total exports has edged up from 25.2 percent to 25.6 percent, while China's proportion of Korea's total imports has rapidly increased from 17.2 percent in 2015 to 21.2 percent in 2020.

annajpark@koreatimes.co.kr