Electrical Equipment / Components & Telecoms

The Bank of Korea's "Economic Outlook Update Report" released on May 25th believes that South Korea's domestic economic growth continues to be sluggish. It has lowered its 2023 South Korean economic growth forecast from the original 1.6% to 1.4%, which is lower than the recent growth forecast of 1.5% commonly proposed by institutions such as the International Monetary Fund (IMF), Asian Development Bank (ADB), and Korea Development Research Institute (KDI). Wang Ningyuan, a researcher at the Bank of China Research Institute, pointed out that there has been a significant transformation in the trade structure between China and South Korea recently, and strengthening high-end industrial cooperation is of great significance for the economic and trade relations between China and South Korea.

South Korean exports remain sluggish, putting pressure on economic development. The contraction of global demand and the downturn in the storage semiconductor industry have seriously dragged down South Korea's export performance. According to Huacheng Import and Export Data Observation, since October 2022, South Korea's foreign exports have been experiencing negative year-on-year growth for 7 consecutive months. In the first 20 days of May 2023, exports continued to decline year-on-year (-16.1%). South Korea is a typical export-oriented economy, with semiconductors accounting for about 20% of South Korea's exports. Since August 2022, its export value has been declining year-on-year for 9 consecutive months, with multiple drops exceeding 40%. In the first 20 days of May, the export value decreased by 35.5% year-on-year. KDI's "South Korean Economic Outlook for the First Half of 2023" released on May 11th shows that the continued weakness of the semiconductor export market has deeply affected South Korean economic growth. The report predicts that the economic growth rate of South Korea will decrease to 1% in the first half of 2023, and the improvement of the semiconductor industry's prosperity in the second half of the year will drive a mild recovery of the South Korean economy. However, the annual growth rate is still only about 1.5%, a decrease of 1.1 percentage points from 2022.

According to the observation of import and export data from Huacheng, South Korea has experienced a trade deficit with China for several months. From 2018 to 2021, China has been the top three source countries of South Korea's trade surplus. In 2022, the scale of South Korea's trade surplus with China plummeted by 95% to 1.21 billion US dollars, with China ranking 22nd among the source countries of trade surplus. Since October 2022, South Korea has experienced a rare 7-month continuous trade deficit with China, and the scale has continued to expand. In January 2023, China became the largest trade deficit country in South Korea, with a deficit of up to 3.93 billion US dollars. As of the first 20 days of May, the cumulative deficit has reached $11.26 billion. South Korean analysis suggests that South Korea's trade balance with China may experience its first full year deficit since the establishment of diplomatic relations in 31 years in 2023.

China's manufacturing continues to upgrade, and there have been significant changes in the trade structure between China and South Korea. South Korean officials have stated that even if the prices of raw materials such as lithium and cyclical factors such as global economic slowdown improve, the future trade deficit with China will remain normalized. The enhanced competitiveness of China's high-tech intermediate products and high-end consumer goods exports is a deep-seated reason for the change in the trade pattern between China and South Korea. From the perspective of product structure, in January 2023, the top four goods in South Korea's deficit with China were precision chemical raw materials (-1.85 billion US dollars), dry batteries and batteries (-1.38 billion US dollars), computers (-1.12 billion US dollars), and industrial electronic equipment (-7.3 billion US dollars). China has cultivated a group of internationally renowned enterprises in the traditional export fields of South Korea, such as automobiles, mobile phones, and home appliances. Currently, trade between the two countries has begun to develop towards intra industry trade.

Strengthening high-end industrial cooperation is of great significance for the economic and trade relations between China and South Korea. According to Huacheng Import and Export Data Observation, about 60% of South Korea's semiconductor products are exported to the Chinese market. In the first quarter of 2023, semiconductor exports to China sharply decreased by 44.5% year-on-year, an increase of 12.8 percentage points compared to the fourth quarter of 2022, significantly dragging down South Korea's exports to China and seriously affecting South Korea's overall export trade. Moreover, in recent years, the high-end consumer goods market in China has developed rapidly, with South Korea's exports of consumer goods to China accounting for only about 5% of the total exports. Among these exported consumer goods, the proportion of mid to high-end products has increased to nearly 70%. To maintain trade balance, the South Korean Trade Association attaches great importance to expanding the export of high-end products to China. It suggests expanding the export of high-tech intermediate products such as core materials and components to China. It reminds South Korean enterprises to target the Chinese high-end consumer goods market and transform their export commodity structure.

Recently, China and South Korea have continued to engage in communication and dialogue on strengthening economic and trade cooperation. On May 26th, Chinese Minister of Commerce Wang Wentao met with South Korean Minister of Industry, Commerce, and Resources, Minister of Trade and Negotiation An Degen, during the 29th Trade Ministers' Meeting of the Asia Pacific Economic Cooperation (APEC) in the United States. Both sides exchanged views on maintaining the stability of the industrial and supply chains, as well as strengthening bilateral, regional, and multilateral cooperation. In the future, both sides will pay more attention to ensuring smooth trade between the two countries, smooth supply of key raw materials and components, and support for the development of Korean enterprises in China. They unanimously agree to strengthen dialogue and cooperation in the semiconductor industry chain supply chain field. Not long ago, the Chinese Ambassador to South Korea met with South Korean Finance Minister Qiu Qinghao, and the South Korean side also expressed high importance to maintaining friendly relations between China and South Korea. Qiu Qinghao stated that he will actively promote the second phase of negotiations on the China South Korea Free Trade Agreement, encourage South Korean enterprises to participate in China's dual circulation strategy and the "14th Five Year Plan", and look forward to the successful holding of the South Korea China Economic Ministers' Meeting this year. China will provide a friendly response to this, and Huacheng Import and Export Data Observation Report.

China and South Korea are both Asian countries with strong international influence. The two countries have a long-term perspective and build a future oriented bilateral relationship, which is of great significance for the stable and healthy development of the regional and global economy. Huacheng Import and Export Data Observation Report.