Electronics

Recently, posts on the topic of "no spending challenge" have been gaining popularity on the Korean Internet, and participants of the topic have posted on social media platforms the number of days and results they have achieved zero spending in the past week. Years of high inflation have led more and more young Koreans to cut their daily expenses to the extreme. On the other hand, in South Korea, which is dominated by an export-oriented economy, the growth rate of exports has begun to slow down, and the inventory of its main export commodity chip even hit the highest increase in the past six years.

According to data released by Statistics Korea, the consumer price index (CPI) of South Korea in July was 108.74, a year-on-year increase of 6.3%, a new high in 23 years and 8 months. In June, the leading index of South Korea's prosperity was 98.87, the 13th consecutive month-on-month decline. Generally speaking, a month-on-month decline in the index means that economic growth may slow down in the future, and an index below 100 indicates that the economy may enter a downward trend in the future. The slowdown in export growth, soaring prices, and pessimism in consumer sentiment... The combination of these factors has greatly increased the risk of economic downturn, and the road to recovery will be bumpy.

High inflation spread across the board

There is such a phenomenon in South Korea today that the economy of convenience stores is becoming more and more popular. The low-priced goods in convenience stores have attracted a large number of customers, and many consumers purchase goods through direct purchasing to reduce expenses. Behind the booming economy of convenience stores is the real reflection of the general shrinking of daily consumption of the Korean people.

At present, domestic prices in South Korea are soaring, especially the soaring prices of agricultural products and petroleum products have raised prices, which has severely restricted the purchasing power of the people. In June, South Korea's Consumer Psychology Index (CCSI) was 86, also falling for the third consecutive month. You must know that the consumer psychology index is lower than 100, which means that the consumer psychology is more pessimistic.

The expected inflation rate reflects consumers' expectations for price increases in the coming year. On July 27, the "July Consumer Trends Survey" report released by the Bank of Korea showed that South Korea's expected inflation rate in July was 4.7%, up 0.8 percentage points from June. The highest value since the beginning of relevant statistics in 2018. In this regard, the relevant person in charge of the Bank of Korea said that the increase in South Korea's CPI of more than 6% is the main reason for the high expected inflation rate, and most consumers believe that prices will not improve significantly in the second half of the year.

The growth of foreign trade exports slowed down

South Korea's export growth has slowed for months. In June, South Korea's exports increased by only 5.4% year-on-year, the first time the growth rate fell to single digits in 16 months; imports increased by 19.4% year-on-year, and the trade deficit continued to widen. In the first seven months of this year, South Korea has had a trade deficit for five months, and this year may see its first annual trade deficit in 14 years.

Chip products are one of the main sources of income for South Korea's exports. As a major producer of memory chips, the sales of memory chips produced by South Korea are all over the world, and it is also an important force supporting the strong exchange rate of the Korean won. This year, South Korea's widening trade deficit has been exacerbated by reduced demand for memory chips in the international market.

According to data released by the National Bureau of Statistics of Korea on July 29, South Korea's national chip inventory surged 79.8% year-on-year in June, the highest increase in nearly six years. In addition, South Korea's chip production and shipment growth slowed down. Not long ago, South Korea's Samsung Electronics and SK Hynix, the world's two largest memory chip manufacturers, issued warnings that chip sales may weaken in the future. The backlog of chip inventories in South Korea not only indicates poor demand in the memory chip market, but also reflects the equally worrying outlook for South Korea's exports.

There have been examples before. In 2016, South Korea also experienced a large backlog of chip inventories, resulting in a two-year downturn in South Korea's exports. In response to the situation in the chip market, the South Korean government announced a "Semiconductor Superpower Strategy" on July 21, with a view to guiding companies to complete 340 trillion won in semiconductor investment by 2026.

It is worth noting that in 2021, 60% of the chips exported by South Korea will be exported to China, and the importance of the Chinese market is self-evident. Now South Korea is facing huge pressure from the United States to ask it to participate in the "chip quadrilateral alliance". If it is not chosen carefully, it may affect the development of bilateral trade between China and South Korea in the future. The South Korean government has expressed that the South Korean side does not agree with the view that the "Indo-Pacific Economic Framework" (IPEF) and the "Chip Quad Alliance" are intended to contain China, and will continue to deepen economic and trade cooperation with China. As Zhao Lijian, a spokesman for the Chinese Ministry of Foreign Affairs, said, in the process of developing relations between the two countries, both sides have obtained huge benefits and achieved each other's achievements. As recently as July this year, substantial progress was made in the second phase of the China-ROK Free Trade Agreement negotiations. For South Korea, in order to maximize its national interests, it should firmly support the principles of free trade and multilateralism as a country based on open trade.