General

According to Chinese customs data, in the first two months of this year, South Korea maintained its position as China's fourth largest trading country for a year in 2022, and was usurped by Japan, slipping again to fifth place. Korean media analysis believes that the decline in South Korea's exports to China is mainly caused by the decline in its important product semiconductor exports.

According to public information, China has occupied the position of South Korea's largest trading partner for 19 consecutive years, and the importance of China South Korea trade for the export-oriented economy of South Korea is self-evident. According to customs data, in 2021, the scale of trade between China and South Korea was close to the sum of South Korea's trade with the United States, Japan, and Europe, with 25% of South Korea's exports reaching China.

According to Chinese customs data, in the first two months of this year, the total trade value between Japan and China was 344.92 billion yuan, surpassing the total trade value between South Korea and China of 332.54 billion yuan. It is worth noting that in the first two months of this year, South Korea's exports to China fell significantly by 23.3%, becoming the most important reason for the decline in the scale of trade between China and South Korea.

According to data from the National Bureau of Statistics, Japan remained China's fourth largest trading partner for the 20 years before 2022, with the exception of 2015. However, in the first two months of 2022, South Korea took the lead, pressing Japan to become China's fourth largest trading country, and maintaining its leading edge until the end of the year, surpassing Japan to become China's fourth largest trading partner in 2022. However, according to customs data obtained by the reporter, since September last year, South Korea's exports to China have declined month by month, resulting in the scale of China South Korea trade starting to lag behind Japan on a monthly basis.

In synchronization with the shrinking trade scale between South Korea and China, South Korea has experienced a rare continuous trade deficit in decades. According to customs data, in February, South Korea's exports decreased by 7.5% year-on-year, resulting in a trade deficit of 5.3 billion US dollars. This is the first time in 25 years that South Korea has experienced a consecutive 12 month trade deficit. As of February, South Korean exports to China had shown a downward trend for eight consecutive months.

The decline in South Korea's exports was affected by the decline in the exports of major semiconductor products. South Korea's semiconductor inventory rate reached 265.7% in January, the highest level in 26 years. The Yonhap news agency said that a high inventory rate means that supply exceeds demand. Given that semiconductors are the main export products of South Korea, the prospects for South Korea's exports and economy are not optimistic. According to South Korea's YTN television station, customs data shows that in 2022, South Korea's semiconductor equipment exports to China were only about $1.37 billion, a sharp decrease of 40% compared to $2.258 billion in 2021, and may deteriorate further in the future. According to Korean media, if the United States brings South Korea into semiconductor export control with China, the semiconductor equipment industry in South Korea will suffer huge losses, which means that South Korea will make a difficult choice between maintaining good trade relations with China and accepting U.S. coercion to block Chinese semiconductors together.

For decades, the close economic and trade relationship with China has become an important factor influencing the economic development of South Korea. A report released by the Bank of Korea (Bank of Korea) on February 27th shows that major optimization and adjustment of China's epidemic prevention and control will drive China's economic growth rate up by 2 percentage points this year, which can further increase South Korea's economic growth rate by 0.3 percentage points. In terms of exports, South Korea's exports to China will benefit from the restart of the Chinese economy, which is expected to gradually increase from the second half of the year.

According to the Yonhap news agency, Zheng Dazhen, Deputy Minister of Commerce and Industry (Assistant Minister) of the Ministry of Industry, Commerce, and Resources of the Republic of Korea, held a high-level economic and trade meeting with visiting Assistant Minister of Commerce Li Fei of China on March 1 to discuss bilateral trade and investment cooperation issues. This is a high-level meeting held between the two countries every three years and nine months since the third meeting of the South Korea China Industrial Park Cooperation and Coordination Mechanism was held in 2019. Zheng Dazhen said that despite the global economic contraction caused by the epidemic, the bilateral trade volume between South Korea and China still reached a record high. He called on China to strive to maintain a stable supply of raw materials and components, and called on China to play a positive role in the early negotiation of the second phase of the South Korea China Free Trade Agreement (FTA).