Trade Pressure from China
It is predicted that more than 20% of the combined sales of the four largest conglomerates in South Korea will be directly or indirectly affected by China’s trade retaliations following THAAD deployment in South Korea. According to the Financial Supervisory Service and industry sources, sales in China accounted for over 20% of the sales of their subsidiaries excluding LG Electronics last year.
In the first three quarters of last year, Samsung Electronics’ sales in China amounted to 22.7667 trillion won (US$19.3 billion), 23.1% of the total. The figure was 4.1073 trillion won (US$3.5 billion) and 34.7% in the case of SK Hynix. The Hyundai Motor Group sold 1.783 million cars in China last year, 22.5% of its total sales volume for the same period.
At present, the South Korean companies are supplying a large amount of their products from China. For instance, Samsung Electronics is currently running a total of 148 corporations abroad and 29 of them are located in China, including those manufacturing mobile phones in Huizhou and TV sets in Tianjin. Almost half of the DRAM chip supply by SK Hynix is from Wuxi, China. A decline in sales in China compels them to relocate their facilities from the country and then an increase in logistics cost follows.
In the meantime, contraction of trade between the two countries is forecast to be burdensome on the part of Chinese companies, too. According to the Korea Institute for International Economic Policy, 26.6% of China’s total imports were for processing trade in 2015 and intermediary goods from South Korea took up most of the imports for the purpose. Last year, intermediary goods accounted for 78% of South Korea’s exports to China.
The Korea International Trade Association recently announced that China was the destination for 25.7% of South Korea’s total exports in January this year, when South Korea was the fourth-largest market for Chinese exporters with a share of 4.4% behind the United States, Hong Kong and Japan. Such a close relationship is likely to be a thing of the past though as China is focusing on the domestic supply of intermediary goods. For example, China is planning to raise the ratio of domestic semiconductor supply to at least 70% by 2025.