Growing Concerns
South Korea’s exports of materials and components, which account for more than half of the nation’s overall exports, are shrinking due to China’s growth and self-sufficiency strategies. Also, there are growing concerns that South Korea’s exports, which are recently on the increase, can be adversely affected as other countries around the world are strengthening their protectionist policies.
According to the Korea International Trade Association on May 7, South Korea’s material and component exports to China this year amounted to US$16.22 (18.4 trillion won) as of the end of March, showing a whopping 39.5 percent decrease from a year earlier. Materials include chemical, metal, rubber, plastic and textile products, while components are for electronic and electric devices, transporting machines, precision machines and computers.
This is because China is rapidly increasing its self-sufficiency rates on materials and parts in the IT and electronics sectors. China’s overall material and component imports this year declined 22 percent compared to the same period a year ago. In particular, its electronic component imports, including semiconductor and communication equipment, dropped as much as 60.8 percent.
South Korea’s material and parts exports to China continued to rise until 2014 but started decreasing 6.7 percent and 8.3 percent in 2015 and 2016, respectively. When the trend continues, the country is highly likely to show a decrease for three years in a row.
The problem is that materials and parts take a large part of South Korea’s overall exports, especially to China. Last year, they accounted for 50.8 percent of the nation’s total exports and 73.9 percent of its exports to China. However, materials and parts made up only 48.3 percent of the nation’s exports to China this year.
The industry is voicing concerns that South Korea should focus more on the decrease of material and parts exports rather than the increase in the nation’s overall exports to China.
This is largely due to the fact that it is hard to find another leading export industries that can replace materials and components. The recent growth in exports to China is highly likely to become short-term effects from China’s expansion of automation equipment system and temporary recovery in the local shipbuilding industry.
In fact, Chinese firms are accelerating the vertical systemization of materials and parts centered on information technology (IT) products. China-based Huawei used its self-developed mobile application processor (AP) in its strategic smartphones. In addition, China is expected to become the world’s largest liquid crystal display (LCD) manufacturer this year, surpassing South Korea.
The Chinese government now focuses on promoting electronic materials and components, such as semiconductor and display panels, with an aim to raise its manufacturing levels to Germany and Japan by 2025. If this continues, China can catch up with South Korea’s material and parts industries, which lack of self-developed patent technologies unlike Germany and Japan, shortly.
As of the end of last month, China took up 24.9 percent of South Korea’s overall exports. An official from the trade industry said, “South Korea is still heavily dependent on Japanese core parts, while an increasing number of domestic firms that entered the Chinese market are also provided with components locally. We need to seek ways to diversify exports by analyzing the structural changes in the Chinese industry.”