Due to a recent economic crisis in China, Korea’s exports to China may fall by US$36.92 billion this year, according to an analysis report.
The report titled “Implications of Declining Exports to China on the Korean Economy,” released by the Hyundai Research Institute on Aug. 24, estimates how much a decline in Korean exports to China in 2023 will reduce Korea’s annual real gross domestic product (GDP) under the assumption that the growth rate of exports to China through August, the won-dollar exchange rate, and the export deflator are maintained through the end of the year.
Applying last year’s nominal total exports to China (US$142.56 billion) to this year’s cumulative January-July decline (a year-on-year drop of 25.9 percent) based on the Korea Customs Service yields a decline of US$36.92 billion in exports to China.
The research center estimated that the decline in exports to China amounted to 31 trillion won in current value through a calculation based on the average daily won-dollar exchange rate (1,296.1 won), the value-added induced coefficient of exports in the industry association table (0.647 in 2019), and the balance of payments table. If this is converted to a real value in 2015 (based on an average annual growth rate of 7.3 percent for the export deflator from 2019 to 2022), the decline in Korea’s real gross domestic product is estimated to be 24.3 trillion won. This is 1.2 percent of Korea’s real gross domestic product (1968.8 trillion won) in 2022. Assuming that other sectors, such as consumption, investment and exports to countries other than China, continue to grow at last year’s level, and other factors in the Korean economy as a whole remain unchanged, the decline in Korea’s exports to China will generate pressure that will lower economic growth by 1.2 percentage points this year.
“Although the Korean economy is less dependent on the Chinese economy than in the past, the magnitude of the decline’s shock to the Korean economy is not small by any means, as the decline has been at a record high so far this year,” said the researcher. “Unlike other G20 member countries, Korea’s economic growth is moving in the same direction (positive correlation) as China’s economic growth in the previous quarter.”
Korea’s exports to China accounted for 19.6 percent of its total exports in the January-July period of this year. By sector, information and communication technology (ICT) exports accounted for 43.9 percent and semiconductor exports 54.7 percent.