South Korea’s growing imports of secondary battery materials and intermediate goods from China were blamed for South Korea’s trade balance with China which is expected to post its first deficit in 31 years.
According to the Bank of Korea (BOK) on Dec. 20, South Korea’s trade balance with China posted a deficit of US$18 billion through November this year. The balance of trade has been in deficit every month this year, starting with a US$3.9 billion deficit in January. As the overall trade deficit hit US$14.31 billion through last month, South Korea’s trade deficit with China accounts for a significant portion.
While South Korea imported raw materials from China and sold intermediate products which South Korea made with the raw materials to China, the game has begun to change as China began to invest heavily to boost its self-sufficiency in intermediate products. At the same time, the two countries’ roles have been completely reversed as Korean secondary battery producers rely on China for most of their raw materials and import intermediate materials such as batteries from China.
In fact, the proportion of South Korea’s exports to China in the former’s total exports was in the range of 19.4 to 20.4 percent since the beginning of this year until November, while the proportion of South Korea’s imports from China in the former’s total imports climbed from 19.8 percent in January to 23.2 percent in November.
“In terms of secondary batteries, China exports a lot to the rest of the world because of its technological superiority and price competitiveness,” said a BOK official. “Korea has also been steadily increasing imports from China such as Chinese batteries because of its needs.” According to the BOK, the global share of Chinese-made secondary batteries and solar power equipment is 62.9 percent (SNE Research) and 80 to 95 percent (the International Energy Agency and Nikkei among others), respectively.
On the other hand, the global market share of the three major South Korean secondary battery manufacturers (LG Energy Solutions, SK on and Samsung SDI) outside China was only 48.5 percent as of the first half of this year. LG Energy Solution had the highest share at 28.7 percent, but Chinese company CATL was a close second with 27.2 percent.
The Korea Export-Import Bank survey also found that 24 out of a total of 36 items related to secondary batteries are dependent on China. Of these, 14 items are imported from China at a rate of more than 70 percent, raising concerns that they will be hit hard if China imposes sanctions such as export restrictions.
Accordingly, voices are growing that South Korea needs to expand its exports from intermediate goods to consumer goods, develop technology and diversify its import and export markets in order to respond to the reversed trade situation with China.
“If South Korea does not quickly increase its self-sufficiency in the secondary battery sector, it is unlikely that the country will be able to record a high surplus in its trade balance with China as in the past,” said an official of the Korean financial industry. Without structural changes, China which has been a source of a trade surplus for Korea may enjoy a large trade surplus in trade with South Korea.
Another reason is that Korea’s export path to China has been blocked as China has gained technological capabilities and been making products on its own without importing them from South Korea.