South Korea’s exports to China are expected to surge in 2024 due to a recovery of the IT market in China. However, South Korea is unlikely to record a large trade balance surplus as in the past due to an increase in imports of Chinese batteries and the declining competitiveness of Korean products.
“In 2024, South Korea’s IT exports to China are expected to increase significantly as a recovery of China’s IT demand (9.3 percent) is expected to be faster than a recovery of global IT demand (6.8 percent),” the Korea International Trade Association (KITA) said in a report titled Diagnosis and Evaluation of Causes of Korea’s Recent Deficit in Trade Balance with China on Feb. 18.
In 2023, South Korea’s exports to China fell 19.9 percent, largely due to a sluggish IT market in China. The decline in exports of the five major IT items (semiconductors, computers, displays, wireless communication devices and home appliances) to China accounted for 64 percent of South Korea’s total export decline.
However, in spite of the increase in exports to China, it will be difficult for South Korea to maintain a one-sided surplus with China, as imports of cathode materials, lithium-ion batteries, and electric vehicles increased significantly, KITA expected.
In fact, South Korea’s imports of electric vehicle batteries and lithium hydroxide from China ballooned by 80.7 percent and 53.2 percent, respectively, in 2023, contributing to the widening trade deficit. In 2023, South Korea’s trade deficit with China reached US$18 billion, South Korea’s first deficit in 30 years of diplomatic relations between the two countries.
China’s economic slowdown is also expected to have a negative impact on South Korea’s trade surplus. “With China’s economic growth rate falling short of expectations in 2024, recoveries in South Korea’s retail sales, industrial production, and exports and imports which are highly correlated with the nation’s exports to China is unlikely to be significant,” the KITA said.
South Korea’s weakening export competitiveness is also expected to take a heavy toll. According to the KITA’s analysis, the decline in South Korea’s exports to China was attributable to its weakening export competitiveness (31.9 percent), more than four times higher than that of its closest competitor, Taiwan (7 percent). This was because South Korea has been losing ground to the ASEAN in petroleum products, computers and steel, and to Japan and Germany in optical devices and semiconductors. South Korea’s export competitiveness is highly likely to decrease in other items as South Korea is gradually losing strengths in exporting reasonably priced goods with high quality and technology and competition with China is intensifying in key industries, KITA said.
“This year, South Korea’s exports to China and trade balance with China are expected to improve thanks to a rebound in the Chinese information and communication technology (ICT) market,” said Kim Woo-jong, a researcher at the KITA. “However, a recent decline in the share of South Korean products in the Chinese market, South Korea’s growing dependence on imports of key raw materials from China and China’s growing self-sufficiency will hinder South Korea turning its trade balance with China into a surplus in the future.”