Deepening Dependence on China
The ratio of South Korea’s exports to China to its total exports hit an all-time high in the first half of this year. Experts point out that South Korea’s exports to China may be negatively affected by the escalating trade war between the United States and China.
The Korea Center for International Finance announced on July 24 that the ratio reached 26.7% in the first half of 2018, higher than the 26.3 percent accounted for by the US, EU and Japan combined. Including Hong Kong, Korea’s dependence on China goes up to 34.4%.
China’s proportion was 24.8% in 2017. The 1.9 percentage point increase is because South Korea’s exports to China and its total exports increased 21.1% and 6.5% from a year ago, respectively.
The increase in exports to China was led by semiconductors and petrochemicals. In the first half of this year, semiconductor exports to China jumped 57.7% from a year earlier as fast-growing Chinese companies such as smartphone manufacturers purchased a large amount of DRAM chips. China accounted for 41.7% of South Korea’s total semiconductor exports in the first half.
Likewise, petrochemical exports rose 23.7% based on a rise in oil price. Semiconductors and petrochemical products accounted for no less than 47.3% of South Korea’s total exports to China in the first half. Meanwhile, flat panel displays, wireless communication devices and auto parts showed a decline in volume and ratio alike.
The ongoing trade war between the two superpowers may affect South Korea’s exports to China as well as the Chinese economy. This is because South Korea also can be affected by US tariffs on Chinese goods.
At present, the US is the final destination of 5% to 7% of South Korea’s exports to China. If the US increases its tariffs to cover additional Chinese goods worth US$200 billion, South Korea’s losses related to its exports to China can reach up to US$9.95 billion, which is equivalent to approximately 7% of its exports to China. The exports may also be affected by more domestic procurement in China and a decline in processing trade volume. Besides, Chinese companies are planning to produce more and import fewer semiconductors from late this year.