The Bank of Korea claimed that South Korea’s business strategy vis-à-vis China needs to be overhauled as China is seeking to turn itself into a country with an advanced industrial structure concentrating on high technology. The overhaul means a shift in focus from intermediate goods exports toward more cooperation in high-tech fields such as biotech and energy and more penetration of Chinese domestic markets.
The central bank of South Korea released a report on August 19 suggesting that South Korean companies work more closely with their Chinese counterparts in newly emerging sectors and those related to Industry 4.0.
Intermediate goods exports have accounted for a large portion of South Korea’s trade with China. Specifically, it accounted for no less than 78.9% of South Korea’s total exports to China last year. However, this type of exports has its own limitations as the Chinese government is pursuing a new growth model and trying to address the side effects of an export-oriented growth model, such as surplus capacities, environmental pollution and a decline in the efficiency of state-owned enterprises.
According to the report, South Korean companies need to work with Chinese high-tech companies in high-growth sectors to benefit from the change in economic policy. As examples, the report mentioned Celltrion’s and TaslyPharmaceutical’smanufacturing facility in China and the power grid construction project of the Korea Electric Power Corporation and the State Grid Corporation of China.
The report also mentioned that the South Korean government needs to lower trade barriers by means of a free trade agreement of South Korea, China and Japan, the Regional Comprehensive Economic Partnership, etc. In addition, the report advised that South Korean companies need to focus also on relatively smaller Chinese cities and inland regions for further market expansion.