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While the Chinese economy is springing back to life after a period of hibernation, South Korea’s exports continue to experience frigid conditions. Both the South Korean government and the private sector are closely monitoring the recovery of exports to China, Korea’s largest trading partner.

According to figures from the Korea Customs Service on Sunday, South Korea’s trade deficit (imports and exports) with China reached US$1.96 billion through the first 20 days of April. Although the deficit was slightly lower than that of the same period in March (which saw a deficit of US$2.197), the amount that Korea is in the red with China accounts for about half of the total trade deficit.

Korea’s trade deficit with China has been running for more than six months, since October of last year.

In particular, exports to China have continued their double-digit year-on-year decline. The value of exports to China in the first quarter of 2023 was 29.8% lower than 2022, and the decline reached 26.8% in the first 20 days of April 2023.

This is at odds with the recent recovery in China’s economy. China’s real economic growth in the first quarter of 2023 was 4.5% (year-on-year), exceeding market expectations. This is due to the normalization of economic activities such as production and consumption after the easing of the quarantine policy at the end of 2022.

China’s exports rebounded sharply in March 2023, surging 14.8% compared to the same month in 2022. Considering the trade relationship between China and South Korea, in which China mainly imports intermediate goods from South Korea to make final products and export them elsewhere, there are signs of “export decoupling,” where only Chinese exports thrive.

There are many theories that try to explain why China’s economic recovery hasn’t translated to South Korea.

“It is still too early to conclude that China’s exports have entered a trending recovery after China’s reopening,” said Hong Ji-sang, a senior researcher at the Korea International Trade Association.

“It is also important to consider that it takes time for China’s export recovery to spread through to South Korea, as there is usually a two-month lag between product orders, manufacturing, and final delivery,” Hong added.

The view is that as China’s export recovery becomes more pronounced, South Korea’s exports to China will gradually get back on their feet. The Bank of Korea noted in a report in February that exports to China are expected to recover in the short term, mainly in items sensitive to China’s domestic demand, such as chemicals, followed by exports of information technology (IT) items such as mobile phones and semiconductors, with a lag of up to two months.

“There are reports that China did not operate factories during the Lunar New Year holiday in January and February 2023, and the postponed export volumes from that were pushed to March,” said an official from Korea’s Ministry of Economy and Finance. “Looking at the details of China’s exports, information technology items, which have a high proportion of Korea’s mass exports, are still in a bad situation due to the deteriorating global economy.”

According to statistics from the country’s General Administration of Customs, China’s March exports consisted mainly of fuel, steel and automobiles, while exports of telecommunications equipment and electronic devices declined or remained flat.

There are also concerns that China’s spillover effect may not be as strong as before. There is no guarantee that China’s export recovery will continue, as the Chinese authorities are prioritizing economic policies to expand domestic demand and revive consumption.

China Merchants Securities recently noted that although exports in March were stronger than market expectations, “it is difficult to see a prolonged upturn in exports given the slowdown in the global economy,” forecasting a gradual slowdown of exports “in the next one to two months.”

China’s strategy of self-reliance in intermediate goods such as semiconductors and the escalating tensions between the US and China over the Taiwan issue could also be a headwind for mass exports.

By Park Jong-o, staff reporter

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