South Korea urged to rethink China trade strategy amid intensifying competition
- China’s advancement in hi-tech industries means direct competition with South Korea is growing, says the Korean International Trade Association
- It is critical relations are reestablished to compensate for changes in the world trade environment, the organisation says in new report
South Korea must recalibrate its trade strategy with China, as competition between the two countries has been intensifying as a result of Beijing’s long-term industrial policy, a leading South Korean trade organisation has said.
“It is critical that South Korea-China relations are reestablished in line with changes in the world’s trading environment, such as China’s manufacturing competitiveness that is strengthening and the rivalry for hegemony between the United States and China,” said the report published by the Korean International Trade Association (KITA) on Wednesday.
The report, titled “Changes on South Korea – China trade structure and their significance,” was published by KITA’s research arm, the Institute for International Trade, in anticipation of next year’s 30th anniversary of South Korea and China’s establishment of diplomatic relations.
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KITA, which was established in 1946, is one of the biggest trade associations in South Korea and has more than 70,000 members.
The report said China’s industrial structure has been consistently upgraded in the past two decades, thanks to industrial policies that foster hi-tech industries.
China’s advancement in hi-tech industries means there is stronger direct competition between South Korea and China.
The most intense competition is expected to be in the semiconductor, petrochemical, and display industries
Such competition not only takes place in terms of bilateral trade, but also in the form of export competition.
For instance, competition between the two countries on exporting hi-tech items into the US market intensified from 2011-18, and after that to Southeast Asian nations, as Chinese sales to the US decreased due to the US-China trade dispute.
According to KITA, China’s exports of hi-tech items to the US increased by an average of 7.6 per cent annually between 2011-18, which was 2.3 per cent higher than that of Korea.
Subsequently, China’s exports of hi-tech items to Association of Southeast Asian Nations nations increased by 7.7 per cent on average between 2018-20, while that of Korea decreased by an average of 11.8 per cent during the same time frame.
The report suggested a national strategy be established to prepare a comprehensive support system for the main industries exporting China.
“It is also necessary to expand technical manpower, which is the foundation and growth engine of the industry, and strengthen technical security at the same time,” the report said.
Furthermore, the report predicted export of Korean intermediate goods to China will slow down as China’s key industries are achieving technological independence and the country is attempting to substitute the import of intermediate goods.
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The way to tackle this issue, the report said, was to revise the industry’s export strategy from “Made with China” to “Made for China”.
The trade association advised it was necessary to break away from focusing on exporting specific intermediate goods, such as semiconductors and petrochemicals, and increase the export of final goods, including consumer goods.
South Korea must also address its heavy reliance on China for raw materials, which was exposed recently in a uric shortage.
The task of spreading the supply chain will be especially important for raw materials that are essential for South Korea’s main manufacturing industries, such as semiconductors, petrochemicals, and automobiles.
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According to the data reviewed by KITA in September 2021, reliance on China for raw materials essential for such industries was dangerously high.
For instance, South Korea imported 94.7 per cent of tungsten oxide – required for producing semiconductors – and 100 per cent of Magnesium ingot used for production of aluminium alloy required in car parts from China.
“The supply chains of raw materials essential for the production of key industries [in South Korea] need to be thoroughly managed. At the same time, any changes made in Chinese policy and production must be thoroughly monitored,” the report warned.
