On December 14, South Korea’s Chosun Ilbo website published an article entitled “Now we are giving money...trade with China has been in deficit for the first time in 31 years.” The authors were Cho Jae Hee and Ri Jung Goo. The full text is excerpted as follows: This year, South Korea's trade balance with China has turned into a deficit for the first time in 31 years. This is the second time since a trade deficit of US$1 billion occurred in 1992, the first year of the establishment of diplomatic relations with China. The trade pattern with China, once the mainstay of South Korea's economy, has changed.
On the 13th, according to the Korea International Trade Association and the Ministry of Trade, Industry and Energy, as of November this year, South Korea’s exports to China were US$114 billion, imports were US$132 billion, and the trade balance was in deficit of US$18 billion. It ranks second only to the US$22.4 billion trade deficit with Saudi Arabia, the largest importer of crude oil. In the 16 years from 2003 to 2018, except for 2008, China has always brought the largest trade surplus to South Korea, but now it has undergone a 180-degree change and has become the target of money from South Korea.
The reason why the trade balance with China is experiencing a large deficit is because China, which used to manufacture and process the intermediate products exported to South Korea and then sell them to the world market, has now become self-sufficient in most of its products, and South Korea no longer has anything to sell.
On the contrary, South Korea must import necessary materials and minerals from China on a large scale in the fast-growing battery market. Analysts believe that, coupled with the downturn in the semiconductor industry, which is the mainstay of exports to China, exports have declined, and the trade balance with China has entered a deficit for the first time in 31 years.
Cho Sang-hyun, director of the International Trade and Commerce Research Institute of the International Trade Association, said: "The changes in the trade structure with China that were originally concealed by the illusion of a semiconductor surplus have finally surfaced. A new trade framework should be formulated in the future."
Previously, the reasons for the sluggish exports and trade deficit to China were certain products such as semiconductors and geopolitical issues such as supply chain conflicts between the United States and China. Many people expect that if the semiconductor market, which accounts for 30% of total exports to China, and China's overall economy recover, exports to China are expected to return to their original position. They did not view the sluggish exports and trade deficit to China within the framework of industrial structural transformation, but attributed it to temporary external variables. But the reality of South Korea's trade with China revealed after tearing open the packaging of semiconductors is not like this. China has got rid of its industrial structure of importing intermediate products from South Korea and other countries, processing them and then exporting them abroad. China has improved its technological capabilities and has now become a competitor of South Korea's exports in the world market.
Some people point out that with the rapid development of Chinese industries, Korean products have lost their foothold in the local market. On the contrary, imports from China have shown a sharp increase trend. After entering the 2020s, with the advent of the electric vehicle era, battery materials and other materials have become representative of imports to China.
Some people point out that relying on the government's full support, population and large domestic demand market, except for some cutting-edge industries such as semiconductors, the technical capabilities of Chinese products have almost caught up with South Korea, and it is difficult for South Korea to gain an advantage in the Chinese market. Zhou Yuan, director of the Korea Hyundai Economic Research Institute, said: "From a practical point of view, except for semiconductors, South Korea no longer has products sold in China."