Korea’s growing reliance on trade with China at a time the world’s No. 2 economy is slowing down has raised concerns among economists and industry officials here. What is further complicating their worries is China’s manufacturers have been sharpening their competitive edge more rapidly and effectively than was previously thought, eroding the market shares of Korean high-tech companies in global markets beyond China.

Gripped by a deepening sense of crisis, analysts note the survival of Korea’s manufacturing exporters will hinge on getting over this complex set of risks and challenges from China.

“Our companies have remained too complacent for too long,” said Han Jae-jin, a senior researcher at the Hyundai Research Institute. “They have neglected innovative efforts, just riding on China’s economic growth.”



Korea’s exports to China amounted to $102.1 billion in the first nine months of this year, accounting for 25.7 percent of its all outbound shipments, up from the 25 percent tallied in the same period of last year, according to recent figures from the Ministry of Trade, Industry and Energy. China’s proportion of the country’s exports is larger than the combined share of the U.S., Vietnam and Japan ― three other major overseas markets for Korean products.

Trade officials here are concerned that China’s deepening slowdown can pose serious challenges for Korea’s exporters.

Chinese President Xi Jinping said early this month that annual expansion of only 6.5 percent would be enough to achieve his country’s goal to double gross domestic product and incomes compared to 2010 levels by the end of the decade. His comment was seen as the clearest signal yet that China would reduce its target growth rate from the current “around 7 percent” in the process of addressing its structural problems.

Official data from Beijing showed China’s economy expanded by 6.9 percent from a year earlier in the third quarter, the slowest pace in six years. But foreign research institutes see the actual figure might have been far lower, with some placing it below 3 percent.

The Korea Development Institute, a state-run think tank, said in a report released this week that a 1 percentage point drop in China’s growth and its negative impact on the global economy would result in dragging down Korea’s growth by up to 0.6 percentage points. Hit hardest will be Korea’s electronics, electric equipment, chemicals and machinery sectors, which have already seen their shipments to China decreasing in recent years.

Korea’s exports to China in the January-September period slid by 3.8 percent, a figure that might be regarded as less disappointing, given Germany and Japan saw their shipments to the country fall by double digits over the same period. But Korea is set to suffer a steeper reduction in exports to China, which is focusing on expanding local supply chains to replace imported intermediary goods. According to trade officials here, intermediary goods accounted for more than 70 percent of the country’s overall shipment to China last year.

Korean companies face an increasing need to shore up their exports to China by finding more opportunities in its rapidly growing consumer markets and services sector. The ratification of a free trade accord between Seoul and Beijing, which is being held back by the opposition party in Korea’s parliament, will help them accelerate such efforts by lifting nontariff barriers as well as cutting tariffs.

Many economists indicate it will require far more extensive measures for Korea to contain possible fallouts from China’s slowdown and keep ahead of it in high-tech industrial competitiveness.

The KDI report called for implementing fiscal, monetary and currency policies in a proper and timely manner to cushion unexpected impacts of China’s structural reform on the Korean economy.

What is particularly alarming Korean exporters and policymakers is Beijing’s move to pour huge amounts of money into developing high-tech sectors such as semiconductors despite its shift from investment-led development to domestic consumption-driven growth.

Korean companies have been losing ground to their Chinese competitors in the fields of home appliances, smartphones, flat displays and cars. Concern is growing here that Korea’s chipmakers will follow suit in the Chinese market, which accounts for more than 60 percent of global demand for semiconductors, in a few years, losing about $15 billion in annual sales.

Economists note Korea should accelerate work to restructure marginal manufacturing exporters saddled with heavy debt and focus on developing innovative businesses and high-end products. They also indicate efforts should be stepped up to expand overseas markets particularly in Southeast Asia and Africa to reduce overdependence on China.

By Kim Kyung-ho (khkim@heraldcorp.com)