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Smaller firms need to cut reliance on China for exports

March 13, 2017 - 09:14 By KH디지털2

South Korean small and medium-sized enterprises should make efforts to reduce their dependence on China for exports and diversify overseas markets to cushion the impact of Beijing's possible economic sanctions, sources said Monday.

China has taken a series of retaliatory measures against South Korea over its push to deploy an advanced US missile defense system on its soil, which Beijing insists could be used to spy on its military.

A cosmetics shop in downtown Seoul is quiet on March 6, 2017, in the aftermath of China's retaliation over Seoul's deployment of a high-tech US missile defense system. (Yonhap)


According to the Korea Customs Service and the Small and Medium Business Administration, South Korean SMEs' exports to the world's second-largest economy rose 1.9 percent on-year to $22.5 billion in 2016.

Nearly 23 percent of their total exports went to China last year, compared with 26.5 percent for South Korea's big businesses.

Roughly 85 percent of local SMEs' shipments to the neighboring country were capital goods, with consumer goods, such as clothing and cosmetics products, accounting for 13.8 percent.

Given the figures, smaller South Korean firms stand to suffer less damage from China's retaliation that is focused on tourism and consumer goods than their larger counterparts, but they need to step up efforts to expand their overseas markets to other emerging countries, experts said.

Indeed, the SMBA said it will strive to diversify local SMEs' export markets in a bid to help them withstand external shocks, such as China's retaliation over the deployment of the Terminal High Altitude Area Defense  system.

The administration said it plans to sponsor overseas exhibitions for SME products and set up technology exchange centers in Iran, Vietnam, Indonesia, Thailand, Peru and Mexico as part of efforts to help them secure beachheads in such strategic markets.

Last year, China was the top destination for local SMEs' exports, with 22.6 percent of them going to Asia's largest economy.

The United States followed with 11.5 percent, Japan with 9.7 percent and the European Union with 5.1 percent.

"South Korean exporters always face risks in China due to the Chinese government's great market dominance, with Beijing's THAAD retaliation laying bare Seoul's excessive dependence on the neighboring country," said Hong Seong-chul, a researcher at the Korea Small Business Institute. 

"South Korean SMEs should try to tap emerging markets, such as Southeast Asian countries, the Middle East and Africa." 

Meanwhile, a survey of 300 small and medium-sized exporters to China, taken by the Korea Federation of SMEs in January and February this year, showed 26 percent of the respondents saying they experienced Beijing's protectionist measures after Seoul-Washington made the decision to deploy the missile defense system. The corresponding figure was 5.3 percent before the decision.

In July last year, South Korea and the US agreed to install a THAAD battery in the southeastern county of Seongju to better counter missile threats from North Korea. A week ago, the first elements of the system, including two launchers, arrived at Osan Air Base in Pyeongtaek, 70 kilometers south of Seoul.

The row over THAAD comes amid rising trade between Seoul and Beijing. China is South Korea's largest trade partner. Last year, South Korea's exports to the world's second-largest economy reached $124.43 billion, with its imports coming to $86.98 billion. (Yonhap)