A majority of South Korean exporters expect exports to drop in the second half of this year, compared to the first six months, due to declining demand in China and the US, and rising commodity prices, a recent survey by the Korea Chamber of Commerce and Industry showed Wednesday.

According to the poll conducted in the last week of July, 65 percent of 300 local exporters said exports will fall in the June-December period, while 23 percent said they won’t change much, and the remaining 12.3 percent said exports will increase.

As for why they think exports will decline, 44.3 percent picked “China risk,” or shrinking demand in China and other major export destinations; and 37.6 percent chose “components and commodity shock;” while 18.1 percent selected “chain crisis.”

Among companies doing business in China, 72 percent said they think exports will drop in the second half.

They projected exports to fall 5.32 percent on average, according to the survey.

By industry, exports of home appliances were expected to decrease the most – by 6.67 percent – followed by textiles and clothing (-5.86 percent); steel (-4.32 percent); ships and plants (-0.3 percent); pharmaceuticals (-0.67 percent).

China’s economic growth has slowed from 4.8 percent in the first quarter of this year to 0.4 percent in the second quarter. China’s export growth has also greatly slowed to 14.2 percent in the first half of this year, from 38.5 percent a year ago.

The Bank of Korea has said that in addition to slow recovery of China’s consumption and employment, its exports can also slow in the long term, so China’s economy is unlikely to recover any time soon.

As for components, the KCCI said that on top of existing global supply chain jams, prices of raw materials have jumped, resulting in unstable supply and rising cost burdens for local exporters.

The Commodity Research Bureau (CRB) Index, an indicator of daily changes in 19 international commodity prices, peaked at 351.25 points on June 9, up 42 percent compared to Jan. 3 this year.

The CRB Index later tumbled down to figures last seen in the late 2000s, but stood at 309.76 points on Aug. 15, up 82.17 points from a year ago.

While the situation in Ukraine has destabilized commodity prices, extreme weather conditions across major breadbaskets worldwide are likely to act as a destabilizer for grain and raw material prices, the KCCI said.

The persisting supply chain crisis that began with the pandemic and worsened as the war in Ukraine continues is also a key challenge for local exporters.

The Shanghai Containerized Freight Index, the most widely used index for sea freight rates for container transport from China’s main ports, increased by 3.9-fold from January 2020 (999 points) to July 2022 (3,887 points), according to the Ministry of Finance and Economy.

The air freight rate for transport between Hong Kong and North America jumped 2.7-fold in the same period.

To the KCCI poll questionnaire on what they want the South Korean government to do, 37 percent of the exporters picked “strengthen economic security by securing global supply channels.” Twenty-six percent chose “support (businesses’) entry to emerging markets and export diversification;” and another 25 percent selected “expand bilateral and multilateral free trade agreements and improve trade strategy.”

Forty-seven percent of the exporters picked the US as the country South Korea should work most closely with, in order to diversify supply channels. This is because the US is seen as a stable supplier with both the resources and high-tech, the KCCI said.

As for the “Chip 4” alliance in the semiconductor industry, only 5.3 percent of the respondents said South Korea should not take part.

Forty-one percent said Korea should join Chip 4, but not now. As for the reason why Seoul should join the alliance with the US, Japan and Taiwan, 50 percent said they expect it to help them gain an upper hand in the supply chain reorganization process. Forty-two percent picked “cooperation on semiconductor supply chains is the most important.”