Significant changes in the trade structure between China and South Korea

According to the Economic Outlook Update Report released by the Bank of Korea on May 25, South Korea's domestic economic growth continues to be weak, and it has lowered its economic growth forecast for 2023 from the original 1.6% to 1.4%, which is lower than the recent growth forecast (1.5%) put forward by International Monetary Fund (IMF), Asian Development Bank (ADB), Korea Development Institute (KDI) and other institutions. Wang Ningyuan, a researcher at the Bank of China Research Institute, pointed out that there has been a significant transformation in the trade structure between China and South Korea recently, and strengthening high-end industrial cooperation is of great significance for the economic and trade relations between China and South Korea.
South Korean exports remain sluggish, putting pressure on economic development. The contraction of global demand and the downturn in the storage semiconductor industry have seriously dragged down South Korea's export performance. Since October 2022, South Korea's foreign exports have been experiencing negative year-on-year growth for 7 consecutive months, and in the first 20 days of May 2023, exports continued to decline year-on-year (-16.1%). South Korea is a typical export-oriented economy, with semiconductors accounting for about 20% of South Korea's exports. Since August 2022, its export value has been declining year-on-year for 9 consecutive months, with multiple drops exceeding 40%. In the first 20 days of May, the export value decreased by 35.5% year-on-year. KDI's "South Korean Economic Outlook for the First Half of 2023" released on May 11th shows that the continued weakness of the semiconductor export market has deeply affected South Korean economic growth. The report predicts that the economic growth rate of South Korea will decrease to 1% in the first half of 2023, and the improvement of the semiconductor industry's prosperity in the second half of the year will drive a mild recovery of the South Korean economy. However, the annual growth rate is still only about 1.5%, a decrease of 1.1 percentage points from 2022.
South Korea's trade deficit with China has persisted for several months. From 2018 to 2021, China has been the top three source countries of South Korea's trade surplus. In 2022, the scale of South Korea's trade surplus with China plummeted by 95% to 1.21 billion US dollars, with China ranking 22nd among the source countries of trade surplus. Since October 2022, South Korea has experienced a rare 7-month continuous trade deficit with China, and the scale has continued to expand. In January 2023, China became the largest trade deficit country in South Korea, with a deficit of up to 3.93 billion US dollars. As of the first 20 days of May, the cumulative deficit has reached $11.26 billion. South Korean analysis suggests that South Korea's trade balance with China may experience its first full year deficit since the establishment of diplomatic relations in 31 years in 2023.
China's manufacturing continues to upgrade, and there have been significant changes in the trade structure between China and South Korea. South Korean officials have stated that even if the prices of raw materials such as lithium and cyclical factors such as global economic slowdown improve, the future trade deficit with China will remain normalized. The enhanced competitiveness of China's high-tech intermediate products and high-end consumer goods exports is a deep-seated reason for the change in the trade pattern between China and South Korea. From the perspective of commodity structure, in January 2023, the top four commodities of South Korea's deficit with China are precision chemical raw materials (US $1.85 billion), Dry cell and batteries (US $1.38 billion), computers (US $1.12 billion), and industrial electronic equipment (US $0.73 billion). China has cultivated a group of internationally renowned enterprises in the export fields of traditional Korean advantages such as automobiles, mobile phones, and home appliances. Currently, trade between the two countries has begun