■Korean export ‘Chinese Reef’
In 2023, Korean exports are staggering. They hit a giant reef called the ‘Chinese factor’. As a result of a continuous setback in exports over the years, the country is now driven into a structural deficit (a deficit with China for 9 months in a row). Last month, the trade balance turned to surplus for the first time in 16 months, but it was not thanks to China. thanks to the US Our exports are decoupling by country and region.
A graph that shows this phenomenon well is the export trend graph by export destination country. If you look at this graph made by the Bank of Korea, you can see that exports to the US and Europe increased dramatically, while exports to China and ASEAN decreased dramatically.
The entire export graph is formed around the middle. Asia pulls it down and America and Europe pull it up. In particular, the share of the US in total exports in the first half of this year in terms of export value rose to 17.9%. The gap with China (19.6%) narrowed to 1.7%p.
Now, voices are getting louder that there is nothing more to expect from China. Is it a graph that proves the claim of ‘ Friend Shoring ‘, which is to trade with allies by turning toward allies such as the United States ? We need to dig deeper into its meaning.
■ ‘Friend shoring’ that gives up semiconductors is impossible
First of all, we look at trends in IT exports by country. It is to see if the trend is different by country, but if you look at the graph, the US and China are not different in IT exports. Exports of IT products all deteriorated similarly. All from USA, China, Europe and ASEAN.
Instead, automobile exports performed well. The largest export item in the first half has changed from semiconductors to automobiles (including parts). In fact, the proportion of semiconductor exports in the first half of the year tallied by the Bank of Korea was 14.1%, and automobiles were 15.4%.
It is because of this ‘car’ that decoupling by country has occurred. The automobile sector accounts for 27.6% of total exports to the US and 19.5% to Europe. On the other hand, China (1%) and ASEAN (2.7%) are insignificant.
In other words, although it made up for it to some extent by selling cars well in the US and Europe, it is a more accurate picture to say that overall export performance has deteriorated as IT exports, the main focus, has deteriorated worldwide.
It is not easy to say that ‘friend shoring’ is important because there is no future in the direction of China, holding this picture. Perhaps, since semiconductors, our biggest export item, have no future, it could mean looking for other industries.
■ Why the Chinese Special Disappeared
The problem is China again and again. Can China’s exports not improve? First of all, the crisis can be defined by three factors.
① Korean exports with less competitiveness
According to the Bank of Korea’s analysis, the ratio of the ‘competitiveness’ factor in the decrease in exports to China in the first half of this year (January-April 2023) compared to last year (April-December 2022) reached 35%. One-third of the drop in exports to China means that Korea’s competitiveness is structurally weak. Looking at the competitiveness gap by extending the research period, the Bank of Korea analysis found that the gap between Korea and China has rapidly narrowed over the past 10 years.
China has already caught up in low value-added semiconductors, and China is exporting battery materials. China’s share of automobiles and smartphones is only in the 0-1% range, meaning no meaningful exports are taking place anymore.
② Wheezing is Chinese real estate,
followed by Hengda in 2021 and Wanda in 2023. Wanda, one of China’s biggest real estate developers, is likely to default on its $400 million bond due next week. International credit rating agencies such as S&P scramble to downgrade credit ratings. Among the speculative grades, it is a CCC grade with poor quality . Like Hengda, it has become a ‘problem that can be solved only by the Chinese authorities’.
The worsening real estate market in China is a symbol of the overall vicious cycle of the Chinese economy. China’s retail sales growth rate fell to single digits (3.1% year-on-year) in four months after the reopening, and exports declined for two months in a row. The youth unemployment rate has exceeded 20% as a published number, and some pessimistic analyzes suggest that the unemployment rate could be twice as high. A huge real estate investment vacuum is causing China’s economic stagnation.
Now there are people talking about the Japanese-style balance sheet recession path. As asset prices fall, they reduce consumption and pay off debt. When demand is weak, prices fall and the economy stagnates. Currently, China’s consumer price inflation ( CPI ) is 0% (year-on-year). The producer price index ( PPI ) is -5.4 %.
The Korean economy takes a direct hit from the Chinese economic downturn. According to the Bank of Korea analysis, ‘the country most significantly affected by exports to China when Chinese real estate is depressed’ is Korea (correlation coefficient of 0.69, the highest among Asian countries compared). The Bank of Korea interprets that ‘when China’s real estate is bad, the Chinese construction industry stops, and at this time, among our main export items, exports of machinery such as excavators and steel parts are very sensitively affected’.
③ De-China of world investment?
If a country’s economy can be 바카라explained by only one factor, Korea’s exports. America is domestic China is an investment. Massive investment is the most important factor enabling the rapid growth of China’s huge economy.
The Chinese government’s investment conditions have been extremely constricted. Despite the real estate crisis, there is no room to invest in the ‘long-term declining real estate industry’. The importance of foreign investment is increasing.
However, the de-China phenomenon of foreigners investing in Asia is observed. The Financial Times ( FT ) reported that ‘for the first time in six years, equity investment in Asian emerging markets excluding China has surpassed that of China’. It is attributed to the fact that expectations for Chinese growth have faded.
According to the FT ‘s analysis, investments out of China fall into two broad categories. In terms of semiconductor demand triggered by AI investment, net inflows were made to Taiwan ($10 billion, last year) and Korea ($9 billion), and expectations for supply chain changes largely flowed into India ($14 billion) .
■ Exports to Korea in a world without China specialization
1. Long-term trend of declining competitiveness of Korea’s main export items with China
2. Possibility of a vicious cycle in China’s domestic economy
3. Global investors’ departure
Interpreting this situation as a premise, even if ‘the global IT economy revives’, it will be difficult to stop the decline in the competitiveness of our intermediate goods. It is difficult to be certain whether global investment in China will revive at a time when the US is holding China in check. China’s domestic economic factors make the situation more difficult.