“I think the time when large numbers of Chinese tourists or group tourists entered the country and spent a lot of money domestically has passed, as was the case in the past.”
Evidence is pouring in that Korea-China economic relations have fundamentally changed. Following a sharp decline in exports to China last year, the travel balance was sluggish despite the resumption of group tours to China.
This can be interpreted as evidence that the special period that China has enjoyed over the past 10 years has come to an end.
According to the Bank of Korea on the 8th, Korea’s exports to China last year amounted to $124.81 billion, a sharp decline of 19.9% from a year ago. On the other hand, exports to the US increased 5.4% to $115.71 billion.
The benefits from trade with China, not only in goods but also in services, were poor compared to the past.
Last year’s travel balance fell short of expectations, with an annual deficit of $12.53 billion. This was interpreted as a result of an increase in overseas travel by Koreans and a decrease in the amount of money spent by foreigners domestically. As a result, last year’s service balance (-$25.66 billion) broke the largest deficit since 2019.
Looking at the share of exports by region, the gap between China (19.7%) and the United States (18.3%) has narrowed to 1.4 percentage points. Even on a monthly basis in December last year, the share of exports between the U.S. and China reversed, with China 18.9% versus the U.S. 19.6%.
In relation to this, Shin Seung-cheol, Director of the Bank of Korea’s Economic Statistics Department, said in a briefing on the 7th, “China, which was the largest export country, temporarily gave up its position to the United States due to the conflict between the United States and China and the reorganization of the supply chain.” He added, “In January, exports of semiconductors to China gradually recovered, and China’s “It’s rising again,” he explained.
He continued, “The proportion of exports to China is decreasing, while the share of exports to the United States and Vietnam is increasing,” and predicted, “There will be a change in the status of the largest export country as exports to China decrease in the future and exports to the United States and Vietnam increase.”
In the short term, the semiconductor and IT industry will improve and exports to China will recover, but in the long term, China may fall from its position as the largest export country.
The background to the expected increase in exports to the U.S. is basically Korea’s expansion in investment. In the 2010s, due to the conflict between the U.S. and China and the spread of national priority, Korea has increased foreign direct investment, such as building manufacturing plants in the United States. It is expected that exports centered on intermediate goods will naturally increase.
Vietnam, the third-largest export country, is expected to increase its status as its overseas production base has moved from China.
On the other hand, China’s role as Korea’s export market is rapidly shrinking. Korea is a country that specializes in exporting intermediate goods, but China’s self-sufficiency in intermediate goods has increased as a result of rapid growth, and its value as a consumer market has actually increased.
In terms of services, Chinese consumption patterns have shifted from group to individual tourism, and Chinese consumption power has decreased due to China’s slowing growth, so it is difficult to expect the same special performance as in the past.
Director Shin said, “The time when Chinese tourists or group tourists entered the country in large numbers and spent a lot of money domestically has passed, as in the past,” and added, “There is a trend for Chinese tourists to not spend much overseas.” In fact, according to a survey by the Ministry of Culture, Sports and Tourism, the proportion of shopping among the main activities of Chinese visitors to Korea last year was 68.2%, a sharp drop compared to 2019 (95.1%).
Accordingly, some point out that it is time to reorganize industrial policy in line with the new economic dynamics and work on restructuring industries that have been neglected due to China’s special circumstances.
In a report last December, Managers Kim Bo-seong and Lee Joon-young and Investigator Choi Chang-won of the Bank of Korea’s China Economic Team suggested, “There is a need to expand exports to China from intermediate goods to consumer goods, while also increasing the competitiveness of exported products through technology development.” Lee Tae-yeol, a senior researcher at the Insurance Research Institute, said, “We need to make efforts to diversify our export channels to Asian and European countries where growth recovery is expected, such as Vietnam, Taiwan, Singapore, and Malaysia.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.