South Korea’s Dependence on China for exports and foreign investment increased after Corona 19

The Federation of Korean Industries

  • Dependence on exports to China: 24.3% from January to July 19 → 25.8% from January to July 20 (1.5%p↑)
  • Foreign investment in the first half of the year, the amount (184.4%) and weight (8.2%p) of China alone increased simultaneously
  • Bio and non-face-to-face related industries such as pharmaceuticals (74,000%) and electricity and electronics (3,800%) are clearly increasing investment in Korea
  • President Xi Jinping’s visit to Korea within this year should be made to strengthen cooperation between China’s New Deal and Korea’s Green New Deal

After the outbreak of Corona 19, the Korean economy’s dependence on China has increased. Not only the dependence of exports on China, but also the dependence of foreign investment on China has increased.

The Federation of Korean Industries (FKI) has reported that the proportion of exports to China from January to July of this year increased by 1.5%p compared to the same period last year. p) increased simultaneously, and the Korean economy’s dependence on China increased.

China’s dependence on exports increased by 1.5%p from 24.3% in January-July 19 to 25.8% in January-July 20.

Until July of this year, due to the impact of Corona 19, exports to the EU declined 11.5% compared to the same period last year, 34.3% in Latin America, and 34.5% in India. On the other hand, as exports to China turned to positive after June, the dependence on exports to China rose 1.5 percentage points from 24.3% in January-July 19 to 25.8% in January-July 20th.

While China’s Corona 19 began to calm down in early March, an expanded fiscal policy of about 11 trillion yuan (1,914 trillion won), which is 11.1% of GDP in 2019, at the Central Political Assembly of the Communist Party of China held on April 17. The growth rate of industrial production turned to positive from April (-1.1% in Feb. → 3.9% in Feb.).

China’s investment, consumption, and production have been recovering rapidly with a lag since the lowest point in February-March, and demand for related products has been made as the two meetings (5.21) decided to expand investment in new infrastructure such as 5G, AI, Internet of Things, and IDC. Is increasing.

Thanks to such a recovery in China’s economy, the growth rate of Korea’s exports to China from June turned to positive after six months (-2.5% in February 2016 → 9.7% in February 2016).

Looking at the export performance of major items to China, from January to July 2020, exports to China declined 5.1% year-on-year due to sluggish products such as petroleum products and LCDs. The increase of 3.8% (semiconductor) to 38.3% (computer) compared to the same period last year was due to the establishment of an untouch culture such as education and the spread of demand for 5G smartphones.

If this trend continues, semiconductor exports to China, which declined nearly 30% last year, are expected to achieve double-digit export growth this year.

In the first half of this year, foreign direct investment (FDI) recorded 76.6 billion dollars, a 22.4% decrease from the same period of the previous year, due to the increase in uncertainty and prohibitions and restrictions on cross-border movement for domestic and foreign businessmen due to Corona 19. The scale of direct investment in Korea by major countries such as the United States, Japan, and the EU declined all at once during the first half of 20 years, and in the case of the United States and the EU, the share of total foreign direct investment in Korea also decreased.

Among these, China, the only major country, increased the amount and proportion of direct investment from Korea at the same time. China’s direct investment to Korea was $8.56 billion, an increase of 184.4% year-on-year, and China’s share of total foreign direct investment increased 8.2 percentage points from 3.0% in the first half of 2019 to 11.2% in the first half of 2020.

It is analyzed that this is because major countries are unable to make normal industrial production and foreign investment due to Corona 19, and relatively normal domestic and foreign economic activities were possible as the Corona 19 began to calm down after March. In addition, there seems to be a base effect as China’s investment in Korea fell by about -64.2% compared to the previous year.

Looking at China’s direct investment from Korea to Korea by industry, there is a clear increase in bio and non-face-to-face industries due to Corona 19. Has increased sharply, and as a result, the overall manufacturing industry (290%) and investment in Korea also increased sharply. This is analyzed as a sign of a change in the investment pattern of China’s investment in Korea, centered on finance and real estate.

Kim Bong-man, head of the FKI’s International Cooperation Office, said, “We hope that Chinese President Xi Jinping’s visit to Korea, which was not successful in the first half of the year, will be successful, and the framework for economic relations between Korea and China will be normalized prior to the 2016 THAAD crisis by lifting restrictions on group tourism in Korea by China.” He said, “We need to overcome the Corona 19 crisis by discovering new business opportunities between the Chinese New Deal and the Korean Green New Deal.”

In this regard, Mr. Kim said, “After Corona 19, the Chinese government held two meetings on May 21 to build a 5G base station to improve the quality of the Chinese economy, As the Korean government is also pursuing the Green New Deal, it is necessary to reinforce Korea-China economic cooperation by exerting their respective strengths.”

Source: The Federation of Korean Industries (FKI)