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Reports on China issued by Samsung Economic Research Institute

Changes in Korea-China Trade Structure and Responses

Changes in Korea-China Trade Structure and Responses

Samsung Economic Research Institute Beijing Office

Nov. 20, 2012

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Trade volume between Korea and China has grown rapidly since the establishment of diplomatic ties between the two countries, driving the growth of Korea's trade volume. However, Korea's exports to China have slowed recently. The sluggish performance can be temporary, but it is also possible that it has been caused by structural problems. If the latter is the reason, Korea needs to take countermeasures.

Technology-intensive industrial goods, especially liquid crystal displays, have taken the major share in exports to China while exports of lower-technology products to China have decreased. Indeed, the trade of the share of parts and materials with China is much higher than the average. Although the share of parts and materials in total imports is shrinking, that in imports from China is growing, because both countries are exporters of industrial goods and need parts and materials to assemble finished goods.

However, technology-intensive industries have also lost competitiveness in exports to China. One of the reasons is an overly rapid restructuring of key industries in the transformation of Korea's trade structure to deal mostly with technology-intensive products. The other reason is Korea's too high dependency on certain items in its exports to China. Therefore, even though China's economy recovers, Korea's exports to China are unlikely to pick up.

Technology-intensive industries create much value in exports, but do not create many jobs. In comparison, less technology-driven industries are highly effective in creating jobs and value in exports. Korean companies needs to extend life of those industries, develop new export products, and produce more synergies in exports and investments.

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