S. Korea records first current account deficit with China since 2001

Posted on : 2023-06-23 16:07 KST Modified on : 2023-06-23 16:36 KST
At the same time, it posted a record surplus with the US for the second year running
(Getty Images)
(Getty Images)

In 2022, South Korea ran its first deficits in trade, investment, and people-to-people exchanges with China in 21 years. On the other hand, Korea also ran a record current account surplus with the US, and the current account with the European Union was back in the black for the first time in 10 years.

According to the “Balance of Payments by Region, 2022 (preliminary)” statistics released by the Bank of Korea (BOK) on Thursday, the current account with China turned from a surplus of US$23.41 billion in 2021 to a deficit of US$7.78 billion in 2022.

This is the first annual deficit Korea has recorded with China since 2001, the year China joined the World Trade Organization and Korea ran a deficit of US$760 million.

South Korea’s overall current account surplus reached US$29.83 billion in 2022, US$55.4 billion less than the surplus of US$85.23 billion in 2021, with the current account with China shrinking by US$31.19 billion over the same period, accounting for 56.3% of the total decline.

The largest contributor to the deterioration in Korea’s current account balance with China was the balance of goods. Exports to China fell by 9.8% (US$136.56 billion in 2021 to US$123.32 billion in 2022), while imports increased by 10.2% (US$120.98 billion to US$133.28 billion), resulting in a deficit of US$10.06 billion in the balance of goods alone.

“Exports to China decreased mainly in machinery and precision equipment and petroleum products, and the growth of semiconductor exports also slowed significantly, while we saw an increase in imports, mainly in raw materials such as rare earths and chemical industrial products,” an official from the BOK explained.

Korea’s services balance with China, which revolves mainly around travel and transportation, also went from a surplus of US$2.88 billion to a deficit of US$590 million. This is the first deficit in five years since 2017 (US$920 million deficit), when travel from China to South Korea plummeted due to the headwinds of the THAAD crisis.

The US and the EU offset the deterioration in Korea’s current account with China, as the US current account surplus rose from US$45.54 billion in 2021 to US$67.79 billion in 2022, an increase of US$22.25 billion, setting a new record for the second consecutive year.

Korea’s balance of goods with the US alone reached a record surplus of US$56.38 billion, driven by an increase in automobile exports. The primary income balance, which includes investment income such as interest and dividends, as well as wage income inflows and outflows, also recorded a record surplus for the second consecutive year, increasing by US$9.24 billion to US$13.79 billion. The services balance narrowed the deficit by more than US$2 billion, from US$4.09 billion to US$2.02 billion, driven by higher transportation receipts.

With EU member states, the overall current account surplus was US$7.04 billion in 2022, the first surplus in a decade since 2012 (US$1.51 billion). Strong exports of intermediate goods such as automobiles and petrochemicals contributed to a larger surplus in the balance of goods (US$10.13 billion to US$13.14 billion), while higher dividend income helped the primary income balance bounce back from a US$2.3 billion deficit to a US$1.85 billion surplus.

The current account deficit with Japan was US$17.78 billion, a slimmer gap than that of 2021 (US$22.2 billion). On the other hand, the current account deficit with the Middle East widened by US$40.07 billion from 2021 (US$47.98 billion) to US$88.05 billion due to higher crude oil imports as a result of higher international oil prices. With Southeast Asia, the current account surplus narrowed from US$102.36 billion to US$80.23 billion, due to higher imports of raw materials.

Looking at outward foreign direct investment assets by country and region in the balance of payments financial account last year, investment in the US fell from US$28.27 billion to US $27.85 billion. Direct investment in Southeast Asia (US$14.25 billion to US$15.34 billion) and China (US$5.51 billion to US$7.29 billion) increased, reaching their highest levels since 2006, when Korea’s central bank began aggregating the financial accounts by country and region. Direct investment in the EU increased slightly from US$6.24 billion to US$6.44 billion.

Foreign direct investment liabilities fell in the US (US$4.18 billion to US$980 million), Southeast Asia (US$5.46 billion to US$3.01 billion), and China (US$1.56 billion to US$770 million).

By Park Soon-bin, senior staff writer

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