Higher production in China means lower exports from Korea, report finds

Posted on : 2023-10-25 16:45 KST Modified on : 2023-10-25 16:45 KST
Production in China was found to have a greater impact on exports from Korea than even the won-dollar exchange rate
A freight yard. (Clipart Korea)
A freight yard. (Clipart Korea)

When it comes to South Korean exports, industrial production in China and the US has a bigger impact than the won-dollar exchange rate, a new report has found.

According to a report titled “An Analysis of Recent Factors Impacting South Korean Exports” that was published Tuesday by the Institute for International Trade, which is affiliated with the Korea International Trade Association, increases in the won-dollar exchange rate are only marginally correlated with higher exports, while variables such as industrial production indices in the US and China and international oil prices have a greater impact on export variations.

Although the average won-dollar exchange rate has risen 6.6%, from 1,247.25 won per dollar in January to 1,329.47 won last month, Korea’s exports have continued to decline through September of this year.

In contrast, Korean exports were found to decline significantly with rises in China’s industrial production index. According to the report’s analysis, this is because of a combination of declining exports to China with China’s increased rate of self-sufficiency with intermediate goods, together with increased export competition with Korea.

Between 2021 and 2022, the rate of increase in Korean intermediate goods exports to China fell from 22.6% to 0.4%. Between January and September 2023, the rate was down by 24.4% from the same period last year.

According to KITA’s analysis, Korean exports of semiconductors, automobiles, chemical products, food and beverage items, and home appliances decline when the Chinese yuan is weak.

“A weak yuan translated into increased cost competitiveness for Chinese items, which has a negative impact on exports in Korea, where there is a high level of competition for exports,” the report explained.

Senior research fellow Jo Ui-yun predicted, “If the continuing strong US dollar and Chinese economic downturn lead to an even weaker yuan going forward, there could be a continued slump in exports for items where [Korea] is in intense competition with China.”

By Kim Hoe-seung, senior staff writer

Please direct questions or comments to [english@hani.co.kr]

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