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Industrial competitiveness between South Korea and China

Intensifying competition with China is a major factor in the recent export slump for South Korea’s leading industries, an analysis shows.

With South Korea in close competition with China in 10 out of 12 major industry categories, the results highlight an urgent need to develop new high value-added products and major industries.

A report on factors behind the leading industry export slump and the direction of restructuring published on June 29 by the Korea Institute for Industrial Economics & Trade (KIET) showed South Korea’s leading industries to be ahead of China in technology and quality, but lagging in price competitiveness. An assessment by KIET exports found South Korea topping China in technology and quality for the major industry areas of automobiles, shipbuilding, general machinery, and oil refining. China was estimated to have reached 80% of South Korea’s level in automobiles, 75-85% in shipbuilding, 80-85% in general machinery, and 80-86% in oil refining.

But China’s price competitiveness in those categories was high enough to offset its disadvantage in technology and quality terms, with rates of 120% for automobiles, 110-120% for shipbuilding, and 120% for general machinery.

China was also found to have almost completely caught up in technology and quality competitiveness in several areas, reaching 95-98% of South Korea’s level in steel, 90-100% in petrochemicals, 95% in textiles, 90-92% in information and communications, 90% in home appliances. Other rates included 80-90% for food, 80-90% for displays, and 80-110% in semiconductors.

In particular, China was found to be ahead or on par with South Korea in system semiconductor technology and petrochemical quality, with rates of 110% and 100%. In terms of price competitiveness, China led in most categories with rates of 110-200%.

Indeed, South Korea was found to be ahead in price, quality, and technology competitiveness for the categories of oil refining, where China averaged 80% of its level, and displays, where it averaged 95%.

Based on the findings, competition with China was predicted to intensify “heavily” in six of the 12 categories: general machinery, steel, oil refining, textiles, home appliances, and displays. More intense competition was also predicted for automobiles, shipbuilding, petrochemicals, and information and communications.

“The only major industry areas where South Korea might hold a competitive advantage over China in five years‘ time are some advanced products and key parts and materials,” said the report’s author, senior researcher Cho Chul.

“We need to develop high value-added items in major industries where exports are growing, or increase exports in the six industries where we’re lagging,” Cho advised.

The six lagging industries were plastics, secondary cells, semiconductor and display manufacturing equipment, cosmetics, medical electronics, and pharmaceuticals.

By Kim Kyu-won, staff reporter

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