Reliance on China for exports worrisome

The rapid growth in exports last month was tied in part to the fledgling economic recovery working its way across the globe. But another trend played a significant role as well: increased consumer spending in China.

Data released by the Ministry of Knowledge Economy yesterday indicated that January’s exports jumped 47.1 percent from a year earlier, the fastest growth in more than two decades. While a surge in imported fuel finally ended the 11-month trade surplus streak, the government says the export growth will help it reach its target of a $20 billion (nearly 24 trillion won) trade surplus this year.

But some analysts say the growth rate is vulnerable, pointing to the fact that a significant portion of the growth last month was attributed to China, which accounted for 29.8 percent of Korea’s exports - much higher than the 23.8 percent recorded in all of 2009.

The ever-increasing trade dependence on China will backfire against Korea if Chinese economic growth slows, the analysts warned.

Data from the Bank of Korea and the Korea Customs Service confirmed that Korea’s trade dependence on China, including export and import, hit 20.53 percent for the first time last year. In 2008, that figure stood at 19.63 percent, and a meager 2.90 percent in 1991, when the government began to compile such data.

Dependence on the United States, on the other hand, was 9.71 percent last year, only a third of 1991 levels of 24.42 percent.

Lee Young-bog, a senior official at the BOK, said the increasing trade dependence on China is due to the growing intermediary goods trade, coupled with the growing manufacturing capacity of the world’s fastest-growing economy.

“The majority of the items exported to China are intermediary goods from which China makes final goods exported to the rest of the world,” Lee said. According to the Knowledge Economy Ministry, only around 30 percent of Korea’s exports to China are now consumed by the Chinese people.

Hyundai Research Institute said in a report that heavy trade dependence on China can become a problem if or when the Chinese government implements an expected exit strategy. It said slower economic growth in China due to a hike in its key interest rate could result in significantly reduced Korean exports.

However, Lee Han-gyu, an economist at the Korea Development Institute, said China will raise the key rate if it deems its private sector has sufficiently recovered from the global crisis, and that a rate hike will not reduce China’s economic growth or Korea’s export rates.

Still, Lee said over-dependence on trade with China should be avoided.

Lee Dong-geun, the ministry’s deputy minister for international trade and investment policy, said the ministry will try to come up with measures to diversify Korea’s trade partners.

“We think the current export dependence on China is significantly high,” he said.

By Moon Gwang-lip [joe@joongang.co.kr]