Slowing Chinese economy casts shadow over Korean exports

Containers are being loaded onto a ship at a pier in Busan on Thursday. [YONHAP]

Risks related to China’s economy, from lockdowns to slowing growth, are casting a shadow on Korea’s exports.

The Yoon Suk-yeol government has emphasized an “all-out response” to the potential threat, characterized by actively supporting promising industries such as bio, health and batteries.

Export support measures are to be announced by the end of this month.

But trade indicators are gradually getting worse.

Minister of Trade, Industry and Energy Lee Chang-yang on Tuesday visited Osong Bio Valley in Cheongju, North Chungcheong, to discuss the trade situation with companies.

Osong Bio Valley is a corporate complex that houses a number of companies and research centers.

Lee during his visit stressed the importance of raising the export competitiveness of promising industries amid the uncertain future caused by rising energy and raw material prices since the onset of the Russia-Ukraine war, slowing global economic growth and the unstable supply network.

“We will expand our support for pharmaceutical companies to strengthen their global manufacturing competitiveness,” Lee said while visiting the Daewoong Pharmaceutical plant at the complex. “This will include establishing a new development project for the innovation of pharmaceutical manufacturing processes and implementing a preliminary feasibility study for the establishment of a manufacturing innovative center.”

The minister, in meeting with exporters at the Osong complex, again stressed that there will be government support, particularly to boost the bio, health, rechargeable batteries and cosmetics industries so that they can become the next major Korean exported items much like Korea’s semiconductors.

“At the end of this month, we plan to announce a comprehensive export measure covering overseas marketing support for small- and medium-sized enterprises,” Lee said. “These measures will also include strengthening mid- to long-term export competitiveness by major industries and improving regulations and resolving difficulties in the business field.”

China, Korea’s biggest export market, has been struggling, especially due to its self-imposed lockdowns.

According to the National Bureau of Statistics of China on Monday, China’s industrial production grew 3.8 percent year-on-year in July. That’s a 0.1 percentage-point drop from the 3.9 percent increase in June.

Retail sales rose 2.7 percent in July on year, an increase 0.4 percentage points lower than the month before.

Both indicators were well below market expectations.

China’s economic slowdown began in earnest when the country's major cities including Shanghai went on lockdown between April and May.

China’s second quarter GDP fell by 0.4 percent on year.

After lockdowns were lifted in June, the index showed signs of recovery, but growth slowed again in July. It does not appear to have completely recovered even in the third quarter.

The People’s Bank of China tried to address the growing concerns of a slowing economy.

On Tuesday, the Chinese central bank cut its one-year medium-term lending facility (MLF) rates by 0.1 percentage point from 2.85 percent per annum to 2.75 percent.

This was the first cut in seven months.

As the MLF acts as a leading indicator of the base rate, it is likely that the base rate will also soon fall.

The warning sirens on Korea’s own exports are also sounding.

According to the Korea Customs Service, exports to major countries, such as the United States and those in the European Union, during the first 10 days of this month increased compared to the same period last year.

However, exports to China shrunk by 2.8 percent during the same period. Imports increased by 29.2 percent, resulting in a deficit of $890 million.

Korea has been reporting a trade deficit with China for the last three months.

Exports to China, which showed negative growth in June and July, could continue to decline for a third consecutive month.

The overall balance of trade has also been negative since April due to a surge in energy imports, and the deficit is gradually increasing.

Export prospects are going downhill, but there is no suitable solution. Analysts say there is little room for a sharp rebound in the Chinese economy for the time being.

“As the U.S.-China conflict and the aftermath of the Covid-19 pandemic overlap, the slowdown in China’s growth is highly likely to continue at least until the end of the year,” said Kim Jeong-sik, professor emeritus of economics at Yonsei University. “Since there are no specific factors that will cause the balance of trade to rebound, rather than taking one or two measures, a fundamental policy change is needed.”

“The government is acutely aware of the current situation Korea’s trade is facing and will do all it can to expand exports and improve the balance of trade by establishing a cross-ministerial export response system,” Minister Lee said during his meeting with exporters on Tuesday.

BY JEONG JONG-HOON [lim.jeongwon@joongang.co.kr]