[Column] Tackling quality services for trade with China

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[Column] Tackling quality services for trade with China

Cheong In-kyo

The author is a professor at the Department of International Trade at Inha University.

The Ministry of Economy and Finance has projected next year’s growth rate at 1.6 percent. The Korean economy has only recorded a growth rate under 2 percent four times since 1961. Exports played a key role in economic recovery whenever the economy hit a crisis. Last year, Korea’s exports reached $644.4 billion, the sixth largest following Japan, the Netherlands, Germany, the U.S. and China. Just 15 years ago, Korea’s exports were less than half of Japan’s, but grew fast to narrow the gap.

In 2022, Korea’s exports performed well in most countries in the world. But when it comes to exports to China and Hong Kong, it’s a different story. Korea’s exports to China in the first half grew far less than the rest of the world and finally turned to a deficit in the second half. The export growth rate fell to a single digit in the third quarter, followed by a double-digit reduction in the fourth quarter. Due to higher import prices from soaring international prices of raw materials, Korea’s trade deficit with China was consolidated.

So far, Korea’s exports to China played a big part on the trade front. But its sluggish exports became a major factor in scaling down its overall exports and leading to a trade deficit. Korea exported $13.4 billion in products and services to China in January alone, but the figure dwindled to $11.4 billion in November.

The slowed exports to China appear to have resulted from several factors, including export restrictions from the decoupling of the U.S.-China economy, the zero-Covid policy and dual circulation policy of China to sustain self-reliance, high interest rates and decreased global demand. But a bigger problem is the dark clouds hanging over the trade front with China. Many trade experts attribute it to a perennial breakdown in the previous global supply network based on China.

Economists say that the global trade frame has changed from a multilateral free trade system to an ally-based trade system. But China is Korea’s key trade partner and cannot be separated from its economy. Korea could increase exports to China quickly thanks to sales of intermediary goods needed to produce chips in China and owing to Korean companies’ aggressive investments in China. Now that China must rely on local factories of Samsung Electronics and SK Hynix for semiconductors after the U.S.’s import restrictions, our government must closely communicate with Chinese authorities for the smooth operation of chip plants in China.

Our government must devise a new paradigm of industrial cooperation with China over the long haul to find areas where America’s technology checks are not applied. For instance, the U.S. will find it difficult to impose direct restrictions on eco-friendly businesses — such as renewable energy, green mobility, smart city and smart farm — because of the global tide of environmental protection, though China and America will fiercely compete over leadership in the field. China plans to achieve carbon neutrality by 2060. Korea must establish a joint foundation between the public and private sectors for industrial cooperation with China for a win-win.

As China already has global competitiveness in general-purpose goods and a tendency for chauvinism in consumption, Korea has more difficulty in penetrating China’s consumer goods market than before. But there are still some areas where Korean enterprises can stand out. The government must pay heed to high value-added consumer goods and services — such as medical equipment, healthcare, early education, fashion, meal kits, and healthy food — as they can meet growing demand in China.

The government also must find an efficient way to trade with China. As China is a global leader in ecommerce, companies like Alibaba are very aggressive in drawing in popular products from overseas. If Korean companies can fully take advantage of China’s ecommerce system to appeal to Chinese consumers, it could be a very realistic strategy to increase their export to the country.

Given China’s tough regulations on standards and certifications, our government must alleviate concerns of companies through intergovernmental channels. The Chinese government’s complicated — and ever-evolving — system for standards and certifications has been a major obstacle when Korean companies enter the market.

That raises a need for our government to upgrade the Free Trade Agreement with China to rationalize the system to ensure freer access to the Chinese market through negotiations with Beijing on investments in services, in particular.

Translation by the Korea JoongAng Daily staff.
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