Korea's trade with China goes from huge surpluses to big deficits

Containers are stacked at Busan Port [SONG BONG-GEUN]

Korea’s largest trade deficit was with China in the first two months of the year, according to Korea International Trade Association (KITA), transforming the country from an engine of growth to a drag on GDP.

The dramatic shift is attributed to U.S.-China tensions and China’s efforts to be self-sufficient in producing electronic components it once imported from Korea.

Korea logged a trade deficit of $5.07 billion with China in the first two months of 2023.

The trade deficit with Australia, which used to take the top spot due to Korea’s reliance on the resource-rich country, came in at $4.82 billion, followed by Saudi Arabia at $4.67 billion and Japan at $3.53 billion.

Korea had generated substantial surpluses with China until recently.

Its surplus with China peaked in 2013 at $62.8 billion but declined to $55.6 billion in 2018, though the surplus was the largest among trade partners.

The surplus was $29 billion in 2019, pushing China to No. 2.

Last year, China’s ranking slid to 22nd place, with a $1.2 billion surplus, due in part to Covid-19 lockdowns and the rising imports of materials from China.

The weak demand and steep price declines for chips also worsened Korea’s trade balance with China.

“Memory chips are the key export items for Korea, but the demand in China is particularly weak because the smartphone market plunged into a serious downturn, which translated into lower-than-expected orders for chips used in mobile phones,” said a source at SK hynix, a chipmaker that produces about 40 percent of its dynamic random-access memory (DRAM) in China.

The Korean government stressed that the decline is transitory owing to extraordinary conditions, like Covid-19, but others see the trend as structural since the surplus has been on a declining trajectory since 2013.

The government tried to play down the trend, saying that China’s reopening will help the trade relationship go back to normal, but the size of deficit only grew entering this year despite the reopening.

Other areas hit hard include fine chemicals, batteries, computers and industrial equipment. By item, the fine chemicals deficit was the largest, at $1.8 billion, during the two months, followed by batteries, at $1.3 billion.

In the meantime, Korea’s exports to the U.S. and India reached record highs last year and growth has been maintained.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]