In 2019, China was South Korea’s top export destination for eight of its top 15 export items. Five years later, this number has dropped to three. During the same period, the United States, which was the leading export market for five of Korea’s top export items in 2019, has now increased to eight. Following last year’s decline, where China’s share of Korea’s total exports fell below 20% for the first time in 19 years, this year has seen a notable shift in the Chinese market’s status for major export items, reflecting a broader decoupling trend with China.
The decline in China’s dominance as a top export market for Korea is partly due to the increased self-sufficiency of Chinese industries, which has weakened the competitiveness of Korean products in China. U.S. government initiatives to attract manufacturing industries through the Inflation Reduction Act (IRA) and the CHIPS Act have expanded Korea’s export market to the U.S. The global supply chain reorganization amid the U.S.-China conflict also diversified Korea’s production base from China to Southeast Asia.
According to data from the Korea International Trade Association (KITA), which compared the top export destinations of Korea’s 15 largest export items in 2019 before the pandemic with the top destinations in the first four months of this year, China saw this number fall from eight to three during this period. China retained the top spot in only two of the eight export items - semiconductors and petrochemicals - that it held five years ago. China lost its top export market status in six export items, including lithium batteries, computers, displays, general machinery, petroleum products, and steel. For petroleum products like gasoline and diesel, Australia emerged as the largest export market for Korean refiners in 2022, pushing China down from the top spot it had held for six consecutive years since 2016 to sixth place.
Vietnam overtook China as Korea’s leading display export market by the end of 2019. “As new OLED (organic light-emitting diode) module manufacturing bases are established in Vietnam, exports to China, which only has older production facilities, are gradually decreasing,” said a display industry insider. The U.S. has become the top market for lithium secondary batteries and computers. Over the past five years, the only export item for which China has newly become the top market is wireless communication devices, such as cell phones.
Five years ago, the U.S. was Korea’s largest export market in five categories, including automobiles, auto parts, wireless communication devices, home appliances and bio health. This list has now grown to include general machinery, secondary batteries, computers and steel. Exports to the U.S. have surged after South Korean companies built factories in the U.S., and demand for SSDs in data centers has also increased.
While China’s share of Korea’s total exports has been plummeting, its status in individual export categories has also been steadily declining. Since reaching 25.1% in 2010, China’s share of Korea’s exports remained at a similar level each year but fell to 22.8% in 2022 and further to 19.7% last year. The last time China’s share of Korea’s total exports fell below 20% was in 2004. So far this year, the figure stood at 18.8% through April, falling behind the U.S., which rose to 19.3%. Korea’s automobile exports to the U.S. surpassed semiconductor exports to China in April, mirroring trends from last November and December. This shift illustrates China’s shrinking role in Korean exports.
“The share of the Chinese market has decreased for items such as steel and petroleum products because of China’s increased self-sufficiency,” said Cho Sang-hyun, president of the Institute for International Trade at KITA. “In addition to the impact of U.S. reshoring policies such as the IRA and the CHIPS Act, changes in the supply chain of Korean exports have also played a role.”
“As our production base shifts to the U.S., exports of equipment and machinery will be followed by parts and components, and this trend is expected to continue for some time,” said Park Sung-geun, head of the Trend Analysis Division at the Korea Institute for Industrial Economics and Trade.
