Korean exporters fail to keep up with China's changes

By Choi Sung-jin

The import structure of China, Korea’s largest market, is rapidly changing to consumer goods, but Korean exports are still focusing on intermediary goods such as parts and semi-finished products, a study said Thursday.

Chinese people, armed with rapidly growing income, increasingly prefer high-quality, expensive consumer goods, but Korean exports’ competitiveness falls short of meeting such demands, said the report by the LG Economic Research Institute, while explaining the reasons for the mismatch.

“Emerging economies’ economic growth pattern is shifting from trade and investment to domestic demand, with consumer goods accounting for a larger share of imports, and a case in point is China,” the report said. “The Chinese economy is now in the middle of a structural transformation, with growth slowing and domestic demand taking up a larger portion.”

As recently as the early 2000s, parts and half-finished goods accounted for 70 percent of China’s imports, and the share of consumer goods remained at only 10 percent. Over the past three years, however, the import portion of intermediary goods fell to 56 percent while that of consumer goods, such as food and cosmetics, approached 20 percent, the report said.

Another reason for the shift is the dwindling portion of the processing trade in China, from 48.4 percent in 2000 to 32 percent in 2014.

Korea’s export composition has changed little, however.

The share of components and semi-finished products still surpasses 80 percent while that of consumer goods stands in the low 10-percent range. “Thanks to geographic advantage, Korea has so far benefitted from China’s rapid expansion by establishing a vertical division of labor but the nation is failing to swiftly cope with changes in the Chinese economy,” the report said.