Korea sales set to China to fall for 15th straight mth on property crisis

South Korea’s exports to China are poised to slide for a 15th straight month with an expected deeper drop in August amid a faltering economic recovery on the mainland, indicating Asia’s fourth-largest economy is unlikely to find support from overseas sales in the near term.

Shipments to China, the world’s No. 2 economy, fell 27.5% to $5.9 billion in the first 20 days of the month from a year earlier, customs data showed on Monday. Sales to South Korea’s top overseas market, which have been falling since June 2022, skidded 25.1% and 19% in July and June of this year, respectively.

Total exports declined 16.5% to $27.9 billion in the Aug. 1-20 period on-year, while imports slid 27.9% to $31.4 billion, resulting in a trade deficit of $3.6 billion. That compared with surpluses of $1.7 billion for all of July and $1.2 billion in June. 

“Sales to China tumbled and the trade deficit widened as exports concentrated on a few items such as semiconductors and displays,” said Lee Seung-suk, a research fellow of the Korea Economic Research Institute.

Semiconductor and display exports to China in July fell 40.8% and 30.2%, respectively.

The falling demand from the information technology sector amid a slow industry recovery and the sluggish consumption of premium electronics devices in China hurt their exports, a South Korean trade ministry source said.

Given the latest sluggish trade data, the Bank of Korea is unlikely to raise its policy interest rate from the current 3.50% later this week despite the monetary authority’s hawkish stance, a potential rebound in inflation and a weaker won currency, analysts said. The BOK is scheduled to hold an interest rate policy meeting on Thursday.

FALTERING CHINESE ECONOMY

China’s central bank earlier on Monday cut one of its key interest rates for the second time in three months as the economy struggles to recover from COVID-19 amid the deepening property crisis.

South Korea’s exports are more sensitive to China’s property market and capital expenditures than overseas sales of other countries, the BOK said in a report published last month.

“Exports of intermediate goods such as steel make up more than 70% of South Korea’s total exports,” said a BOK official. “So, exports will inevitably be affected by construction demand in China.”

The country’s property crisis is expected to prevent South Korea from meeting its goal for a structural trade surplus from September, experts said.

“It is premature to be optimistic that a trade balance will turn to a surplus in the second half, given growing risks of serial defaults by Chinese property developers,” said Seok Byoung Hoon, an economics professor at Ewha Womans University in Seoul.

NOT YET OUT OF WOODS

The gloomy predictions on exports are likely to delay South Korea’s economic recovery, analysts said, although the government and the central bank expected the trade-dependent economy to speed up the rebound in the second half.

“A further slowdown in the Chinese economy due to the sluggish property sector could further hurt South Korea’s exports of key items such as semiconductors,” said Chon Sora, an associate fellow at the Korea Development Institute.

“Chinese tourists are unlikely to spend as much as before,” Chon said. Beijing decided to lift the ban on group tours to South Korea earlier this month, ending a six-year hiatus caused by frayed relations following the deployment of a US missile defense system to the peninsular.

Total overseas sales of semiconductors, South Korea’s top export item, tumbled 24.7% in the first 20 days of August. The country is home to the world’s two largest memory chipmakers – Samsung Electronics Co. and SK Hynix Inc.

South Korea’s exports to other major economies also slumped during the period. Sales to the US, the world’s largest economy, and the European Union dropped 7.2% and 7.1%, respectively, while exports to Vietnam slid 7.7%.

Shipments of petroleum products and steel slumped 41.7% and 20.5%, respectively.

On the other hand, automobile exports rose 20.2% while overseas sales of vessels jumped 54.9%.

Write to Kyung-Min Kang and Sul-Gi Lee at kkm1026@hankyung.com
 
Jongwoo Cheon edited this article.