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Chips

Korea’s reliance on semiconductor chips increases economic vulnerability: FKI

Jeong-soo Hwang Aug 12, 2020 (Gmt+09:00)

South Korea’s heavy dependence on semiconductor chips and its concentration on the US and China for exports pose a greater risk to the export-oriented economy amid ongoing tension between the US and China, a lobby group for the country’s top conglomerates said on August 12. In addition, heated competition with China in the top export markets will likely aggravate South Korea's export prospects given their overlapping shipment markets, the Federation of Korean Industries (FKI) said in a recent analysis report.

“Deepening competition with China, which has been implementing policies supportive of the high-tech manufacturing industry, may further worsen South Korea’s export conditions,” FKI said in the report. China has outpaced South Korea in major export items, excluding automobiles, in terms of market share.

The report was released after the world’s seventh-biggest exporter posted year-on-year shipment declines for the past five months, from March when the World Health Organization declared Covid-19 a pandemic, through July.

Even last year, before the coronavirus outbreak, Korea’s exports tumbled by 13.8% from March to July 2019 from the same period of 2018.

Korea's concentration on its 10 largest export markets came to 70.3%, based on 2019 trade data. It had the third-highest degree of concentration after Hong Kong and Japan and compared with the average 65.3% among the 10 exporting countries.

In particular, the five biggest export countries took a 59% share, with China and the US accounting for 25.1% and 13.5%, respectively.

LITTLE CHANGE IN EXPORT ITEMS

“South Korea’s export items have remained almost the same for the past 10 years. The absence of a new growth engine to drive the fourth industrial revolution and the post-coronavirus era will pose a great threat to our export competitiveness,” said a senior FKI official.

semiconductor-chips

By export item, which excludes natural resources such as oil and gold, semiconductor chips accounted for 14.6% of South Korea’s total shipments last year. In aggregate, semiconductor chips, cars, auto parts and mobile communications equipment accounted for the bulk of all the shipment items, with the share of the other six export items coming to just 1%.

The top 10 items made up 46.3% of South Korea’s exports last year. Korea's degree of dependence on the top 10 export items was higher than the average 36.0% among the 10 biggest export countries. Hong Kong is the only country with a higher degree of dependence at 62.6%.

LAGGING SERVICES EXPORTS

Regarding services exports, South Korea came second from the bottom, after China, among the 10 export-oriented countries. Services exports made up just 13.8% of total exports in 2019. This represents about a third of the UK's percentage of services exports last year.

South Korea’s services sector, including cultural content, financial services and tourism, had posted an average growth rate of 0.6% between 2008 and 2018, dwarfed by the industry’s average growth rate of 3.8% during the same period.

“Now that China’s services sector has been growing 10 times faster than South Korea at 6.2%, we are facing a pressing need to improve the competitiveness of the services industry” said the FKI.

The lobby group called for supportive government policies and relevant regulatory changes to help diversify the country’s export portfolio, explore new markets and boost the services sector to revitalize its exports.

Write to Jeong-soo Hwang at hjs@hankyung.com



(Photo: Getty Images Bank)

Yeonhee Kim edited this article

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