Study analyzes reasons behinds decreases in South Korean imports to China

Falling savings rates and changing preferences among Chinese consumers main culprits

The main reasons for the decrease of South Korean imports to China are the falling savings rate in China and Chinese consumers’ decreasing preference for manufactured goods, a new report found.

According to a report titled “Analysis of the Causes of the Reduction of South Korean Exports to China,” which was released by the Bank of Korea on Aug. 13, China’s rate of savings (and investment) continued to fall from 2013 to 2016, which reduced imports of capital goods and intermediate goods for the production of capital goods in China. This was the presumed cause of falling South Korean exports to China.

The report also concluded that consumer preferences inside China have shifted from the manufacturing sector to non-manufacturing sectors such as the service industry, which has led to a reduction of exports of South Korean manufacturing goods to China.

“A dynamic general equilibrium model was employed to analyze the major shocks behind the changes in South Korea’s exports to China between 2004 and 2016,” said Choi Mun-jeong, a deputy research fellow at the Bank of Korea’s international economic research center.

For a time, South Korea’s exports to China increased more rapidly than its total exports. But exports to China began to decline in 2013, and recently that decline has become sharper. In 2016, exports of goods to China fell 9.3 percent compared to the previous year, in terms of the value of goods exported.

Choi explained the rationale for his report as follows: “The decline in exports to China partially reflects the slowdown in global trade, but causal analysis based on economic models was insufficient. The situation called for an analysis of how China’s slowing growth and structural changes in investment and consumer preferences have affected the decline in South Korean exports to China.”

The report raised the possibility that the global value chain in which South Korea handles the manufacturing of intermediate goods and exports them to China for the production of capital goods is weakening.

“The decline in South Korean exports to China should be attributed not so much to a slowdown in global trade but to falling Chinese investment and declining consumer preferences for manufactured goods. As such, it will be necessary to strengthen export capabilities in the service industry in the future,” the report advised.

By Lee Wan, staff reporter

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