S. Korea needs efforts to stem falling trade surplus with China: report

SEOUL-- South Korea should step up efforts to export high-value intermediate goods to China and meet the changed needs of Chinese importers to help its trade surplus with the neighboring country recover from a recent plunge, a report said Friday.

The Korea Institute for International Economic Policy (KIEP) said in the report that South Korea's trade surplus with the world's No. 2 economy tumbled 40 percent to US$37.5 billion in 2016 from $62.8 billion three years earlier.

South Korea's trade surplus with China came to $1.2 billion in 1993, a year after the two countries established formal diplomatic ties.

The ratio of South Korea's trade surplus to bilateral trade volume also tumbled to 17.7 percent last year from 27.4 percent in 2013.

"In order to keep the trade surplus from sinking further, South Korean companies should try to manufacture more value added parts and components, and push for product differentiation," the report said.

"Efforts should also be made to help South Korean firms have the capability to meet the fresh needs of Chinese importers stemming from Beijing's changed industrial policy."

The report attributed the plunge in Seoul's trade surplus with Beijing mainly to China's policy of replacing foreign imports with domestic production and restrictions on processing trade, which involves importing raw materials or intermediate goods, processing them locally, and exporting the value-added goods.

Also responsible are increased local production by South Korean companies based in China as well as a change in Beijing's import structure, it added.

In an effort to help bolster domestic industries, China has been pushing for import substitution since the late 2000s in a big blow to South Korea that relies on intermediate goods for more than 80 percent of its exports to Beijing.

China has also been strengthening regulations on processing trade since 2004, requiring Chinese companies to buy more raw materials and intermediate goods from local suppliers.

The move sent South Korean exports for processing trade in China tumbling at an annual average of nearly 15 percent between 2015 and 2016. Last year, such exports accounted for some 45 percent of South Korea's overall shipments to China.

The report warned that in light of such adverse factors, there is a high possibility of South Korea's trade surplus with China declining gradually down the road.

Source: Yonhap News Agency

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