South Korea is on the verge of returning to a trade surplus with China. After more than four years of deficits, the recovery is largely driven by a surge in semiconductor exports and increased demand for advanced electronic components due to the expansion of the artificial intelligence (AI) industry.
This is certainly welcome news. China remains South Korea's largest trading partner and one of its biggest export markets. In recent years, the South Korean economy has faced challenges, including a slowdown in the Chinese economy, shifts in industrial structure, and the U.S.-China conflict, which have all contributed to sluggish exports to China. The trade deficit with China has been viewed not merely as a statistical change but as a warning sign regarding the competitiveness of South Korean manufacturing.
However, the prospect of a trade surplus should not be viewed with unqualified optimism. The current recovery does not hold the same significance as in the past.
Once, China was a country that struggled to operate its manufacturing sector without South Korean intermediate goods. Semiconductors, displays, steel, and petrochemical products flowed into Chinese factories, which processed them for sale in global markets. This naturally led to substantial trade surpluses for South Korea.
Today, however, China is different. It is no longer just the 'world's factory.' Through large-scale national investments and technological development, it is transforming into a powerhouse of advanced manufacturing. In sectors such as steel, shipbuilding, and petrochemicals, as well as batteries and displays, Chinese companies have reached a level that poses a threat to South Korean firms. Some industries have even been assessed as having surpassed South Korean capabilities.
The recent recovery in exports to China is primarily driven by semiconductors. Increased investment in AI servers and rising prices for memory chips are boosting exports, but the high dependence on specific items remains a concern. Should the semiconductor market decline or if China accelerates its technological self-sufficiency, the current surplus structure could be jeopardized at any time.
Ultimately, what matters is not just the size of the surplus but its substance. A structure that relies solely on selling large quantities to China will not secure sustainable competitiveness. South Korea must supply products and technologies that China cannot produce on its own. This is why technological competitiveness has become more important than price competitiveness.
South Korea's focus should be clear. It must continue to widen the technological gap in fields such as AI semiconductors, advanced packaging, next-generation memory, biotechnology, and aerospace—areas where China will find it challenging to catch up in the short term. To ensure that the recent surge in semiconductor exports does not remain a temporary cyclical phenomenon, there must be national-level investments in research and development and industrial growth.
Furthermore, the perspective on the Chinese market needs to change. South Korea should move away from a structure centered on intermediate goods exports and expand its competitiveness into consumer goods and services sectors such as K-content, healthcare, tourism, and beauty. At the same time, while maintaining its presence in the Chinese market, a balanced trade strategy that explores new markets in Southeast Asia and India is essential.
China presents both a threat and an opportunity for the South Korean economy. While it can no longer compete using past success formulas, it can still become the largest market if it secures new competitive advantages.
Now is not the time to rest on the laurels of a surplus created by semiconductors. South Korea must acquire the technologies and industries that China urgently needs to usher in an era of 'super-gap trade.' This is the path to transforming a temporary rebound in trade with China into sustainable national competitiveness.
* This article has been translated by AI.
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