By Troy Stangarone
South Korea saw the largest drop in exports since the global recession in 2009 in August with exports falling 14.7 percent year-on-year. One sited cause of the decline is slowing economic growth in China, which now accounts for about 25 percent of South Korea’s exports. With China now South Korea’s most significant export market, how responsible is the economic slowdown in China for the sharp decline in South Korean exports?
South Korean exports on the whole have declined each month in 2015. August saw the most significant decline in exports overall and to China in the current calendar year with exports to China declining by 9.1 percent. Exports to China have declined in every month of 2015 except January and June.
Prior to August, the most significant declines in South Korean exports to China this year took place in February and July when exports declined by 7.7 and 6.5 percent respectively. However, only May saw a comparable decline in South Korea’s overall exports when they fell by 11 percent (exports to China fell 3.35 percent that month). Putting this month’s decline in context, the 9.1 percent decline in exports to China account for only slightly more than 16 percent of the total export decline in August. Additionally, had South Korea’s exports to other countries remained constant the decline to China would have only lead to a 2.4 percent decline in South Korean exports overall for August.
As we have previously noted, South Korea’s economic relationship with China is more complex than the surface level of its trade statistics would seem to indicate. In the first half of the year, 68 percent of South Korean exports to China were intermediary goods and only 4 percent were consumer goods, indicating that Korea’s dependence on China as a final market for its goods may be less than is generally perceived.
With this in mind, there are other factors that played a prominent role in the decline of South Korean exports in August. As the global economy has slowed, South Korea saw declines in exports to its top 5 markets with exports declining by 4.4 percent to the U.S., 6.5 percent to ASEAN, 20.8 percent to the EU, and 24.4 percent to Japan. The fall in exports to Japan alone accounted for around 9 percent of the total decline in South Korean exports in August.
Another significant factor is the price of oil. South Korea is both a major importer and exporter of petroleum and petroleum products. As the price of oil has fallen on world markets South Korea has sought to import excess oil at lower prices, but has also seen the value of its refined and other petroleum based products fall. This can be seen in two sets of data. While exports of petro products and petrochemicals fell 40.3 and 25.7 percent respectively, South Korea’s total exports by volume increased for the third straight month with the price of petroleum being one of the major factors.
While China is an important trading partner for South Korea and played a significant role the current export decline, it is not the primary source of the decline for South Korean exports in August. Had the rest of the world only maintained its same level of imports from South Korea as last year August would have seen the second smallest decline in South Korean exports this year. The broader problem for South Korean exports is a general global slowdown and the continuing low petroleum prices of which the slowdown in China is only a part.
Troy Stangarone is the Senior Director of Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.
Photo from Kent Lins’ photostream on flickr Creative Commons.