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South Korean exporters of products ranging from steel and petrochemicals to textiles and cosmetics are struggling to compete with a glut of goods from Chinese rivals, as the effects of overcapacity and sluggish domestic demand spill over into global markets.
Even Korean makers of kimchi, the fermented vegetable product widely seen as a symbol of national identity, are feeling the heat. South Korea imported more kimchi in the first half of 2024 — almost all of it from China — than it exported, amid intensifying competition from Chinese kimchi that cost six times less than the Korean equivalent.
South Korea was widely predicted to be a winner of increasing trade tensions between China and the west, as US and EU tariffs and restrictions on China’s access to next-generation energy technologies drove global buyers to Korea’s semiconductor and electric vehicle industries. The value of Korean exports has risen every month since October last year.
But trade experts said much of those gains were because of surging demand for memory chips — South Korea’s leading export — and were masking pain in other sectors, which are losing market share to lower-cost Chinese competitors.
“A lot of narratives about Chinese overcapacity are heavily focused on China’s trade disputes with the west, and on EVs, solar and batteries,” said Yeo Han-koo, a former South Korean trade minister now at the Peterson Institute for International Economics in Washington.
“But this is something that is affecting the whole global economy, and which is much broader than just the green industrial sector.”
According to a survey of manufacturing companies released last month by the Korea Chamber of Commerce and Industry, 70 per cent of companies said they either already felt or were expecting damage to their business as a result of Chinese exports.
Much of that competition is in markets such as south-east Asia, the Middle East, central Asia and Latin America, where Chinese exporters have turned in search of growth in response to overcapacity and sluggish demand at home in China.
The average price of Chinese exports globally decreased every month between January 2023 and April of this year, falling 10.2 per cent overall, according to data from the Korea International Trade Association, while that of Korean exports fell just 0.1 per cent over the same period.
“China diverting exports away from the US and Europe works like a double-edged sword for us,” said Do Won-bin, a researcher at KITA. “We have more opportunities to export to the US because of China’s absence there, but China’s exports to countries like Vietnam, Saudi Arabia, Brazil and Kazakhstan have increased a lot this year, posing challenges to Korean companies in those markets.”
Korean steelmakers have suffered a particularly severe blow, as rising Chinese competition has coincided with a slowdown in the domestic construction sector.
Hyundai Steel reported a 78.9 per cent year-on-year fall in operating profit in the second quarter, while Posco’s steel division reported a decline of 50.3 per cent and Dongkuk Steel, a fall of 23 per cent. According to the Korean Iron and Steel Association, Chinese steel costs an average of $863 per ton, compared with a price of $2,570 per ton for Korean steel.
Leading Korean petrochemical companies are also struggling, with some halting production, exiting joint ventures and deferring expansion plans amid mounting losses in their core businesses.
Do said Korean companies needed to respond by “differentiating their products through quality”.
But the KCCI survey found that Korean manufacturers were also losing faith in their ability to maintain superiority. Only 26.2 per cent of companies said they had maintained a consistent technological and quality advantage over their Chinese competitors over the past five years, and 73.3 per cent that currently enjoy technological parity or superiority said they expected to be overtaken within the next five years.
Korean companies are increasingly mounting a legal fightback, stepping up anti-dumping and patent infringement complaints against Chinese rivals.
According to South Korea’s industry ministry, Korean companies — led by the steel, petrochemical and battery industries — are on course this year to register the highest number of anti-dumping cases against Chinese competitors since 2002, the year after Beijing joined the World Trade Organization. China accounts for 10 of the 12 cases of leaks of critical technologies registered by South Korea’s National Police Agency this year.
“Until recently, Korea has been relaxed about Chinese investment despite the risk of technology leaks,” said Choi Byung-il, a trade expert and professor emeritus at Ewha Womans University. “But the country now needs more sophisticated measures for its economic security — a more active government role is needed to make it a level playing field.”
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