South Korea’s reliance on China for semiconductor exports jumped nearly 13-fold in the last two decades and Seoul needs to take action to resolve any associated risks, a report said Sunday.

Semiconductor exports made up 39.7 percent of Asia’s fourth-largest economy’s total exports to China last year, a surge from 3.2 percent in 2000, said the Korea Chamber of Commerce and Industry, a major business lobby that represents some 300 companies including Samsung Electronics and SK hynix, the world’s top two memory chipmakers.

“Korea’s value added industry’s growing dependency on China will increase the risks of being dealt with a heavier blow when the manufacturing skill gap between the countries becomes narrower,” the KCCI said in the report released to mark Korea’s 30 years of diplomatic ties with China.

“Businesses and the government must make full effort in achieving further technology development. They must come up with measures to diversify our exports, so that China won’t weaponize the dependency,” it added.

The KCCI also noted a shift in the types of industries with heavier reliance on China.

In 2000, the raw wood material industry had the highest dependency, with its outbound shipments to China accounting for 42.3 percent of its total exports. Leather and shoes manufacturing came at No.2 with 38.8 percent, followed by petrochemical with 33.4 percent.

This compares with the 2021 data in which precision instruments industry had the highest dependency with 42.5 percent. Fine chemistry and semiconductor each followed with 40.9 percent and 39.7 percent respectively. Glass and petrochemical came to 39.3 percent and 38.9 percent respectively, in the same period.

The trade ties between the two neighboring countries – established in 1992 – became a major driving force behind Korea’s economic growth, the report noted.

In 2000 – eight years after the trade ties were established – Korea’s exports to China remained at $18.5 billion, accounting for 10.7 percent of its entire outbound shipments. But it increased nine-fold to $162.90 in 2021, accounting for 25.3 percent of its total exports.

During this time, Korea’s total exports also increased nearly fourfold from $172.3 billion to $644.4 billion and China has remained Asia’s fourth-largest economy’s top export destination since 2003, taking the crown from the US.

But the KCCI expressed concerns of Korea’s deteriorating trade balance with China, despite growing dependency on the neighboring country.

“It seems the deteriorating trade balance is due to growing exports in raw materials and intermediate goods to China amid a slowdown in China’s economic growth over its implementation of zero-COVID policies.”

Korea is likely to post a fourth straight month of trade deficit with China as of this month, according to the latest data from the Korea Customs Service. It logged a trade deficit of $890 million with China during the first 10 days of August, according to the data.

(mkjung@heraldcorp.com)