By Lee Kyung-min
Opinions are split over whether recent signs of a slowdown in China’s recovery are signaling the beginning of a peak-out of Korea’s semiconductor exports, one of the few growth drivers underpinning the economic recovery here amid the COVID-19 pandemic.
Some say the sluggish recovery of China’s manufacturing will pose a major downside risk for Korea whose key exports items rely heavily on business sentiment in the world’s second-largest economy.
Others view the concern as overblown, since the demand for chips appears likely to remain strong, as evidenced by the Chinese government’s hefty investments into strengthening 5G networks and data centers among other smart technology infrastructure development.
Semiconductors account for about a third of Korea’s exports to China, where over a quarter, or 26.1 percent, of Korea’s export goods arrive.
Data from the Korea Customs Service showed Korea’s semiconductor exports from Sept. 1 to 10 dipped 2.1 percent, or $3.2 billion (2.7 trillion), from a year earlier. This was the first such year-on-year decrease since January. It contrasts with the export total in the same period standing at $19.5 billion, up 30.7 percent or $4.6 billion, year-on-year.
For context, chip exports in July soared 39.6 percent year-on-year, driven significantly by an increase of 13.1 percentage points from China-bound products.
Exports of petroleum products surged 131.1 percent year-on-year, followed by steel products (58.1 percent), motor vehicles (46.8 percent) and wireless communication devices (16.5 percent).
The flash set of high-frequency data was released shortly after the August purchasing managers’ index (PMI) for China’s manufacturing came to an 18-month low of 50.1, continuing its decline for the fifth consecutive month.
The downtrend will have to be monitored closely, since a slowdown in China’s manufacturing could soften demand for Korean export items, according to a report by Daishin Securities.
“Semiconductors have led the country’s robust recovery for the past 14 months, and any tightening in market sentiment will undermine the growth momentum in the industry and by extension the economy,” it said.
However, Korea Institute for International Economic Policy (KIEP) research fellow Yeon Won-ho said the recent volatility in chip prices is explained by cyclic economic reasons, mostly due to stockpile volumes highly vulnerable to market conditions.
He expects the short-term contraction in the demand for the key export item should dissipate in the long term, since the Chinese government is showing consistency in making hefty investments into upgrading IT infrastructure.
“Semiconductors are crucial to maintaining new, high-tech facilities, and the state-driven investments are in progress without any complications,” he said.
The tightening in business conditions will continue throughout the latter half, and well into next year, crimped chiefly by the political motives of those in power ahead of China’s 20th Party Congress in 2022.
Business sentiment has tightened, as illustrated by the strengthening of antitrust rules on platform firms, online gaming controls on children, reducing real estate loans and entertainment industry regulations. These social control measures, in his view, are a major downside for industries despite being welcomed by the public.
Also at play is the Chinese government seeking to limit economic growth for this year with next year’s base effect in mind.
“Rapid recovery in the first half will translate to slower-than-expected year-on-year growth next year, a reason why those in power are less inclined to bolster growth for the remainder of the year,” he said.Internet Explorer Channel Network