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By Yi Whan-woo
China is easing "zero COVID" restrictions, fueling optimism that the softened policy will help accelerate China's economic recovery and benefit Korean exports struggling with dwindling demand, according to analysts, Thursday.
"China's COVID lockdowns have been a burden for the East Asian economy as well as the rest of the world, and the Chinese economy is anticipated to bounce back significantly over the eased pandemic policy," said Cheong In-kyo, an economics professor at Inha University.
He went on to say, "The economic recovery of China as Korea's largest trading partner will help resolve the widening trade deficit here."
Korea's trade balance has remained in the red for the eight consecutive month in November for the first time since the 1997-1998 Asian financial crisis, with the deficit amount for the first 11 months of 2022 totaling $42.6 billion.
The deficit surpassed the record-high yearly shortfall of $20.62 billion logged in 1996, according to the Ministry of Trade, Industry and Energy.
The snowballing trade deficit comes as exports declined 14 percent year-on-year to $51.91 billion in November, following a 5.7-percent drop to $52.48 billion in October.
The sluggish exports have been largely linked to a fall in outbound shipments to China. For instance, exports to China plunged 25.5 percent from a year earlier to $11.38 billion in November.
Many staple export items suffered a double-digit fall in sales to China compared to 2022, such as a 36.1 percent fall in semiconductors, a 26.2 percent fall for petrochemical products and an 18 percent fall for displays.
These falls are in stark contrast to the 15.3 percent year-on-year increase in exports to the United States reported for the January-November period.
During the cited period, Korea's exports to the European Union also increased by 7.3 percent, while shipments to ASEAN member states grew at 18.5 percent, the Middle East at 13.1 percent and Japan at 3.1 percent.
"The data suggests China's shift in pandemic policy will be apparently a plus factor for Korea," Chang Sang-sik, head of industrial analysis at Korea International Trade Association (KITA), said.
He noted more than 80 percent of Korea's exports to China are for domestic consumption. By items, 90.6 percent of the machinery was for domestic consumption, 88.8 percent for non-metal minerals and 83.5 percent for transportation equipment.
Meanwhile, an expert viewed China's eased COVID lockdowns can benefit the Korean financial market as well.
"Foreign investors tend to associate Korea with China as the two are geographically and economically connected to each other," a Shinhan Investment economist Ha Kun-hyung said. "They accordingly pulled out their money in the Korean financial market due to concerns over the Chinese economy, but they are likely to return now."
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