The purpose of this study is to concentrate on how the competitive relationship between Korea and China changes when the trade structure is adjusted, and suggest policy implications.
The report considers three themes relevant to competition between both countries; China’s impact on Korean firms in the domestic market, China’s impact on foreign markets, and the competitiveness gap between the two economies measured by differences in technology. The study discusses the entry and exit rates of Korean firms, and also analyzes the exit and switch rates of Korean firms in each industry. It reveals that the penetration of China’s exports into the Korean market hinders entry and increases exits, particularly in industries with low technology. However, the effect is not significant in industries with high technology. In contrast, the import penetration of OECD countries encourages both entry and exit in high-tech industries, which implies that rapid structural changes are being experienced by firms in high-tech industries due to imports from developed countries. While the entry and exit of firms can be the main reason for structural change in an industry, the study addresses that this is not strongly supported with evidence based on the Korean experience.
The study also concentrates on competition between two economies in foreign markets. First, it shows that in many aspects, competition between the two countries intensified in major markets and industries. It is striking that the five industries in which China has a comparative advantage such as IT equipment, textiles and apparel, metals, home appliances, and transport equipment (with the exception of motor vehicles) are also those areas in which Korea maintains a comparative advantage. This shows that competition between the two economies will grow more severe in the future. The study classifies markets by region and industry, and finds that in 26 out of 45 cases, the market share of Korea and China are correlated. Korea’s market share is negatively correlated with that of China in 10 markets, which includes: the United States’ market for semiconductors, electronic parts, IT equipment, and home appliances; the Japanese market for textiles and apparel, electronic parts, and IT equipment; the ASEAN market for textiles and apparel and IT equipment; and the EU market for semiconductors. What is of concern is that the industries that lost market share as China’s share increased are those in which Korea has had a comparative advantage.
Moreover, this study investigates the composition of exports from Korea to China, and estimates the quality of products based on the unit price of exports. Korea’s superiority lies in machinery and transport equipment, while China’s catch-up process took place very rapidly in chemical products and electric and electronic goods. Korea has also been lagging behind China in exploring new markets since the 1990s, and a relatively small number of products took a large market share. The study suggests a diversification in chemical products, the exploration of new markets, improvements in the machinery sector, and increased innovation in the textile and apparel industry in order to climb the quality ladder and secure the world market.
중국의 경제성장과 교역증대가 우리 경제에 갖는 의미(China’s growing economy and its implications for the Korean economy)
한 중 간 경쟁관계를 중심으로(Focusing on the competitive relationship between Korea and China)
|Series Title; No||연구보고서 / 2005-04|
|Subject Country||China(Asia and Pacific)
South Korea(Asia and Pacific)
|Subject||Economy < Trade|
|Holding||KDI; KDI School|