The trade structure between South Korea and China has reversed, and Chinese goods have accelerated their entry into the South Korean market. (Drawing by this newspaper)
[Financial Channel/Comprehensive Report] The industrial problems arising from the entry into force of the Korea-China Free Trade Agreement (FTA) have already aroused criticism in South Korea. With the rapid upgrading of China's manufacturing industry, the past complementary relationship of "South Korea supplies components and China is responsible for processing" has gradually changed, and Chinese-made intermediaries have in turn penetrated the Korean market. Korean media have been issuing constant warnings in recent years. They even asked whether the Korea-China FTA would release "poisons made in China", pointing out the impact on South Korea's local manufacturing industry after the influx of low-priced Chinese goods.
Park Seung-chan (transliteration), director of the China Business Research Institute and professor of the Department of Chinese Studies at Yongin University, wrote in Aju Business Daily in January this year that South Korea’s exports to China used to exceed 80% of intermediate goods. However, as China’s manufacturing industry upgrades, South Korea’s exports of materials, components and equipment and other intermediate goods to China have decreased, and the penetration rate of Chinese-made intermediate goods in the Korean market has continued to increase.
Data show that South Korea’s proportion of intermediate goods imported from China has increased from 27.3% in 2016 to 31.3% in 2023. Park Seung-chan pointed out that China, which used to play the role of a production base, is rapidly transforming into a supplier of raw materials and intermediate goods, and a new regional value chain is being formed.
Park Seung-chan also believes that South Korea’s trade deficit with China cannot be solely attributed to the South Korea-China FTA. The strengthening of sanctions against China by the United States after 2019, coupled with China's industrial upgrading, independent acceleration of technology, and innovation in China's manufacturing industry, are all important reasons for the reversal of the trade structure between South Korea and China.
In January this year, the "Korea Economic Daily" also warned during the follow-up negotiations on services and investment of the South Korea-China FTA that the China faced by Korean companies today is very different from when the FTA came into effect in 2015.
The report pointed out that on the one hand, China emphasizes market opening to the outside world, and on the other hand, it continues to strengthen economic security controls such as counter-intelligence laws and data security laws. Even if foreign investment is further opened up, Korean companies may still encounter problems such as administrative licensing delays, access restrictions, and priority for state-owned enterprises. These obstacles may not be solved by FTA agreements alone.
The report also cited concerns from trade experts and local companies that if China's market opening is accompanied by dual legal controls, it may become a "poisonous holy grail" for Korean companies. The real key to the second phase of the Korea-China FTA is not just how much market China is willing to open, but whether it can protect Korean companies from risks such as arbitrary law enforcement.
In fact, the Korean media's criticism of the "Chinese goods counterattack" has already been quite direct. The Korean media "Daily Business" reported last year with the title "Does the South Korea-China FTA release 'Chinese-made poison'?", pointing out that as the price and quality competitiveness of Chinese products have improved, and the FTA has lowered trade barriers, a large number of low-priced Chinese products have entered South Korea, and the main impact has been on South Korea's domestic manufacturing industry.
"Daily Business" pointed out that most of the losses caused by the South Korea-China FTA did not occur to export companies, but to South Korean manufacturers that focused on domestic demand. Industries such as electronic components, automotive components, machinery and equipment, and consumer goods were the first to bear the brunt.
These issues, which have accumulated for many years, are now coming into focus again. Yonhap News Agency reported on the 27th that South Korean congressman Choi Soo-jin pointed out that South Korea's trade with China has been in deficit for three consecutive years from 2023 to 2025. She described the 10-year report card of the South Korea-China FTA as "tragic results" such as "three consecutive years of trade deficit" and "damage to the manufacturing industry."
For South Korea, the question is no longer just how much tariff preference the South Korea-China FTA will bring, but how to maintain the original market and competitive advantages of Korean companies after the overall rise of China's manufacturing industry.
