Continued Current Account Surplus with the US
Widening Deficit with China
Main Cause: Strong US Economy vs. Weak China Economy
Last year, South Korea achieved a record-high surplus in economic transactions with the United States, driven by strong exports of passenger cars. Conversely, it recorded the largest-ever deficit with China due to sluggish semiconductor exports.
According to the '2023 Regional Balance of Payments (Provisional)' data released by the Bank of Korea on the 19th, South Korea's current account surplus last year was $35.49 billion, an increase from $25.83 billion the previous year.
Record-high US Surplus Continues, Deficit with China Widens
By country, the surplus with the United States increased compared to the previous year, while the deficit with China expanded. Last year, the current account surplus with the US was $91.25 billion, significantly up from $68.9 billion the previous year. The goods balance improved due to increased exports of passenger cars and decreased imports of raw materials, and the primary income balance improved due to increased interest income. However, the services balance deficit widened due to a decrease in transportation income.
The United States has been South Korea's largest current account surplus country for four consecutive years since 2020, surpassing China.
On the other hand, the current account deficit with China was $30.98 billion, an increase from a deficit of $8.4 billion the previous year. The goods balance deficit widened due to a sharp decline in exports centered on semiconductors. The current account deficit with China continued for the second consecutive year.
The differing trends between the US and China are analyzed to be due to their contrasting economic conditions. The intensifying US-China trade dispute, coupled with a strong US economy and a relatively weaker Chinese economy, is affecting economic transactions with South Korea.
Moon Hye-ji, head of the International Balance of Payments Team at the Bank of Korea's Economic Statistics Department, said, "The growth gap between the US and China is widening, and there is also the impact of the global supply chain restructuring. This trend is expected to continue for the time being."
Looking at other countries, last year, the current account deficit with Japan was $16.86 billion, a decrease from a deficit of $17.6 billion the previous year. The goods balance deficit narrowed due to decreased imports of chemical products and precision instruments, while the services balance turned to a deficit due to increased travel payments.
The current account surplus with the European Union (EU) was $6.39 billion, up from $5.5 billion the previous year. Although the services balance deficit widened due to decreased transportation income, the primary income surplus increased due to a reduction in dividend payments.
The current account surplus with Southeast Asia was $51.67 billion, down from $77.4 billion the previous year. The goods balance surplus narrowed due to decreased exports of semiconductors, petroleum products, and chemical products, and the services balance turned to a deficit due to decreased transportation income, but the primary income surplus increased due to higher dividend income.
The current account deficit with the Middle East was $73.74 billion, a decrease from a deficit of $88.4 billion the previous year. The goods balance improved due to reduced imports of raw materials such as crude oil and gas following a decline in international oil prices.
Increase in Domestic Investors' Overseas Direct Investment Slows
Looking at the financial account's direct investment by region, last year, domestic investors' overseas direct investment (assets) was $34.54 billion, showing a slower increase compared to $65.8 billion the previous year. Investment in the US expanded, but investments in China and the EU decreased, and investments in most regions including Southeast Asia shrank, causing the slowdown.
Foreigners' domestic direct investment (liabilities) was $15.18 billion, a slower increase compared to $25 billion the previous year. This was due to reduced investments from most regions including Japan and Southeast Asia, as well as a decline in investment from China.
Regarding securities investment, in 2023, domestic investors' overseas securities investment (assets) was $45.37 billion, maintaining a level similar to $45.6 billion the previous year.
Overseas stock investment decreased from $40.57 billion to $29.76 billion, with the slowdown centered on investments in the US. Overseas bond investment increased from $5.03 billion to $15.61 billion, with the expansion centered on investments in the US and EU regions.
Foreigners' domestic securities investment (liabilities) was $37.92 billion, an increase compared to $19.7 billion the previous year. Domestic stock investment turned positive from a deficit of $5.1 billion to a surplus of $11.62 billion, with investments from the EU region increasing significantly despite reductions from the US and Middle East, leading to the expansion.
Domestic bond investment increased from $24.87 billion to $26.3 billion, with investments from the EU region decreasing but increases centered on investments from the US and Southeast Asia regions.
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