"South Korea-China Export Items Overlap with 40 ASEAN and 9 Mexico Items...Urgent Need for Investment-Export Linked Strategy"

Martial Arts, Report on "Impact of China's Increased Investment in ASEAN and Mexico"
"Competition in Automobiles, Petrochemicals, Steel, and Shipbuilding... Urgent Need for Advanced Strategies Linking Investment and Exports"

An analysis has emerged that competition is intensifying as South Korea and China overlap in export items to ASEAN (Association of Southeast Asian Nations) and Mexico. They are clashing across major industries such as automobiles, petrochemicals, steel, and shipbuilding. There is an urgent need to establish an advanced strategy linking investment and exports.

According to a report titled "Impact of China's Increased Investment in ASEAN and Mexico" released on the 26th by the Korea International Trade Association's International Trade and Commerce Research Institute, 40 out of the top 100 export items from South Korea and China to ASEAN overlapped last year. In the Mexican market, 9 out of the top 30 export items from both countries were the same.

Competition between the two countries intensified as China ventured into the Southeast Asian market amid U.S. containment efforts. After the U.S. imposed Section 301 tariffs in 2018, China expanded its entry into ASEAN as an alternative production base to circumvent U.S. tariffs and secure supply chains. China has also increased its investment in Mexico, choosing Mexico to leverage benefits such as the expansion of U.S. nearshoring (relocation of production bases to neighboring areas) and tariff advantages under the United States-Mexico-Canada Agreement (USMCA).

The number of competing export items between the two countries in the ASEAN region increased from 32 in 2018 to 40 last year. Notably, many of the competing items included South Korea’s key export sectors such as automobiles, petrochemicals, and steel. While South Korea’s market share in ASEAN imports has remained in the 7% range since 2016, China recorded an all-time high of 23.9% last year.

The number of competing export items in Mexico rose from 7 in 2020 to 9 last year. The export competition index also increased from 0.315 to 0.352 during the same period. Competition occurred in sectors such as steel and metals, automobiles, auto parts, petrochemicals, and wireless communications.

The report suggested that South Korea urgently needs to develop an export advancement strategy that links investment and exports in ASEAN and Mexico. It advised benchmarking China’s approach, as China is enhancing export connectivity through industrial complex development, resource development, and participation in infrastructure projects in ASEAN. For example, Indonesia, where South Korean investment is active, is the ASEAN member country with the highest concentration of China’s major industrial complexes.

The report also called for transforming the ASEAN export portfolio into advanced and high-end products and finding export strategies to China via ASEAN. This is because as China increases industrial production and overseas investment in the ASEAN market, the re-export of intermediate and consumer goods produced in ASEAN back to China (China’s imports from ASEAN) is increasing. A 1% increase in China’s industrial production in ASEAN leads to a 2% increase in imports of intermediate goods from ASEAN. A 1% increase in investment balance results in a 0.06% increase in import volume. This means it is becoming increasingly difficult for South Korea to export generic products to China.

Jang Sang-sik, head of the Trend Analysis Office at the Korea International Trade Association, emphasized, "Recently, anti-China sentiment related to artificial island construction and resource development is rising within ASEAN. Taking this as a lesson, it is necessary to enhance cooperation and trade linkage using K-culture, renewable energy, smart cities, and medical and agricultural sectors." He added, "With increasing calls in the U.S. to sanction China’s circumvention of U.S. exports, South Korean companies entering ASEAN and Mexico should also pay close attention to origin management."