The Korea International Trade Association Shanghai Center surveyed 177 Korean companies with business operations in China to assess the extent of damage these companies experienced during the lockdown period in key areas, including Shanghai.

The results were released on June 27 in the form of a report and it revealed that a vast majority of them, comprising 88.1%, were impacted by the measures were impacted by the measures implemented by the Chinese government, which necessitated the provision of support for affected companies to minimize losses.

The report revealed that 88.1% of the respondents experienced “financial losses or negative consequences during the course of performing their business activities.” As many as 97.4% of respondents said sales declined during the first half of this 31.4% of them said their sales plummeted by more than 50% compared to their performance a year ago. A total of 95.5% of respondents forecasted diminishing sales throughout the second half of this year.

During the first half of this year, 69.9% of respondents said they scaled down investments, while 66.7% of respondents said they are hiring fewer people, and that they anticipated the situation will aggravate during the second half of this year with 70.5% of respondents predicting a contraction of investment and 67.3% forecasting a decline in hiring. The report forecasted, “Investment and employment will likely see mounting pressure over time.”

It was also revealed that China’s harsh Covid restrictions are particularly hindering in-person business activities. A total of 16.8% of respondents were affected by movement restrictions; another 16.8% of respondents experienced difficulties in performing sales promotion and marketing activities; while 15.9% of respondents experienced logistics and supply chain disruptions.

When asked about how much their business performance has returned back to normal after restrictions were lifted, 41.5% of respondents said their business has recovered to less than 50% of pre-restriction levels; and a staggering 22.4% of respondents said their business has recovered to less than 30% of pre-restriction levels. This figure showed a big gap between manufacturing companies and non-manufacturing companies. 68.3% of manufacturing companies said their business has recovered to more than 70% of pre-restriction levels, whereas merely 28.3% of non-manufacturing companies responded they managed to reach this level, which indicates more than a double of non-manufacturing businesses are disproportionately affected compared to manufacturing businesses.

The report described, “Considerable time will be needed for non-manufacturing companies to put their business back on track as movements are still restricted and face-to-face customer service is limited despite lifting of lockdown measures in Shanghai.” In response to a question on plans to maintain business in China, the survey revealed 55.3% of respondents have plans to scale down, suspend, pull out business operations in China or relocate their business elsewhere. Only 35.9% of respondents said they intend to adhere to their original business plan and only a fraction of respondents – 7.3% – said they plan to expand business operations in China. The report also discovered Korean companies with business operations in China expect the following from the Chinese government: a) the predictability of the Chinese government’s response to the Covid pandemic, b) distribution of financial subsidies, c) tax deductions and d) discounts on rent.

Seon-young Shin, the Head of the Korea International Trade Association Beijing Center stressed, “The Korean government and relevant institutions should notify the Chinese government of the extent of damage Korean companies are experiencing and insist on the necessity of providing assistance to compensate for the loss in order to boost mutual economic cooperation.” The Head also added, “It will be a smart move collaborate with other foreign companies in China in making this request as a vast majority of foreign companies in China are experiencing similar difficulties and suffering losses our companies are experiencing.”

 
 
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Marking the 10th anniversary of the signing of the FTA between the two nations

This year marks the 10th anniversary of the signing of the Korea-U.S. FTA. Trade of Goods agreement in 2011 before the ratification of the bilateral FTA, which stood at US$100.8 billion, and then soared to US$169.1 billion in 2021. This shows a 67.8% increase in trade within a decade.
For the United States, Korea accounted for 9.3% of trade of goods in 2011 before the ratification of the Korea-U.S. FTA. This figure rose to 13.4% in 2021, making Korea the second-largest trading partner for the Unites States. Korea’s exports to the United States were led by automobiles, automobile parts, petroleum products, secondary cells, refrigerators and synthetic resins, resulting in US$11.6 billion worth of trade surplus for Korea before the ratification of the bilateral FTA, increasing to US$ 22.7 billion in 2021.

Korea attracts the largest size of foreign direct investment (FDI) from the United States, and at the same time, the United States is the largest investment destination for Korean companies. After the ratification of the bilateral FTA, 22.3% of FDI to Korea came from the United States and a whopping 25.2% of Korea overseas investment went to the United States. Korea’s investments in the United States dramatically increased with a bulk of investment directed to the battery, semiconductor and e-vehicle sectors, which contributed to expanding production facilities in the United States and job creation. This also proved to be an opportunity for Korea, as Korean enterprises were able to expand their markets.
The Korea-U.S. FTA as a main contributor to strengthening cooperation in the supply- chain sector between the two countries deserves to be stressed.
Taking the semiconductor industry as an example, the two countries were able to establish a strong valuechain based on each other’s respective strengths. The United States, with its excellence in semiconductor designing on top of a foundation of a stable source of investment, and Korea, with its strengths in the manufacturing sector, established a strong value chain. A similar example can be witnessed in the battery industry sector.

Korean battery production companies and the American automobile companies are engaged in joint investments. This resulted in establishing mutually beneficial cooperative relations between Korea and the United States. It enabled Korean companies to gain a competitive edge compared to other rival countries by securing large-scale clients in advance and allowed American automobile companies to secure a stable source of battery supply.
Aside from these examples, bilateral cooperation based on the contract manufacturing organization (CMO) of medicine and medical supplies amid the Covid pandemic developed into a vaccine alliance, which is seen as another example of solidifying the supply chain.
The report released by the Korea Institute for International Trade (KITA) says, “Based on a stronger cooperative economic partnership with the signing of the Korea-U.S. FTA and expanded trade and investment, Korea rose to become a core partner in terms of supply chain for the United States.” It also added, “A strengthened cooperation in the supply chain sector between Korea and the United States is becoming ever more apparent, especially in core industry sectors, including the semiconductor, battery and pharmaceutical product sectors. The reorganization of supply chain based on mutual trust is gaining greater attention as the two countries experienced a series of supply chain crises triggered by the confrontation between the USA and China and the Covid pandemic.”
Yu-jin Lee, the head researcher at KITA, forecasted, “Future trade agreements will go beyond allowing greater access to each other’s markets and will focus on solidifying alliance from the perspective of economic security.” The researcher also said, “The United States is recently stressing solidarity with its allies and partners as the United States proposes the Indo-Pacific Economic Framework (IPEF). Korea should thus consider ways on how it can utilize the cooperative relationship between Korea and the United States made possible by the FTA between the two countries, and link it with discussions on new regional economic security alliance.” <Source: KITA>

 
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