Beijing: A new study recommends that South Korea export consumer goods and high-tech intermediate products to China's growing middle class to narrow its trade deficit with the world's second-largest economy.
For the first time since they established diplomatic relations in 1992, South Korea and China have a trade deficit of up to two quarters.
The primary causes of the deficit are cyclical - rising raw material prices and a slowdown in the global economy - but even when things turn around, South Korea is unlikely to post a surplus equal to the prior period, according to a report released by Korean International Trade Association on Tuesday.
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This is due to the evolving nature of trade between China and South Korea.
China now manufactures intermediate products such as semiconductors and displays that it once imported. On top of that, as multinational corporations seek to diversify, China's importance as a manufacturing hub in the global supply chain is waning.
Most of South Korea's exports to China are made up of intermediate goods. They represented 83.6% of all shipments made to China between January and September this year.
According to the association, South Korea should increase exports of consumer goods and high-tech intermediate goods on which China depends in order to improve its trade balance.
According to the report, technology innovation is needed to further enhance the added value of high-tech intermediate goods. "It is essential to secure a stable export supply chain system focused on high-tech intermediate goods in core materials and parts," it said.
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While expanding its presence in tier II and III cities, South Korea should focus on the growing consumer market in China.
As income and living standards rise, the purchasing power of Chinese consumers increases. According to the report, demand for high-end consumer goods is being driven by these elements as well as the Chinese government's policy of domestic-centred development.
Between 2007 and 21, the proportion of middle- and high-end goods in all consumer goods exported from South Korea to China increased by 18.6%, from 48.1 to 66.6 percent.
South Korea's exports of consumer goods to China over the past ten years only made up about 3-5% of the country's total exports, while intermediate goods made up about 80%.
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For three consecutive years, skin care items were the most exported consumer goods last year, with a value of nearly ten times that of the next product, cleaning foam and hand sanitizer.