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Finance Minister Choo Kyung-ho of South Korea has dismissed the notion of decoupling from China, emphasising the significance of the world’s second-largest economy as Seoul’s “most important partner” for economic collaboration.
While South Korea has long pursued economic ties with China, it has also relied on the security commitment from the United States to deter potential North Korean aggression. This delicate balance has recently come under scrutiny as Seoul strengthens its economic security through closer relations with Washington.
Minister Choo Kyung-ho reassured lawmakers during a parliamentary session that South Korea has no intention of severing ties with its Asian neighbour. He emphasised that efforts to strengthen relations with the United States should not be misconstrued as a disregard for China.
Minister Choo Kyung-ho said, “We have never announced a plan to decouple from China, and we have no intention to do so.”
These remarks come against the backdrop of a 23.4% year-on-year decline in South Korea’s exports to China, amounting to $6.79 billion over the first 20 days of the month, despite hopes of a positive impact from the reopening of economic activities. In contrast, outbound shipments to the United States experienced a marginal decrease of 2%, reaching $5.8 billion.
China has emerged as South Korea’s largest trading partner, accounting for approximately a quarter of its total exports. However, South Korea’s exports have witnessed a 16.1% year-on-year decrease during the first 20 days of May. The country’s trade deficit for this year has already surpassed $29.5 billion, accounting for more than half of the record-high annual trade deficit of $47.8 billion recorded in 2022.
Minister Choo expressed optimism that South Korea’s trade balance would improve after May, with expectations of a gradual recovery of tax revenue in the future. He said, “After May, South Korea’s trade deficit will decrease, and we can anticipate a completely different performance in the fourth quarter.”
The minister also predicted a rebound in government tax revenue later in 2023, following an overall economic recovery.
Although South Korea’s tax revenues have recently been sluggish, primarily due to a downturn in the real estate sector, Minister Choo cautiously predicted their gradual recovery as the economy improves.
Data from the government showed that tax revenue slipped by 24 trillion won ($18.1 billion) year-on-year in the first three months of 2023, with a decline of 8.3 trillion won in March alone. The ministry attributed this decline to a weak housing market, sluggish exports, and reduced corporate profits.
South Korea remains committed to maintaining robust economic cooperation with China while forging closer ties with the United States. The country expects to navigate the delicate balancing act successfully, leveraging its partnerships to bolster economic growth and stability in the years to come.