June 19, 2017 5:03 pm JST

South Korean exports to China rise above THAAD

Semiconductors driving growth while missile defense dispute smolders

MITSURU OBE, Nikkei staff writer

The South Korean port of Busan © Reuters

TOKYO -- South Korea is enjoying strong growth in exports to China, with the latest data for May showing a 7.5% increase on the year. 

So does this mean the two countries have overcome their disagreement over Seoul's deployment of a U.S. missile defense system? A closer look at trade and tourism data offers an answer: Not exactly.

The jump in May was the seventh straight on-year increase, according to data from the Korea Customs Service. The winning streak follows export declines that lasted for 16 consecutive months through October.

Semiconductors account for much of the growth. In May alone, shipments soared 67%.

China is dependent on South Korean components -- chips included -- for smartphones and other consumer electronics. When Chinese smartphone sales are brisk, imports from its neighbor tend to grow, too, regardless of the political relationship.

Outside of semiconductors, however, the countries' economic ties remain strained.

South Korean exports of cosmetics to China are down 87% for the first five months of this year, according to the Korea International Trade Association.

Total exports to China are up 14% over the same period, but that pace is slower than the country's overall export growth, which came in at 16.3%.

"Exports to China are growing, but they are not driving Korea's export growth," said Hidehiko Mukoyama, an analyst at the Japan Research Institute.

China is strongly opposed to the deployment of the U.S. Terminal High Altitude Area Defense system, known as THAAD. Beijing fears the system's radar will be used to monitor its military activities. Seoul, on the other hand, says THAAD is a purely defensive system designed to counter the threat of missiles from North Korea.

The economic fallout from the spat is even more evident in services trade, as opposed to goods, Mukoyama said.

Consider the flow of Chinese visitors to South Korea, which declined 26% for the first four months of the year.

In the early 2000s, South Korea was posting 30%-plus growth in exports to China, which became its top export destination in 2003. By 2013, China's share of South Korean exports rose to a high of 26.1%.

But the share has since dipped to 25.1% in 2016 and 24% so far this year.

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