South Korea's trade balance with China set to turn surplus for first time in 4 years on semiconductor price surge

South Korea's trade balance with China, its largest trading partner, looks increasingly likely to swing to a surplus this year for the first time in four years, driven by a sharp surge in semiconductor prices — the country's top export item to China.

According to the Ministry of Trade, Industry and Energy, South Korea's exports to China reached $18.9 billion in May, up 80.9% from the same month last year.

Exports to China have grown for seven consecutive months since rebounding in November last year ($12 billion, up 6.6%). Growth rates from March through May all exceeded 60 percent.

The trade balance with China has already turned positive this year, breaking out of three straight years of deficits. After swinging to a $350 million surplus in January, the monthly figure climbed to $3.79 billion in May, with the surplus widening each month. The cumulative surplus for January through May reached $9.9 billion.

The trade balance with China posted a record $55.6 billion surplus in 2018, then swung to a deficit of $18 billion in 2023 — the first time in the red since South Korea and China established diplomatic ties in 1992. The deficit deepened to $6.9 billion in 2024 and $11.2 billion last year, cementing what had appeared to be a structural shift toward chronic deficits.

The turnaround this year is largely attributable to soaring semiconductor prices. The price of DDR5 16Gb chips reached $37.50 in May, a 682 percent increase from the same month last year. NAND prices surged from $2.92 to $26.50, a gain of 807 percent.

Semiconductors account for roughly 60 percent of South Korea's exports to China, making the overall trade balance almost entirely a function of chip prices.

The impact extends beyond the China market. Semiconductors made up 42.3 percent of South Korea's total exports in May.

Memory chips in particular tend to go through periodic price cycles, meaning the trade balance with China could deteriorate again if semiconductor prices fall.

"The current export boom is largely driven by semiconductor prices," said Kang Gam-chan, director general for trade and investment at the Ministry of Trade, Industry and Energy. "Even a modest price shift could cause significant export volatility going forward."

One encouraging sign, however, is that consumer goods such as agricultural and fishery products and cosmetics are gaining ground in exports to China alongside traditional IT items like semiconductors, wireless communications devices and computers.

As China's industrial competitiveness has risen sharply and the range of products where South Korea holds a technological edge has narrowed, these consumer goods are providing a more stable foundation for exports to China.

The government and related agencies have moved to support small and mid-sized consumer goods companies in step with this shift. Recognizing that smaller firms struggle to break into the vast Chinese market on their own, authorities have taken on a bridging role — connecting Korean companies with local retail channels and online platforms in China.

A "one hub, one trade office, one distribution network" system is being built province by province across China, and tangible export results are beginning to emerge.

Efforts are also focused on local certification — the biggest hurdle cited by small exporters — and logistics support.

The government plans to use the surplus, made possible by rising semiconductor prices, as a springboard to actively support consumer goods exports in the second half of the year, aiming to permanently break the cycle of trade deficits with China.