With international trade contracting because of COVID-19 and the trade war between the US and China, a recent survey found that seven out of 10 South Korean manufacturing firms believe that a restructuring of global value chains (GVCs) is inevitable. Regardless, most Korean companies say they intend to maintain or expand business with China.

On Sept. 27, the Korea Chamber of Commerce and Industry (KCCI) published the results of a survey about the prospect of reorganizing GVCs and companies’ response to that prospect. According to the survey, 41.7% of domestic manufacturing firms said they can already perceive changes in GVCs, while 27.3% said they expect such changes to occur. When asked about which factor is having the biggest effect on the restructuring of GVCs, respondents were most likely to identify COVID-19 (72%).

The GVC is a concept referring to the international division of labor, in which the various components of manufacturing processes — from the location of materials to production, distribution, and delivery — are handled by different parts of the world. This survey covered 300 manufacturing firms in the country (76 conglomerates and 224 small and medium-sized firms), running from Aug. 31 to Sept. 4.

But this survey also found that Korean companies aren’t joining a recent campaign to move production out of China. When asked about their strategy for doing business with Chinese companies, 84.3% of domestic manufacturing firms said they plan to continue doing business with China or expand their business operations there, while just 6% said they would cut back on business with China.

“While China-centered GVCs are expected to weaken around the world, South Korea appears to still regard China as an opportunity factor given Korea’s high economic dependence on China. For the time being, it doesn’t seem likely that there will be a reduction in business with China,” said Kang Seok-gu, head of the KCCI’s industrial policy team.

By Song Chae Kyung-hwa

Please direct comments or questions to [english@hani.co.kr]