Research On The Trade Potention Of Industrial Manufactured Goods Between China And South Korea

The bilateral relations of China and South Korea have developed rapidly and achieved a series of great achievements in the political, economic and cultural fields since they established diplomatic relations in 1992. With the deepening of bilateral cooperation, especially in the economy and trade field, their trade volume vary from $5 billion in 1992 to $274.3 billion in 2013 which increased more than 50 times, the amount is even larger than the total trade volume of Korea-US and Korea-EU. Today, China has become South Korea’s largest trading partner, largest export market, largest source of imports and the largest foreign investment destination. At the same time South Korea has become China’s third largest trading partner followed by the US and Japan, and the trade between China and South Korea becomes more and more prosperous. Especially in the area of manufactured goods trade, bilateral trade in manufactured goods was 254.5 billion US dollars, according to statistics in 2013, which accounted for 92.78% of total trade between the two countries. Meanwhile China and South Korea has finally signed the China-South Korea free trade agreement (FTA) on June 1,2015 after several rounds of negotiations, which will bring them more opportunities. However the trade of industrial manufactured goods between two countries has always been in the state of imbalance. China’s trade deficit with South Korea is growing larger, while the growth in manufactured goods trade between the two countries decreased greatly in recent years; generally, the interdependence of industrial manufactured goods trade between the two countries is also showing a downward trend. Therefore, it is necessary to study the development potential of manufactured goods trade between the two countries under the background of the slowdown in the bilateral trade and the expanding of trade deficit. It is also important to analysis the factors to realize the trade potential and put forward policy recommendations to increase China’s exports of manufactured goods to South Korea and strengthen bilateral cooperation in industrial products trade.Firstly, the paper analyzes the status quo of bilateral trade development of industrial products by describing the total trade and trade structure in the method of statistics, and also analyzes the problem existing in the bilateral trade of industrial manufactured goods.Then the paper estimated export potential of manufactured goods trade between two countries by using the gravity model and analyzed the factors of realizing the trade potential. Finally according to the aforementioned study, the paper put forward the policy recommendations to strengthen cooperation.The general framework of the thesis is laid below. The first section introduces the background and significance of the research、the summary researches about the study、the framework of the article and the innovation and shortage of the research. The second part is the theoretical basis of the article. It reviews the fundamental thinking of gravity model as well as its applications, and the article also introduce one of the applications used in the paper, that’s trade potential estimates. Then we introduces the CMS (constant market share) model which is used to analyze the reasons of export growth. Which laid the theoretical foundation for the thesis.The third part depicts the situations and problems of industrial manufactured goods trade between China and South Korea by the method of statistical description and trade indicators such as TCD (Trade Combined Degree) and RCA (Revealed Comparative Advantage).It comes up with the conclusion that trade of industrial manufactured goods dominates in bilateral trade and develops rapidly, and the trade structure of industrial manufactured goods becomes increasingly optimize. However, the bilateral trade has been in a state of imbalance, the closeness of trade between the two countries declined, the volume of trade growth rate shows a downward trend, and the competition between the two countries becomes increasingly fierce.The fourth part is to estimate the trade potential of industrial manufactured goods between China and South Korea. Based on a trade gravity model, the paper conducts a regression analysis of the industrial manufactured goods data and its possible influential factors between the bilateral trade. Then estimate the manufactured goods trade potential between China and South Korea by calculating the ratio of the actual export volume and the export volume simulated. It comes up with a conclusion that China’s exports of manufactured goods to Korea shows severe "Trade inadequate", while South Korea’s exports of Chinese manufactured goods shows some degree of "trade over". There is huge potential for industrial products trade between the two countries and huge space to be tapped.The fifth part is to study the realization of the trade potential influencing factors. CMS model is used in this chapter to analyze the factors of affecting the growth in the exports of the industrial manufactured goods between China and South Korea. The conclusion is that the effect of competition and market demand growth are the most important factors to drive the growth of manufactured exports for China and South Korea, however the structure of exports is not able to adapt to changes in consumer demand for each other’s markets. The last part is to summarize the article and put up some policy suggestions based on the previous research.