South Korea's trade deficit with China in textiles and clothing reached $1.43 billion in the first five months of this year due mainly to the inflow of cheap goods. In the January-May period, South Korea imported $2.47 billion worth of goods and shipped some $1.04 billion in clothing and textiles. The size of the deficit is 39.8 per cent of the deficit posted for the whole of last year. Since 2002, South Korea has logged a trade deficit with its neighbor.

The chronic trade imbalance stems from cheap Chinese goods making steady inroads into the local market and from moves by South Korean clothing manufacturers that set up operations in China in the past, transferring their production centers to Southeast Asia. Such developments reduced the shipments of yarn, textiles and half-finished products to China. Once made into clothing, these products were shipped to third countries.

The changes caused Vietnam to emerge as South Korea’s top export market for textiles. Up till May of this year, the Southeast Asian market accounted for 16.5 per cent of total textile exports, surpassing China's 15.6 per cent. However, China remains an attractive market with considerable growth potential.