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, a report showed Sunday.

   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 report by the Korea Institute for Industrial Economics and Trade said.

   The size of the deficit is equal to 39.8 percent of the $3.59 billion deficit posted for the whole of last year, when the country imported $6.32 billion worth of Chinese products.

   Since 2002, South Korea has logged a trade deficit with its neighbor.

   KIET said that 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, moreover, caused Vietnam to emerge as South Korea's No. 1 export market for textiles. Up till May of this year, the Southeast Asian market accounted for 16.5 percent of the total textile exports, surpassing China's 15.6 percent. This is the first time Vietnam has usurped its larger neighbor to become the largest export destination for South Korean textiles.

   KIET, however, said that despite recent trends, China remains an attractive market with considerable growth potential.

   "Instead of shipping textiles and materials, local companies should concentrate on shipping finished goods," the institute said.

   It pointed out that China's fashion market stood at 291 trillion won ($286.8 billion) in 2012, up 10 percent from the year before and that it will grow into a 435 trillion won market by 2017, having grown an average 8 percent to 9 percent annually.

   KIET said that, in particular, a free trade pact with the neighboring country will make it possible for South Korean products not to pay stiff tariffs of 20 percent to 30 percent that Beijing imposes on all clothing goods, which could give it an edge vis-a-vis other foreign rivals.