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CHINESE AND KOREAN PRESIDENTIAL MEETING REFLECTS STRENGTHENED ECONOMIC TIES


June 2, 2008 Source:  www.AsiaEcon.org China and South Korea are going back to the good old days.


 

June 2, 2008 

Source:  www.AsiaEcon.org 

China and South Korea are going back to the good old days.

The two countries, who had a close relationship stretching back centuries, suffered through a brief period of deep distrust and animosity during the Cold War. But judging by the beaming smiles and warm words shared by Chinese President Hu Jintao and Korean President Lee Myung-bak during their recent meeting in Beijing, it is evident that things are getting back to the way they used to be for these neighbors.

During Lee’s four-day tour of China, he and Hu discussed ways to advance the bilateral relationship in cultural, educational and scientific areas, and agreed to upgrade their relationship from a “comprehensive cooperative partnership” to a “strategic cooperative partnership.”

But the main focus of the meeting was economic. In order to strengthen economic ties, the two leaders agreed on a number of issues regarding trade, telecommunications and energy. President Lee, speaking to a group of Korean business delegates, announced that Korean and Chinese officials would being holding regular ministerial-level meetings to “address any potential disputes and problems in a timely manner” and to enhance understanding and cooperation in economics and business. Lee also said the Korean government would lease space in China and make it available for South Korean companies. That same day, the two countries successfully linked their respective 3G video cellphone systems. Lee, who made the first test call using the connected network, said that “closer bilateral cooperation would help the two countries secure global leadership in the wireless communications market.” This came one day after the state-run Korea Electric Power Corp. announced that a preliminary deal had been inked with its Chinese joint venture to buy 14 power plants in China and to develop coal mines in Shanxi province.

The most significant development during this part of the meeting, however, was the promise by Lee and Hu to begin formal talks to establish a bilateral free trade agreement. According to the Korean Ministry of Foreign Affairs and Trade, such an agreement is necessary for both countries, each of which faces increased competition from neighbors. Korea would benefit from greater access to low-cost labor and a huge consumer market. According to the Korea Institute for International Economic Policy, a free trade agreement would boost the Korea economy by 3.2%, while China’s would grow by only .6%. However, China would benefit from greater exposure to more advanced Korean technology, which is critical to Beijing’s goal of accelerating its progress up the technological ladder.

Meanwhile, Chinese and Korean fims have continued to forge agreements of their own. In just the first two days of Lee’s visit, several important deals were made: Korea’s SK Telecom signed an agreement with the Chinese government to spend $1 billion to build a Beijing campus hosting digital content and industrial design companies; China Eastern Airlines and Korean Air agreed to expand their code share agreement, which will double the number of available weekly flights for passengers on both sides of the Yellow Sea; China Petroleum and Chemical Company (Sinopec) announced it would form a joint venture with SK Energy Co. to construct an ethylene project in the booming city of Wuhan, in eastern China; and China National Petroleum Corp. (CNPC) signed a memorandum of understanding with Daewoo International to conduct joint oil and gas exploration in Myanmar (Burma).

The existence of such close business and economic ties between the two countries would have been unfathomable mere decades ago. Except during brief periods of open hostility, China and Korea had an amicable and active relationship for over a millennium. But once the battle lines were drawn at the onset of the Cold War, and China and South Korea found each other on opposite sides, relations—including trade and economic cooperation—broke down entirely. Even after Chinese leader Deng Xiaoping opened up the Chinese economy, there was little trade between the two countries, with only $19 million worth of bilateral trade in 1979. It was only after trade offices between the countries were established in 1991 and diplomatic relations were resumed in 1992 that economic cooperation began to expand at a rapid pace. From a level of $5 billion in 1992, Sino-South Korean trade has increase 29-fold—to $145 billion in 2007—and is expected to surpass the $200 billion mark by 2010.

In 2004, China surpassed the United States to become South Korea’s largest trading partner. South Korea is China’s third-largest trading partner, behind the United States and Japan, although China imports more goods from South Korea than from any other country apart from Japan. For South Korea, China is by far the largest source of imports as well as the number one destination for exports. South Korea also invests more money in China than in any other country, with the goal of promoting an even higher level of exports there.

Although the trend seems to be towards greater economic integration, problems do remain. Business leaders who are accompanying Lee on his trip complain that when they conduct business in China, they are actually doing business with the Chinese government, which can often be obstructive. Meanwhile, “the Chinese government is cutting back on the benefits it has been providing to foreign companies,” according to Korea Chamber of Commerce and Industry Chairmain Sohn Kyung-sik. Furthermore, despite many cultural and historical similarities, the huge popularity of Korean pop culture among many Chinese (a phenomenon dubbed the “Korea Wave”), and the growing popularity of Chinese pop culture among some Koreans (the “Chinese Wind”), there remain differences in world view, systems and social values.

Nevertheless, these problems are expected to be resolved in the near future. In the meantime, the Chinese and Korean economies will continue to grow closer.

Source:  www.AsiaEcon.org

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