20 Years of the Korea-China Economic Relationship: Retrospect and Prospect

21 Pages Posted: 4 Sep 2013 Last revised: 10 Apr 2017

See all articles by Philip Pilsoo Choi

Philip Pilsoo Choi

Sejong University

Su Yeon No

Korea Institute for International Economic Policy

Min Suk Park

Korea Institute for International Economic Policy

Date Written: October 15, 2012

Abstract

Korea-China trade passing through the initial growth period (1992-1997), adjustment period (1998-2001), and second growth period (2002-2005), is now passing through its fourth phase, the stabilization period (2006-present). Although the scale of trade has increased, there is limited accessibility of Korean exports into the Chinese domestic market while processing trade still takes large share.

- In the case of Korea’s trade with China, there is a strong connection with investment in China as an investment dependent export structure. However, following from the recent strengthening of local procurement by Korean business subsidiaries in China, there has been a decrease in the export inducement effect through investments.

- Despite Korean shares in the Chinese import market holding second place after Japan at 9.6% as of 2011, shares in the domestic market are lower at 6.3% following Japan (11.3%), the US (9.1%), and Germany (7.5% in 2010).

Korea’s investment in China, passing through the exploratory period (1989-1991), entrance period (1992-1997), adjustment period (1998-2001), growth period (2002-2008), and transition period (2009-present), has been diversified both in industry and region. However, there has been a recent decline.

- After China’s admission to the WTO, the goals of Korea’s investment in China has changed from low-wage toll processing to the domestic market. In regards to industries, there has been a gradual transition from early light industries to heavy chemical industries, as well as a recent increasing focus on service industries.

- In order to energize recent inactive investment, there is a need for policies that work to (a) cooperate to expand pioneering investments into the domestic market and (b) move the existing bases of production to the inland mid-western regions that are still needed by toll processing businesses, (c) establish and utilize new Korean industrial complexes, or (d) support the small and medium-sized enterprises which have business items to invest in China.

There is an emerging need by both Korea and China to create a paradigm of mutually beneficial cooperation by concluding the FTA and uncovering new cooperative fields.

- The reduction of tariffs and overcoming of barriers to entrance into the service industry, through the Korea-China FTA, can provide significant momentum for advancement into China’s domestic market.

- In the finance and monetary area, Korea-China cooperation has not yet reached a level of real economy, however, in the future, if there is an increase in the international use of the RMB and a lowering of the barriers to the Chinese financial market, there will be a great increase in the possibility of actual cooperative endeavors.

- In Korea’s 17 future growth engine industries and China’s 7 strategic industries, because of the abundance of overlap, there is a need to make a specific cooperative strategy according to areas where the two countries have its own strength and where the two countries experience comparative disadvantage in the world market.

Keywords: Korea-China Economic Relation, Trade, Investment, FTA, Industrial Cooperation

Suggested Citation

Choi, Philip Pilsoo and No, Su Yeon and Park, Min Suk, 20 Years of the Korea-China Economic Relationship: Retrospect and Prospect (October 15, 2012). KIEP Research Paper. World Economy Update 12-02. Available at SSRN: https://ssrn.com/abstract=2320333 or http://dx.doi.org/10.2139/ssrn.2320333

Philip Pilsoo Choi (Contact Author)

Sejong University ( email )

143-743 Seoul
Korea, Republic of (South Korea)

Su Yeon No

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Min Suk Park

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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