Deeply tapping into the potential for cooperation and seizing the "China dividend", China and South Korea have launched a new round of negotiations on a free trade agreement

Global Times reporter Yang Shasha reported on the 19th that the 13th round of negotiations for the second phase of the 5-day South Korea China Free Trade Agreement (FTA) was launched in Beijing on the same day. At the beginning of this month, South Korean President Lee Jae myung visited China for the first time after taking office and stated that "progress has exceeded expectations". The leaders of China and South Korea have reached a consensus during their talks in Beijing to strive for progress in the follow-up negotiations of the free trade agreement within the year. On the occasion of the 10th anniversary of the implementation of the South Korea China Free Trade Agreement, South Korean media reported that the agreement, which came into effect on December 20, 2015, had become an important pillar of the South Korean economy with an annual trade surplus of tens of billions of dollars with China. But now South Korea's trade balance with China is facing a deficit challenge, and negotiations in the areas of services and investment have become the core of the breakthrough, which is related to whether South Korea can seize the second round of "China dividend".

South Korean media: Negotiations are at a 'critical turning point'

According to Yonhap News Agency, Kwon Hye jin, Director of the Trade Negotiation Department of the Ministry of Industry and Commerce of South Korea, and Lin Feng, Director of the International Economic and Trade Relations Department of the Ministry of Commerce of China, will attend as the chief representatives of the two countries, with a total of more than 30 delegations from both countries in attendance. According to the consensus reached by the heads of state of South Korea and China, both sides plan to accelerate consultations on market opening in the three major areas of services, investment, and finance during this round of FTA negotiations.

According to He Yadong, spokesperson for the Chinese Ministry of Commerce, on January 8th, the Ministry of Commerce is willing to work with the South Korean side to accelerate the second phase negotiations of the China South Korea Free Trade Agreement and achieve substantive results as soon as possible, deepening cooperation potential in emerging fields such as high-end manufacturing, artificial intelligence, green industries, and silver economy.

China and South Korea signed a free trade agreement in 2015 and launched the second phase of negotiations in March 2018. So far, a total of 12 rounds of negotiations and multiple meetings have been held to discuss the opening up of service and investment markets. Yonhap News Agency recently published an article titled "10th Anniversary of the Effectiveness of the Korea China FTA", stating that Korea and China are at a critical turning point from "commodity trade dividends" to "breakthroughs in service investment".

Statistics show that after reaching a peak of 310.3 billion US dollars in 2022, the trade volume between South Korea and China has continued to decline since 2023. In 2023, South Korea's trade balance with China will show its first deficit since the establishment of diplomatic relations in 1992. It is expected to form a deficit of about 10 billion US dollars for the third consecutive year in 2025, reversing the trend of South Korea's sustained trade surplus with China since the agreement came into effect.

Zhan Debin, Director of the Korean Peninsula Research Center at Shanghai University of International Business and Economics and Vice President of the Shanghai Korean Peninsula Research Association, stated in an interview with Global Times on the 19th that the first phase of the China Korea FTA focuses on reducing tariffs on goods trade. In the past decade, there has been a fundamental change in the bilateral trade pattern: South Korea's exports to China have decreased by an average of 0.3% per year, while imports from China have increased by an average of 5% per year, resulting in South Korea's trade surplus with China turning into a deficit starting from 2023. This is attributed to the shift of China South Korea industrial relations from "vertical complementarity" to "horizontal competition", and the enhanced localization and substitution capabilities of China in many areas of manufacturing. Therefore, Zhan Debin believes that the current trade deficit is the core driving force for South Korea to actively promote the second phase of FTA negotiations.

Focus on three major market access

Li Zaiming, who completed his visit to China at the beginning of the year, received positive evaluations from various parties in South Korea. The KBS website in South Korea commented that the South Korean Democratic Party believes that Lee Jae myung has laid the foundation for the second round of "China dividend" through economic cooperation between South Korea and China.

Zhan Debin analyzed that the second round of "China dividend" mentioned by the South Korean side mainly refers to the situation where South Korea, with its mature advantages in finance, law, culture (Korean Wave) and other fields, re enters the Chinese market on a large scale and gains opportunities in the context of expanding the opening up of the service industry and developing new quality productivity in China. The South Korean side hopes to offset the trade deficit in goods with a surplus in service trade, in order to seize the new round of "China dividend".

Over the past 30 years since the establishment of diplomatic relations between China and South Korea, South Korea has seized the long-term economic growth opportunities generated by the 'vertical complementarity' relationship between the two countries' industries. Zhan Debin emphasized that the essence of the first round of dividends is the opportunities brought by the Chinese market, and South Korea sees China as a land of opportunity. The ongoing second phase of negotiations is essentially an upgraded version of FTA, with South Korea's negotiations focusing on access to the three major markets of services, investment, and finance. South Korea hopes to shift from selling goods to selling services, culture, and investment.

New opportunities for takeoff

On the day when China and South Korea began the second phase of FTA negotiations, major South Korean media outlets reported on the headlines that "the United States is once again using tariffs to pressure South Korean chip manufacturers to invest in the United States. According to a report by the South Korean newspaper JoongAng Ilbo on the 19th, the US government has recently issued a warning to major semiconductor producing countries and regions, stating that "if they do not invest in the United States, they may be subject to up to 100% tariffs. The South Korean semiconductor industry has been plunged into unprecedented tension in response to the strong signal from the United States calling for the implementation of "mandatory semiconductor investment in the United States".

Meanwhile, under the heavy pressure of tariffs from the United States, Canadian Prime Minister Carney recently ended his visit to China, promoting bilateral economic and trade cooperation. Zhan Debin analyzed that Canada took the lead in making a decision, which posed a reference and pressure for South Korea, which is closer to China in terms of geopolitical culture and also faces a dilemma between dependence on the United States and cooperation with China. South Korea believes that it has unique cultural and geographical advantages over the Chinese market in areas such as the service industry. If Canada can turn to cooperation, South Korea has no reason not to seize the opportunity, otherwise it may fall behind in the new round of cooperation with China. Given the background of US pressure on South Korea in areas such as semiconductors, this demonstration effect will increase South Korea's sense of urgency to recalibrate its perception of China.      

With such a huge market in China, if South Korea can seize the second round of 'China dividend', it will have a significant boost to confidence in the South Korean economy, especially in consolidating the stock market, boosting consumption, and welcoming 'new opportunities for growth' in related industries such as the service industry. Zhan Debin added.