MOSCOW, November 16 (Sputnik) — South Korea has dominated China’s imports market for a second consecutive year and most businesses welcomed the finalization of a free-trade agreement (FTA) between Seoul and Beijing, all of which means that strengthening China’s economic ties with neighbouring nations may diminish Asia’s trade in goods and services with the US.
South Korean-produced goods have accounted to roughly 10% of mainland China’s import market this year, according to data published Sunday as quoted by Yonhap News. Seoul has remained the biggest exporter to China for the second year straight and during the period of January through September, Beijing imported $140.7 bn worth of South Korean goods. Previously, Japan was the top exporter to China, but its prolonged period of near-deflation has driven export prices higher, while Korea’s monetary easing and booming manufacturing has helped stimulate its exports.
Last week South Korea and China concluded a free trade agreement (FTA), a move welcomed by businesses in both nations, as competitiveness of Korean goods on China’s market and vice versa will now increase dramatically. According to a Korea Trade-Investment Promotion Agency (KOTRA) poll of Korean businesses operating in China, 78.4% enterprises thought the Korea-China FTA impact would be “positive” to “very positive”.
"South Korean companies operating in China seem to expect the FTA to have an impact on imports of intermediate goods from their country, rather than their production and marketing in China," said a KOTRA representative as quoted by Yonhap.
These recent developments in the South Korean-Chinese relationships are a sign of China’s push for an increased economic integration in East Asia to counterbalance the US-led Trans-Pacific Partnership (TPP). The TPP is a multilateral trade liberalization proposal, involving the nations of the Americas, Oceania and East and Southeast Asia, but explicitly excludes mainland China because of excessive economic regulation and the non-market based FX rate of the renminbi.
Beijing, therefore, has to find its own way to reach out to global markets, and concluding FTAs with select US partners is one of the options. Mainland China is starved for investment dollars, as its economy is now in phase of transition from the export-driven economic model towards more of a domestic consumption-based growth.
China’s authorities have undertaken several policy measures to bolster global competitiveness of the national economy. Last Monday, when the FTA with South Korea was reached, the People’s Bank of China (PBOC) raised the renminbi FX rate dramatically, according to Bloomberg data, a move making imports more competitive in the domestic market. China has long been criticized by the US and other major economies for manipulating the renminbi FX rate by lowering it in order to boost exports. The more the renminbi appreciates, the more market-based its FX is, and demonstrate China’s market-friendliness.
China’s regulators have confirmed that on 17 November stock markets in Hong Kong and Shanghai began connected trading, as well as trading the renminbi against foreign currencies, a further step toward economic liberalization.
“It’s a real attempt to exert leadership and to project a responsible image in wanting to lead the whole of Asia — they’re all very much linked politically,” Patrick Low, formerly of the World Trade Organization (WTO) and now of the Fung Global Institute said as quoted by the New York Times.
China’s moves towards trade liberalization may push the US out of Asia. The US exports mainly cutting-edge hi-tech goods, competing with the like of Japan, Taipei and South Korea, however, mainland China is the world’s largest exporter of all kinds of electronics. And this electronics industry runs mostly on cheaper Japanese, Taiwanese and South Korean technologies.
China is now the biggest trade partner for 17 of its 23 neighboring states, Taipei President Ma Ying-jeou said recently, that during the period of 1981 to 1988 about 50% of Taipei’s trade went to the US. “The present situation warrants our attention but does not call for excessive anxiety,” Taipei president said in an interview with Modern Chinese Literature and Culture Resource Center of the Ohio State University.
The growing regionalization around mainland China is one of the strategic challenges to the US policy of ‘rebalancing’ its global priorities towards the Pacific Rim region, proclaimed in early 2010s by the Barack Obama administration. This challenge is partially addressed by the accelerated TPP finalization which is happening now, and the US-led multilateral liberalization of trade may take effect as early as 2015. However, Washington’s trans-Pacific strategy requires more practical measures to strengthen economic interdependence with its key partners in the region before they are integrated into Beijing’s sphere of influence for good.
