Since South Korea established diplomatic ties with China 30 years ago on Wednesday, Seoul-Beijing relations have developed rapidly, most notably in the area of trade.

China has become vital to South Korea’s economy, being its largest trading partner. Last year trade volume surpassed $300 billion for the first time, up 47 times from the $6.4 billion recorded in August 1992.

However, Korea now stands at a critical juncture to decide the fate of bilateral relations going forward amid intensifying Sino-US rivalry and China’s rapid economic growth, which is reshaping their once complementary economic ties into a rivalry in the market.

Diplomatic conflicts

The intensifying competition between US and China has ramped up pressure on South Korea to take a side between its main security ally and its biggest trading partner.

With North Korea posing nuclear threats against the South, Seoul has built strong relations with the United States on the security front. At the same time, Seoul has established a strong bond with China and has become heavily reliant on the country, which is also the closest ally of Pyongyang.

Walking a tightrope between Washington and Beijing, past South Korean administrations have taken an “ambiguous” approach when handling security and trade policies.

But as South Korea navigates between the two powers competing for dominance, inevitable diplomatic disputes have come up between South Korea and China, spilling over to their economic exchanges.

Newly inaugurated in May, the Yoon Suk-yeol administration now faces several challenges in handling the neighboring country. The Yoon administration’s promotion of a foreign policy that overtly leans toward Washington has prompted protest from Beijing.

Immediately after his inauguration in May, South Korean President Yoon announced the country’s participation as a founding member in the Indo-Pacific Economic Framework, a US-led economic initiative which is seen as a regional order that excludes China.

The Yoon administration has also decided to join a preliminary meeting of the so-called “Chip 4,” a US-proposed dialogue inviting major semiconductor manufacturers, including Taiwan and Japan.

While South Korea maintains that its joining of the US-led initiatives is not intended at keeping China in check, Beijing has expressed strong opposition, even warning that Seoul’s decisions risk losing China as a trading partner.

In his first bilateral meeting with South Korean Foreign Minister Park Jin this month, Chinese Foreign Minister Wang Yi underscored “independence and self-reliance” in an apparent reference to South Korea’s decisions aligning with the US.

“(South Korea and China) should pursue a ‘win-win’ approach to secure a stable and smooth-running supply and industrial chain. The countries should pursue equality and respect and not interfere with each other’s domestic affairs,” Wang said.

Park also made clear of South Korea’s stance at the meeting. While underscoring the importance of frequent and close communication, the foreign minister did acknowledge they stand on different grounds.

“As a global pivotal state contributing to freedom, peace and prosperity, South Korea will promote the spirit of ‘hwaeebudong’ (to pursue harmony but not to become the same), while pursuing national interest and principles,” Park said, using a four-character idiom.

While the two sides agree that “mutual respect” is important, a diplomatic gap would likely to remain, as they interpret the term differently.

In a recent clash over South Korea’s deployment and operation of the US-made Terminal High Altitude Area Defense system, the Yoon administration said that the “Three Noes” approach used by the preceding Moon Jae-in administration is not an official policy, and that Seoul is not bound to keep it as a promise.

The Three Noes are no additional THAAD anti-missile systems in Korea; no participation in a US-led missile defense network; and no involvement in a trilateral military alliance with the US and Japan.

The Moon administration had taken the Three Noes approach to resolve frayed ties with China, which had restricted economic and tourist exchanges in retaliation to Seoul’s installment of the THAAD system in 2017.

While the Korean government has said that its intention for THAAD deployment is solely to counter aggression from North Korea, China has claimed the US-made system on South Korean soil undermines its security.

‘Decoupling’ unrealistic

Experts say Korea should maintain a balanced position in the Sino-US rivalry, as it is “unrealistic” to cut ties with China which the country’s economy is so heavily dependent on, and also “wisely” manage diplomatic disputes.

China, together with Hong Kong and Macau, take up about 30 percent of Korea’s total exports.

“Perspectives on how to approach China may differ depending on which point of view you hold, but it is unrealistic to take the attitude to cut ties with China,” Park Han-jin, the head of the Center for Economic Observation of Global China at the Korea Trade-Investment Promotion Agency, told The Korea Herald.

It is also important that the government understands that political and diplomatic disputes are not the core reason behind Korea’s first trade deficit with China, which has been recorded for three consecutive months from May this year, and for the first time in the past three decades.

“The government should not overlook how the economies of both countries have experienced structural changes in the past 30 years, and how that has changed the complementary nature of their economic partnership into rivalry in the market,” Park said.

While the two countries may have had a similar economic model of processing trade in the past -- they would import raw materials to process them into complete products for export -- the structure has changed over the past 30 years with both economies growing, Park explained.

“Now is the time for the government to really ramp up efforts to reset trade relations with China. South Korea should go further than simply managing trade deficits and expanding exports -- it should upgrade relations to the next level,” Park said.

It is also important to accurately define what “decoupling” really means, as businesses in labor-intensive industries have exited China, only to naturally find other countries with cheaper labor forces, Park said.

Rather, the current phenomenon would be better described as a “reorganization of global industries,” he said.

Chung Jae-heung, a researcher at the Sejong Institute, raised concerns of the possible risks of South Korea taking a side between the US and China, as it could lead to risks that the government cannot manage.

“The question is: Is the government prepared to take all the risks that can follow from taking the US’ side and cut ties with China? The risks involved could be economic retaliations, and it is also linked with security, as China is the closest ally of North Korea,” Chung said.

Chung explained how China has been ratcheting up efforts to establish a “regional economic belt,” building partnerships with countries in regions such as Central Asia and the Middle East.

“South Korea would also have to think about its diplomacy with those countries, and also to carefully weigh what benefits the West -- the US and Europe, which the Yoon administration appears to be siding with -- can give to Korea,” Chung said.

Kim Ju-yong, a history professor at the Korean-Chinese Relations Institute of Wonkwang University, suggested that solutions to resolve disputes with China should also involve the two countries truly respecting their differences.

“Other than financial profits, it is hard to say the two countries have had a strong bond in other areas. The media would also often draw the exchange of the two countries inside the frame of conflict and competition between them,” Kim said.

“Solutions that are only focused on the present situation are short-lived. To come up with sustainable and lasting solutions is to accept differences and truly respect each other’s cultural identities,” Kim added. 

By Jo He-rim (herim@heraldcorp.com)