Policymakers and economists here have shown mixed responses to a recent report that China and Japan are working to form a new framework to bring together government and central bank officials to discuss economic policy coordination.

The move reported by a leading Japanese business daily last week apparently reminded them that South Korea’s two giant neighbors are ready to pursue practical economic interests separately from their conflicts over historical and territorial issues. Beijing and Tokyo hoped to reach an agreement in March to create an economic consultative body joined by foreign and finance ministers and central bankers from the two sides, according to the Nikkei newspaper.

Some economic commentators here have raised concerns that Seoul may be sidelined from discussions on key matters involving the regional economy. They argue the launch of the top-level consultative mechanism between China and Japan may cause an imbalance to the trilateral cooperation system with South Korea.

Certainly, a disappointing sentiment has been spreading among South Koreans that Seoul’s efforts to enhance ties with Beijing and Tokyo have come to little fruition.

China has remained lukewarm on toughening sanctions on North Korea since the recalcitrant regime detonated what it called a hydrogen bomb last month. Tokyo is seen to be backpedaling from its agreement with Seoul in December on resolving the issue of Korean women forced into pre-1945 wartime sexual slavery for Japanese soldiers.

The reported move by China and Japan to build a new framework for economic consultations seems to have made South Koreans more cautious on the course taken by the two countries.

Many economists, however, raise the need for South Korea to take a balanced and measured approach to the latest initiative between its neighbors.

“It is necessary to carefully watch the concrete structure of the consultative body and the specific areas and scope of its discussion,” said Kim Gyu-pan, researcher at the Korea Institute for International Economic Policy.

China and Japan have felt an increasing need to enhance practical economic cooperation.

Beijing wants to draw more direct investments from Japan, which would help stabilize its turbulent stock markets and ease concerns on rising capital outflow from the world’s second-largest economy. A possible resumption of a yen-yuan currency swap arrangement, which ended in 2013, could reinforce such effects.

For its part, Japan hopes to join massive projects to be initiated by the China-led Asian Infrastructure Investment Bank. It is also expected to seek to prod China to reduce excess capacity -- especially in steel and petrochemicals sectors -- and reorganize inefficient state-owned companies through the new framework.

In a broader context, their move might send a signal that Asia’s two largest economies would be working together closely to shore up global growth.

Given the overall circumstances, Korea is positioned to gain, rather than lose, more from the enhanced economic cooperation between China and Japan, Seoul officials say.

“There is little reason to view the new economic dialogue between Beijing and Tokyo as negative to us,” said an official at the Ministry of Strategy and Finance. He noted Seoul has maintained separate consultative channels with Beijing and Tokyo.

Policymakers here seem to hold an optimistic view that closer dialogue between China and Japan would lead to providing momentum to conclude a three-way free trade deal with South Korea and the Regional Comprehensive Economic Partnership that also involves India, Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations.

They also hope that steps to stabilize the yuan would help boost the competitiveness of South Korea’s manufacturing exporters, which have been struggling with decreasing global demand and lower oil prices.

But the possibility cannot be ruled out that closer economic cooperation between China and Japan may undermine South Korea’s favorable positions in bilateral deals with each of them. The extent of the impact is expected to depend on how much influence Japan will have on China’s economic course through the new consultative channel.

Economists here are calling on Seoul to step up efforts to activate the framework for trilateral economic partnership with Beijing and Tokyo to offset possible negative effects from their closer consultations. They also indicate South Korea needs to be more active on reopening its currency swap line with Japan, which was terminated early last year amid a prolonged diplomatic fray.

By Kim Kyung-ho
(khkim@heraldcorp.com)