In a bid to overhaul their economic relationship, China and South Korea are reviving long-stalled trade talks, with an eye on moving beyond factory floors to target the lucrative services sector as geopolitical shifts redraw the region’s alliances.
The thaw follows a December 12 agreement between Minister of Commerce Wang Wentao and South Korean Minister of Trade, Industry and Energy Kim Jung-kwan to accelerate negotiations on the second phase of their free-trade agreement (FTA). The push aims to expand cooperation in services, investment and finance after years of stagnation.
The initiative follows President Xi Jinping’s state visit to South Korea in late October, his first trip to the country in 11 years.
“The current Lee Jae-myung [presidential] administration is pursuing pragmatic diplomacy, which has become a turning point for improving relations and strengthening cooperation,” said Lee Chi-hun, general director at the Korea Centre for International Finance. “What was difficult to achieve through a bottom-up approach may now be possible through a top-down process.”
The two nations signed the first-stage FTA in December 2015, pledging to broaden talks. However, progress stalled due to differences over the scope of market liberalisation and conflicting economic interests.
Tensions deepened after Seoul deployed the US Terminal High Altitude Area Defence (THAAD) system in 2017. Beijing’s opposition to the missile shield triggered an unofficial ban on South Korean entertainment.
Now, fresh incentives are breathing new life into stalled talks.
“Momentum is building,” said Xu Tianchen, senior China economist at the Economist Intelligence Unit. “For China, an upgraded FTA will keep South Korea integrated into its supply-chain ecosystem, and cement [China’s] image as a proponent of free trade.”
Xu noted that China needs to demonstrate that it remains “open for business” to foreign investors to counter capital flight and slowing growth.
South Korea, meanwhile, is reassessing a trade relationship that was once central to its export-driven economy but is now in structural deficit. Over the past decade, China has reduced its reliance on Korean suppliers as Chinese firms have moved up the value chains.
In 2018, South Korea logged a record US$55.6 billion trade surplus with China. By 2023, that had flipped to a deficit of US$18 billion – the first in over three decades. Through November this year, the shortfall stood at US$10.4 billion, putting South Korea on track for a third consecutive annual deficit, according to the Ministry of Trade, Industry and Energy.
Seeking new growth drivers, South Korea hopes to pivot its export strategy from intermediate goods to high-value services by unlocking China’s vast but still largely closed services market. According to the World Bank, it accounted for about 57 per cent of China’s GDP in 2024.
While a sweeping market opening remains unlikely, analysts say China may offer selective concessions if Seoul remains aligned on politically sensitive issues such as Taiwan and continues to foster a positive bilateral atmosphere.
Earlier this month, South Korea drew protests from Taipei by reaffirming its decision to list Taiwan as “China (Taiwan)” on electronic arrival cards. The move contrasted sharply with Japan, where Prime Minister Sanae Takaichi recently suggested potential military intervention in a Taiwan Strait contingency, sparking a diplomatic row that has simmered since early November.
“Beijing may also seek to reward a more compliant South Korea while meting out retribution to Tokyo,” said Sean King, senior vice-president at New York-based consulting firm Park Strategies. “Hence, for PRC (People’s Republic of China) music fans, it could be Blackpink in and Ayumi Hamasaki out.”
However, Seoul faces a balancing act with Washington.
“Lee Jae-myung will not want to jeopardise his tacit trade truce and nuclear submarine deal with [US President] Donald Trump by pushing for deeper trade ties with mainland China,” King said.
Beijing sees Taiwan as part of China to be reunited by force if necessary. Most countries, including the US, do not recognise Taiwan as an independent state, but Washington is opposed to any attempt to take the self-governed island by force and is committed to supplying it with weapons. -- SOUTH CHINA MORNING POST
