S Korea-China Booming Trade to Illustrate Strategic Threat to US

[TaiShang]

S Korea-China Booming Trade to Illustrate Strategic Threat to US / Sputnik international

South Korea’s growing economic interdependence with China is one example of the increasing Beijing-driven East-Asian regionalization, a shift threatening US influence in the Far East.

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.

@Nihonjin1051 , @LeveragedBuyout , @tranquilium , @Edison Chen , @Chinese-Dragon

 

[LeveragedBuyout]

Those who have seen my few posts concerning South Korea know that I do not hold South Korea in high regard. It is an emotional, volatile, xenophobic, and anti-American country, so as far as I'm concerned, China is welcome to take SK under its wing. Good riddance. As far as the theme of the post, however, the reasoning eludes me. Here is the critical paragraph:

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.

Countries don't skip stages of the value chain. The US and Japan are at the top of the value chain (although Japan is slipping, due to its never-ending recession). Until recently, Taiwan and SK have been in the middle, and China has been at the bottom. But I would argue that China is now more of a threat to Taiwan and SK than it is to Japan and the US. China can more easily replicate and displace the stage of the value chain currently occupied by Taiwan and SK (and indeed it has been doing just that). On the US and Japan side, we can replace the space vacated by China with the SE Asian countries that will be included in TPP.

China moves up, the US and Japan move down. Where does that leave Taiwan and SK? I actually think these developments bind the US even closer to Asia. As our logistics network becomes ever more sophisticated, we can allocate specialized tasks across the various countries of Asia instead of depending on just one (China), and at the same time, China's industrial skill will provide us with a far more competitive output of sub-assemblies and components than little Taiwan and SK can provide.

China wins, the US wins, Japan wins, SE Asia wins. Taiwan and SK are doomed.

 

[TaiShang]

Those who have seen my few posts concerning South Korea know that I do not hold South Korea in high regard. It is an emotional, volatile, xenophobic, and anti-American country...

You think so? But then, how come they allow over 20.000 US troops to be stationed there?

But I would argue that China is now more of a threat to Taiwan and SK than it is to Japan and the US. China can more easily replicate and displace the stage of the value chain currently occupied by Taiwan and SK (and indeed it has been doing just that). On the US and Japan side, we can replace the space vacated by China with the SE Asian countries that will be included in TPP.

I agree on these points. I guess SK wanted to sign an FTA with China earlier than Japan (and Taipei's failed Services Agreement) probably because it well captured the trend.

Perhaps their more independent foreign policy enabled them to take vital decisions quickly and efficiently -- more so than Japan who seems to be arrested by its over-reliance on the US.

China moves up, the US and Japan move down. Where does that leave Taiwan and SK? I actually think these developments bind the US even closer to Asia. As our logistics network becomes ever more sophisticated, we can allocate specialized tasks across the various countries of Asia instead of depending on just one (China), and at the same time, China's industrial skill will provide us with a far more competitive output of sub-assemblies and components than little Taiwan and SK can provide.

China wins, the US wins, Japan wins, SE Asia wins. Taiwan and SK are doomed.

I do not see SK loosing though. I guess it will replace Japan and, with the Chinese market well open to them, they will probably have a better revenue flow than their Japanese counterparts to spend on R&D and further investment.

Taiwan seems to be doomed, I agree. For US, looks like a win, but, again, we can't overrule the possibility of SK further squeezing US electronics (especially mobile) in Chinese market. High end will probably stay intact in the US but volume will move to SK.

@Nihonjin1051

 

[LeveragedBuyout]

You think so? But then, how come they allow over 20.000 US troops to be stationed there?

I will have to lean on some of our military professionals to answer for sure (@gambit @SvenSvensonov , any takers?), but the US force is primarily a tripwire for any North Korean attack (that's the polite term, the impolite term is hostage). The number of troops and amount of assets we have stationed there would never be sufficient to fight a war, so it's a force large enough to reassure South Korea that if it were attacked, the US would be guaranteed to be drawn into the fight, and force the US to dedicate the necessary forces to fully engage.

It's a horrible situation. South Koreans have a very low opinion of the US, but they also refuse to take operational command of their own troops during wartime (they refuse despite our begging, this is not a case of the US depriving SK of sovereignty by any means). So we have a token force of troops who are not sufficient to fight a war, and are obligated to take command of the joint US-SK forces in case of a war, but the Koreans resent us for our presence. They resent us, but they refuse to take on the responsibilities that would let us leave.

I haven't even gotten to the cultural issues, but that should at least provide a hint of my frustration at our relationship with SK.

 

[Galad]

South Korea better watch their collective back.Otherwise soon if continue at same course will have protests to deal with.Uncle Sam will make sure of it.Look what`s going one in Hungary and Chech Republic.

 

[SvenSvensonov]

I will have to lean on some of our military professionals to answer for sure (@gambit @SvenSvensonov , any takers?), but the US force is primarily a tripwire for any North Korean attack (that's the polite term, the impolite term is hostage). The number of troops and amount of assets we have stationed there would never be sufficient to fight a war, so it's a force large enough to reassure South Korea that if it were attacked, the US would be guaranteed to be drawn into the fight, and force the US to dedicate the necessary forces to fully engage.

It's a horrible situation. South Koreans have a very low opinion of the US, but they also refuse to take operational command of their own troops during wartime (they refuse despite our begging, this is not a case of the US depriving SK of sovereignty by any means). So we have a token force of troops who are not sufficient to fight a war, and are obligated to take command of the joint US-SK forces in case of a war, but the Koreans resent us for our presence. They resent us, but they refuse to take on the responsibilities that would let us leave.

I haven't even gotten to the cultural issues, but that should at least provide a hint of my frustration at our relationship with SK.

Pretty much what you said. South Korea gets a few political incentives, but our presence is requested by the SK government as a deterrent to North Korea's intentions. South Korea has a strong military, but it's the US that keeps the North at bay. We're in the South because they want us there to help keep the North in line.

There's really nothing else to it than that - they just value our ability to keep North Korea a bit more sane then usual. Whether they are anti-American or not doesn't matter in military affairs, as these and political squabbles and sentiments can be kept separate. Their military wants us, their politicians listen to the military, and the voices of the masses are drowned out like usual.

Also, I don't want to get into a political discussion with anyone here, I don't care too much about the politics (military and medicine, those are my interests/areas of expertise), I'm just stating the real reason why the US is still in South Korea. If you want to discuss the politics or national sentiment find someone else.

 

[Raphael]

Countries don't skip stages of the value chain. The US and Japan are at the top of the value chain (although Japan is slipping, due to its never-ending recession). Until recently, Taiwan and SK have been in the middle, and China has been at the bottom. But I would argue that China is now more of a threat to Taiwan and SK than it is to Japan and the US. China can more easily replicate and displace the stage of the value chain currently occupied by Taiwan and SK (and indeed it has been doing just that). On the US and Japan side, we can replace the space vacated by China with the SE Asian countries that will be included in TPP.

I feel like your assessment of S. Korea is too uncharitable. The hierarchy you described (US/Japan > Taiwan/S. Korea > China) might have been accurate in the late 80's/early 90's, and is basically a rehash of Japan's "flying geese" paradigm. Today, S. Korea might still be a notch below Japan in automotives. But in electronics, it's taken a firm lead. Japan's former electronics giants are being mercilessly dispatched by Samsung, and they have no tech advantage anymore. Samsung, however, is unlikely to uproot Apple's monopoly of the high-end phone market, and their safety depends on how firmly they can ensconce themselves as the "middle-end hegemon".

In relation to China, the security of their position depends on the industry. Taiwan has a negligible automotive industry, but it will still be quite a while before China can catch up to S. Korea and Japan in this sector. However, for electronics, all three are vulnerable and firmly within China's crosshairs. Once China's efforts to create to ensure self-sufficiency at the "components" section of the value chain (i.e. by fabricating its own semiconductors and microchips) reach fruition, all three will find their positions in the industry increasingly untenable.

 

[LeveragedBuyout]

I feel like your assessment of S. Korea is too uncharitable. The hierarchy you described (US/Japan > Taiwan/S. Korea > China) might have been accurate in the late 80's/early 90's, and is basically a rehash of Japan's "flying geese" paradigm. Today, S. Korea might still be a notch below Japan in automotives. But in electronics, it's taken a firm lead. Japan's former electronics giants are being mercilessly dispatched by Samsung, and they have no tech advantage anymore. Samsung, however, is unlikely to uproot Apple's monopoly of the high-end phone market, and their safety depends on how firmly they can ensconce themselves as the "middle-end hegemon".

In relation to China, the security of their position depends on the industry. Taiwan has a negligible automotive industry, but it will still be quite a while before China can catch up to S. Korea and Japan in this sector. However, for electronics, all three are vulnerable and firmly within China's crosshairs. Once China's efforts to create to ensure self-sufficiency at the "components" section of the value chain (i.e. by fabricating its own semiconductors and microchips) reach fruition, all three will find their positions in the industry increasingly untenable.

That's a fair criticism. Samsung is undoubtedly South Korea's greatest champion, but is also SK's greatest weakness. According to this BusinessWeek article, Samsung accounted for 17% of SK's GDP. That's insane, and makes SK especially vulnerable to a company dominated by a single (corrupt) family. With Apple on the high end and the likes of Xiaomi attacking from below, I view Samsung as a neat microcosm of SK as a whole, so I remain highly pessimistic about SK's outlook in the next couple of decades. Samsung has a nice head start, but Japan had a head start once upon a time, too, and SK caught up. China will catch SK sooner or later.

I agree that Japan's advantage is eroding quickly, and I think we've already agreed about Taiwan. Bottom line: if your strength is hardware, China will beat you. Since the US is far more heavily invested in the software side, it will be much harder to displace.

 

[Aepsilons]

Those who have seen my few posts concerning South Korea know that I do not hold South Korea in high regard. It is an emotional, volatile, xenophobic, and anti-American country, so as far as I'm concerned, China is welcome to take SK under its wing. Good riddance. As far as the theme of the post, however, the reasoning eludes me. Here is the critical paragraph:

Sir, you had negative experiences when you were in South Korea? I will say that they are a nationalistic bunch, but you will have to filter through them , you'll see that there's a great number of them who are quite open to foreigners. As for the emotionality, that is given and I think it is a trait of Korean people in general (this is not to be seen as a completely bad thing); emotional in a way that they're sensitive.

 

[Genesis]

That's a fair criticism. Samsung is undoubtedly South Korea's greatest champion, but is also SK's greatest weakness. According to this BusinessWeek article, Samsung accounted for 17% of SK's GDP. That's insane, and makes SK especially vulnerable to a company dominated by a single (corrupt) family. With Apple on the high end and the likes of Xiaomi attacking from below, I view Samsung as a neat microcosm of SK as a whole, so I remain highly pessimistic about SK's outlook in the next couple of decades. Samsung has a nice head start, but Japan had a head start once upon a time, too, and SK caught up. China will catch SK sooner or later.

I agree that Japan's advantage is eroding quickly, and I think we've already agreed about Taiwan. Bottom line: if your strength is hardware, China will beat you. Since the US is far more heavily invested in the software side, it will be much harder to displace.

True, I say it'll be 20 years before China gets to American standard in commercial software. Though it could be more. I see the Chinese market really taking off, no sooner than 2025, anything before that it's just nickles and dimes. Though militarily, it's a different story.

But this isn't really much of a discussion, China has 1.3 billion people, SK less than 70 million. It wasn't even to begin with.

Those who have seen my few posts concerning South Korea know that I do not hold South Korea in high regard. It is an emotional, volatile, xenophobic, and anti-American country, so as far as I'm concerned, China is welcome to take SK under its wing. Good riddance. As far as the theme of the post, however, the reasoning eludes me. Here is the critical paragraph:



Countries don't skip stages of the value chain. The US and Japan are at the top of the value chain (although Japan is slipping, due to its never-ending recession). Until recently, Taiwan and SK have been in the middle, and China has been at the bottom. But I would argue that China is now more of a threat to Taiwan and SK than it is to Japan and the US. China can more easily replicate and displace the stage of the value chain currently occupied by Taiwan and SK (and indeed it has been doing just that). On the US and Japan side, we can replace the space vacated by China with the SE Asian countries that will be included in TPP.

China moves up, the US and Japan move down. Where does that leave Taiwan and SK? I actually think these developments bind the US even closer to Asia. As our logistics network becomes ever more sophisticated, we can allocate specialized tasks across the various countries of Asia instead of depending on just one (China), and at the same time, China's industrial skill will provide us with a far more competitive output of sub-assemblies and components than little Taiwan and SK can provide.

China wins, the US wins, Japan wins, SE Asia wins. Taiwan and SK are doomed.

ASEAN. You give them way too much credit. The enemy of them isn't China, US, or Australia, it's themselves. Look at the Philippines, allies of the US, bottom of the barrel, can't blame us on that one.

Indonesia isn't doing much better, Malaysia, while richer in terms of per capita, their political system is a hybrid of democracy and authoritarian, which means they get none of the benefit of each and all the crap of all.

Vietnam and what's West of them, really? Thailand just forgot this is 2014 and coups are so last century.


So no, ASEAN will remain the hole they always been.


Taiwan.....That's the whole joke.

 

[Aepsilons]

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.

Sure, the FTA between Seoul and Beijing may provide benefits to South Korea, however, as what we've seen recently -- the performance of South Korea's Samsung brand has diminished this past quarter. In fact, there is a very real possibility that Chinese electronics (which have good quality and very reasonable prices) might even be the bane of Korean home electronic companies, and may even empty out Korea's domestic competition. Afterall, South Korean market is rather small, some 49 million. What is that compared to China's 1.4 Billion.

 

[Aepsilons]

But this isn't really much of a discussion, China has 1.3 billion people, SK less than 70 million. It wasn't even to begin with.

South Korea is more around 49-50 million.

 

[Aepsilons]

I do not see SK loosing though. I guess it will replace Japan and, with the Chinese market well open to them, they will probably have a better revenue flow than their Japanese counterparts to spend on R&D and further investment.
Taiwan seems to be doomed, I agree. For US, looks like a win, but, again, we can't overrule the possibility of SK further squeezing US electronics (especially mobile) in Chinese market. High end will probably stay intact in the US but volume will move to SK.
@Nihonjin1051

South Korean market is small, limited, and shrinking. Its evident that there is a trade imbalance between China and Japan in China's favor. Let's observe the charts, shall we?

Figure 1: Trade Volume between China-Japan-SK


Do note that Chinese goods into Korea has been around 83 Billion, whereas Korean goods into China has been 182 Billion. Trade favors Korea. Trade gap is around 100 Billion.

Do note the trade Chinese goods into Japan has been around 180 Billion, whereas Japanese goods into China has been 162 Billion. Trade favors China. Trade gap is only around 18 Billion.

 

[Aepsilons]

ASEAN. You give them way too much credit. The enemy of them isn't China, US, or Australia, it's themselves. Look at the Philippines, allies of the US, bottom of the barrel, can't blame us on that one.

Philippines as bottom of the barrel? They're the fastest growing economy in the entire ASEAN, 2nd fastest growing economy in Asia-Pacific, second only to China. I think your judgment of their fiscal capability is too harsh. They may be militarily weak, but economically speaking, they've over-performed their regional peers.

 

[kawaraj]

The fact?

China gains nothing in the FTA with Korea, but it's in the expenses of Japan. Simple, painful, but true. And let me remind that this is Korea takes advantage of Japan China row. Harsh fact but may send Korea into the developed nations club and could overtake Japan in average income. When that comes, LDP will be as soon as out of any political chance of leading Japanese nation.