Korea and China

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

One clear trend in the 21st century is the emergence of China as an alternative
"market of last resort" for the global economy.  This does not mean
that the US market is no longer important, given its amazing purchasing
power based on $10 trillion GDP.  Korea is not alone is reshaping
to trade policy away from "reliance on exports to the US", Japan
and the EU are  actively following the same direction.  This
will put momentum behind to trend to reduce the dollar role of curreny
of choice in global trade.  The dollar may begin to take on the characteristics
of the Swiss franc, a sound and safe currency, but unnecessarily inflexible
and expensive for a wide range of transactions in which the US is not directly
involved.

Henry C.K. Liu

Ties between China and South Korea blossom
South Korea's deepening relations with China underline the threat posed by Beijing to US influence, writes Andrew Ward
Financial Times Published: February 18 2002 16:30 | Last Updated: February 18 2002 16:34

Any mention of a "special relationship" between South Korea and an overseas ally would usually refer to Seoul's  longstanding ties with Washington. But when Kim Dae-jung, president of South Korea, used the _expression_ in his New Year address last month, he attached it to the burgeoning friendship between Seoul and Beijing.

US president George W. Bush will attempt to reinforce Washington's strategically important alliance with Seoul  on Tuesday when he arrives in the city on the latest leg of his tour of north-east Asia. But South Korea's deepening ties with China underline the threat posed by Beijing to US influence in the region.

 Any shift in Seoul's loyalties from Washington to Beijing would have far-reaching implications for the balance of power in north-east Asia, where US-backed South Korea has acted as a buffer between the region's competing giants, China and Japan.

Relations between Seoul and Washington have been strained since Mr Bush named Communist North Korea as part of an "axis of evil" that threatened US security. The hardline stance undermined Mr Kim's "sunshine" policy of engagement with Pyongyang, designed to reduce tension on the divided peninsula.

Mr Bush will attempt to repair the alliance during his two-night stay in Seoul and, while 37,000 US troops remain stationed in South Korea, the US will continue to be the country's staunchest defender, as it was in the Korean and cold wars.

But there is no mistaking South Korea's growing sympathy for its neighbour across the Yellow Sea. Mr Kim reserved the warmest language of his New Year address for China, which he said had been an ally and cultural partner to Korea for thousands of years.

"Korea and China have a special relationship," he said. "If you look at the geographical proximity, you can see that relations between the two countries cannot but get closer."

 Seoul and Beijing resumed diplomatic contact in 1992 following four decades of cold war hostility.

"We are extremely satisfied with relations," said Mr Kim. "The two countries are going to enter a comprehensive partnership to become stronger allies."

The greatest force dragging Seoul towards Beijing is trade. South Korea believes it is uniquely positioned, through geographical and cultural ties, to benefit from the opening of China's markets following its recent entry into the World Trade Organisation.

In contrast, South Korea is determined to reduce its reliance on exports to the US, and trade relations with Washington are plagued by disputes over proposed US tarriffs on steel and Korean restrictions on car imports.

Although cheap Chinese exports could damage South Korea's competitiveness, Seoul believes the threat is outweighed by opportunities for Korean companies to sell and produce goods in China. South Korean companies are lining-up to invest there.

"China is our third largest trading partner and second biggest investment destination," said Mr Kim. "After China's entry into the WTO, it will become an even more important market for us."

However, the relationship runs deeper than trade. South Korea's media has coined the term "China fever" to describe the country's enthusiasm for its neighbour. Chinatowns are springing-up in cities, language schools report surging demand for Chinese lessons and tourist destinations are targeting the growing Chinese tourist market.

"I feel more affinity to China than America," said Park Kyung-yun, a student in Seoul. "We share the same culture and region so it is more natural that Korea and China should be allies."

Many South Koreans have an ambivalent attitude toward the US. Recent protests against the presence of US troops in South Korea and against Mr Bush's "axis of evil" speech underlined the anti-American feelings of a vocal minority, despite the US role in defending South Korea against communism.

Pro-American Koreans are concerned that Chinese influence could undermine South Korea's development into a western-style democracy. "South Korea could become a vassal state of China," said one banker.

Defence analysts warned that weakening US influence in South Korea would leave a power vacuum in the middle of north-east Asia, sparking an arms race between Beijing and Tokyo.

"This is an extremely dangerous part of the world - and not just because of North Korea," said Stapleton Roy, former US ambassador to China. "North-east Asia is where the interests of China, Russia, Japan and the US intersect."

However, other analysts pointed out that closer ties between Seoul and Beijing could be helpful to peace in the region. China, a traditional ally of North Korea, has long opposed Korean reunification, fearing the extension of US influence on the peninsula. Greater understanding between Seoul and Beijing could lead China to encourage change in Pyongyang.

Yoo Chong-ha, former South Korean minister of foreign affairs, said Seoul did not have to choose between Washington and Beijing. Instead it could be an ally of both and mediate between the two.

"Korea played a diplomatic role last year when the US spy plane crash landed in China," said Mr Yoo. "Korea could play a beneficial role in resolving future tension between the two countries."