The March 26 sinking of the South Korean warship Cheonan in the West Sea that killed 46 soldiers served as the backdrop for a series of high-level exchanges between China and the two Koreas as China came under international pressure to provide a tough response to the incident.  Kim Jong-il paid an “unofficial” visit to China on May 3-7 and met President Hu Jintao in Beijing, days after ROK President Lee Myung-bak’s summit with Hu.  Kim’s delegation included senior officials from the Foreign Ministry, Worker’s Party of Korea, and the DPRK Cabinet. Lee attended the April 30 opening ceremony of the 2010 World Expo in Shanghai, where President Hu also met the DPRK’s top legislator Kim Yong Nam.  Lee and Hu held another round of bilateral talks on the sidelines of the G20 Summit on June 26 in Toronto, where they pledged to strengthen the China-ROK strategic cooperative partnership despite unresolved tensions over North Korea.  Premier Wen Jiabao paid a three-day visit to South Korea on May 28-30 and met President Lee in Seoul prior to the third China-ROK-Japan trilateral meeting in Jeju.  Foreign Ministers Yu Myung-hwan and Yang Jiechi also held talks on the sidelines of the fourth trilateral foreign ministers meeting with Japan on May 15-16 in Gyeongju.

South Korea formally referred the Cheonan case to the UN Security Council on June 4 after results of an international investigation were released on May 20 indicating that the warship sinking was caused by a North Korean torpedo. Meanwhile, Beijing has repeatedly called for “calm and restraint” in dealing with the crisis.  South Korean media criticized President Hu for remaining “non-committal” toward the sinking of the Cheonan at his summit with President Lee in Toronto, where Hu stated that “China opposes and condemns any act that would undermine stability in the region” but did not make any reference to North Korea.

China’s summit diplomacy with the two Koreas

President Hu Jintao offered condolences to the families of the South Korean sailors killed in the sinking of the Cheonan during his meeting with President Lee Myong-Bak in Shanghai.  It was his first public mention of the incident after the sinking of the ship a month earlier.  Although Seoul officials expected the April summit to lead to intensified consultations with China on laying out an international response, Lee’s Shanghai trip was regarded as “halfway successful” as the leaders discussed the incident but failed to address how China would deal with the North.  The Shanghai summit also dealt with economic priorities of trade and economic cooperation, bilateral free trade agreement (FTA) talks, and the G20 as an opportunity for coordination on global issues.  South Korean officials and analysts have recognized the difficulty of gaining Chinese support for a joint international response to the Cheonan sinking even with evidence supporting DPRK involvement. While the June 26 meeting between Lee and Hu in Toronto produced no new results in addressing Cheonan, they did agree to expand bilateral trade to $200 billion by 2012 and $300 billion by 2015 and to enhance cooperation in other areas such as education, science and technology, and culture.

Following weeks of speculation in the South Korean media, Kim Jong-il finally made appearances in Dalian, Tianjin, and Beijing in early May.  According to their custom, Chinese and DPRK state media confirmed Kim Jong-il’s visit to China only at the end of his five-day trip on May 7.  In addition to meeting President Hu, Kim held talks with Premier Wen Jiabao and top legislator Wu Bangguo, and met other key members of China’s Political Bureau Standing Committee of the CPC Central Committee, including Jia Qinglin, Li Changchun, Xi Jinping, Li Keqiang, He Guoqiang, and Zhou Yongkang.  Kim’s delegation included Kim Yang-geon, director of the DPRK Unification Front overseeing inter-Korean and China-DPRK relations and head of an organization tasked with attracting foreign investment; Choi Tae-bok, a leading  figure in science and technology; and Kim Yong-chun, vice chairman of the National Defense Commission and North Korea’s top military official.  President Hu presented five proposals to strengthen China-DPRK ties, including: maintaining high-level contacts, reinforcing strategic coordination, deepening economic and trade cooperation, increasing personnel exchanges, and strengthening coordination in international and regional affairs.  Kim Jong-il also toured China’s major economic development zones, ports, and enterprises in Dalian, Tianjin, Beijing, and Shenyang in North/Northeast China, during which both sides emphasized “pragmatic cooperation” from a “strategic and long-term perspective.”

Beijing has continued efforts to develop strategic ties with both Koreas.  ROK Vice Foreign Minister Shin Kak-soo and Chinese counterpart Wang Guangya held the second China-South Korean High-level Strategic Dialogue on April 6 in Seoul, where both sides renewed their pledge to further the strategic cooperative partnership.  China and North Korea also agreed to strengthen military ties during a visit to China on March 30-April 3 by An Yonggi, director of the People’s Armed Forces Foreign Affairs Department, who met Xu Caihou, vice chairman of the Central Military Commission, in Beijing.

Although the South Korean government has pushed hard for China to recognize North Korea as being responsible for the Cheonan tragedy, Chinese leaders have consistently reaffirmed their commitment to address the case “in an objective and fair manner,” sidestepping South Korean demands. China’s Foreign Ministry stated that Wen’s main goals during his late May visit to Seoul were to “increase mutual political trust and optimize existing cooperation mechanisms,” while Chinese media highlighted comprehensive efforts to strengthen the China-ROK partnership despite renewed differences over North Korea.

Despite South Korea’s focus on the Cheonan incident and the need for a strong response, China attempted to handle the relationship with South Korea in a business-as-usual manner.  Ahead of Wen’s visit, Vice Foreign Minister Zhang Zhijun expressed hopes to expand the scope of China-ROK cooperation and advance bilateral FTA talks, and Chinese Ambassador to Seoul Zhang Xinsen noted joint progress in expanding bilateral coordination channels including government agencies, parliaments, academics, and the media. Wen also met ROK National Assembly Speaker Kim Hyung-o and Prime Minister Chung Un-chan in Seoul on the first leg of his four-nation Asia tour that also included Japan, Mongolia, and Myanmar.

China’s “double play”

Occurring just three days after the Lee-Hu summit in Shanghai, Kim Jong-il’s visit to China in early May drew much disappointment from officials and the media in Seoul rather than raising expectations for the resumption of Six-Party Talks as hoped by Beijing.  A most disappointing reality check for South Koreans who expected more from the “strategic partnership” was that Hu did not see the need to provide even an informal “heads up” to Lee that he would be hosting Kim Jong-il days later, despite the fact that China has long sought to treat the two Koreas in an equidistant fashion.  As Kim began his trip, Unification Minister Hyun In-taek called for a “responsible role” by China in a meeting with Ambassador Zhang Xinsen in Seoul on May 4.  South Korean TV broadcaster SBS warned that China was engaging in a “double play” between the two Koreas while editorials pointed out that “Chinese leaders embraced North Korean leader Kim only a couple of days after shaking hands with President Lee.  The warm welcome to the Kim entourage is particularly offensive … since it comes on the heels of South Koreans’ mourning the sailors killed on the Cheonan.”  At the same time, South Korean observers have recognized that “the “strategic partnership” signed between the two countries last year must not be burned in fiery emotion and rhetoric.”

Despite the affirmation of ties implicit in China’s hosting of North Korea’s reclusive leader, Hu Jintao attempted to emphasize the need for restraint in North Korea’s behavior.  In addition, there were rumors that Kim’s visit ended prematurely following a luncheon with Wen Jiabao rather than following a scheduled evening of a North Korean theatrical presentation of “A Dream of Red Mansions,” giving the impression that China did not meet all of Kim’s expectations for the visit.  Notable in President Hu’s five-point proposal was the pledge to “reinforce strategic coordination … on major domestic and diplomatic issues, international and regional situation, as well as on governance experience,” which appears to challenge China’s basic foreign policy principle of non-interference in internal affairs.  Some Chinese analysts suggest that Hu’s proposals reflect Beijing’s disappointment with Pyongyang’s nuclear tests that were conducted without consultation with China, and contain “very serious wording” according to Zhao Huji of the Central Party School.  Zhao argues that “the South Korean media jumped to the conclusion without comprehending how the talks went … the meeting was not just full of sweet talk.  There was also a moment when China clearly stated its position.”

Zhang Liangui of the Party School has indicated that “Kim’s visit is of great significance” given “the DPRK leader’s willingness to discuss ways to create favorable conditions to resume the Six-Party Talks.” While South Koreans expressed outrage over the visit, Zhang argues that Pyongyang showed high “political wisdom” in the timing of Kim’s visit, which began on the same day as the opening of the Nuclear Nonproliferation Treaty Review Conference for a one-month session at UN headquarters in New York on May 3.  According to Zhang, “Although the Western media may conclude that China “support[s] DPRK’s arbitrary behavior,” Kim’s trip, in fact, precisely signals the nation’s consistent efforts to promote the resumption of the Six-Party Talks.”  However, Foreign Minister Yu and other ROK officials have indicated that they see no change in Pyongyang’s position after Kim’s visit, and the Cheong Wa Dae (Blue House) has made it clear that “there will be no six-way talks before resolving the Cheonan incident.”

Despite Beijing’s lavish reception of Kim, other Chinese analysts also remain doubtful about the success of the visit, which produced neither a formal declaration by Pyongyang to return to Six- Party Talks nor a Chinese declaration to support industrial projects in North Korea.  According to Peking University’s Zhu Feng, “the visit itself was not very substantive” and “overall, there was a lack of recognition of the Six-Party Talks.”  Liu Ming of the Shanghai Academy of Social Sciences suggests that “there was no breakthrough” given unresolved differences including over Pyongyang’s commitment to denuclearization.  According to Su Hao of China Foreign Affairs University, while Kim’s visit was widely seen as an effort to secure aid in return for resuming Six-Party Talks, it was more about “confirming mutual intentions to maintain a stable relationship” given uncertainties about the direction of ties after recent DPRK provocations.

Shanghai Expo begins, Chinese investment in North Korea remains uncertain

“South Korea Week” was launched on May 26 at the Shanghai World Expo, where South Korea is promoting its own 2012 Yeosu Expo, which is part of a four-year agreement signed between Shanghai and Yeosu in 2008.  The Korea Trade-Investment Promotion Agency (KOTRA) aims to attract 6 million total visitors at the national pavilion at the Shanghai Expo, which drew an average of 26,000 visitors per day by the end of May, and a separate business pavilion, which has served as a promotional platform for 12 major corporations including Samsung Electronics, POSCO, Hyundai Motors, and Shinsegae.  According to a Korea International Trade Association (KITA) survey in May, over 96 percent of 430 Chinese respondents indicated that their visit helped improve their image of South Korean corporations and 85 percent said they would consider buying South Korean products, especially home appliances, cell phones, computers, and fashion items, citing quality and brand power.  The national pavilion is also designed to promote Korean “Hallyu” pop culture.

Meanwhile, Japanese media reports in June showed that the Cheonan crisis has hurt China-DPRK trade and investment, indicating that many Chinese firms have begun to withdraw border area investment plans since the incident.  With South Korean efforts to impose additional sanctions on the North, Chinese businesses reportedly fear financial losses when goods produced in North Korea-based factories cannot be exported to the South.  South Korean reports, however, have warned against continued Chinese efforts to deepen economic cooperation with the North, citing provincial official exchanges and calls for expanding business ties.

Chinese trade figures appear to reinforce South Korean concerns, showing an 18 percent increase in China-North Korean trade to $983.6 million through the first five months of 2010 compared to the same period last year.  According to Chinese media reports, Wang Min, a top Communist Party of China (CPC) official of Liaoning province, led a delegation to North Korea on May 27 for economic cooperation talks with Worker’s Party of Korea (WPK) official of South Pyongan province Kim Pyong-hae, who accompanied Kim Jong-il to China in early May.  Ahead of Wang’s trip, Chinese Ambassador to North Korea Liu Hongcai reportedly convened a meeting in Pyongyang of representatives of 14 Chinese investment entities on May 20 to promote Chinese trade and investment in North Korea.

A DPRK Foreign Ministry delegation also reportedly visited the Chinese border cities of Shenyang, Dandong, and Fuzin in mid-May for discussions on building a new bridge over the Yalu River, which was followed by a visit by the head of North Korea’s Rajin port to the Chinese city of Hunchun on May 19 for talks on China’s use of the port.  According to South Korean researcher Lim Eul Chul, the DPRK wants to open foreign-owned factories in major cities beyond special economic zones like Kaesong as it faces the impact of food shortages, financial sanctions, and stalled inter-Korean ties.

China-DPRK economic exchanges have been accompanied by continued party-to-to-party and intergovernmental contacts.  A WPK delegation led by Kim Chang Ryong, DPRK minister of Land and Environment Protection, made a 10-day trip to China on June 12-22 and visited Beijing, Tianjin, Dalian, and Shenyang.  In Beijing, the DPRK delegation met senior officials of the CPC Central Committee, including Li Yuanchao, head of the Organization Department, and Wang Jiarui, head of the International Department.  A provincial government delegation led by Jilin Vice Governor Chen Weigen also visited Pyongyang in mid-June and met new DPRK Vice Premier Ri Thae Nam.

China’s regional trade efforts challenge South Korean competitiveness

According to the South Korean Central Bank, the country’s current account surplus with China reached $38.4 billion in 2009 compared to $20.9 billion in 2008, marking the biggest surplus in over a decade.  In June, KITA indicated that ROK exports to China jumped 55.6 percent year-on-year to almost $43 billion in January-May 2010, and projected a 22.4 percent annual increase in South Korea’s total exports in 2010 to a projected record high of $445 billion, given improving domestic and global conditions.  A June 25 report by Korea Investment & Securities Co., however, indicated that exports to China will likely slow during the second half of 2010 as China moves to cut bank lending and investment to dampen Chinese demand, the main driver of the recovery by Asian economies.  While Korean companies benefited from Beijing’s stimulus program during the financial crisis, China’s Ministry of Commerce on June 24 announced a revision of its home appliance subsidy program in an apparent effort to stabilize consumption amid Chinese concerns over excessive growth.  The World Bank’s latest China Quarterly Update predicted a moderation of Chinese growth in the second quarter of 2010 due to normalization of macroeconomic policies and property market measures since April, projecting a steady 9.5 and 8.5 percent GDP growth for 2010 and 2011 respectively.

A new focus of South Korean concerns is the potentially negative impact the China-Taiwan Economic Cooperation Framework Agreement (ECFA), which was signed on June 29, will have on ROK exporters.  Under the ECFA, China and Taiwan agreed to remove tariffs on 539 types of Taiwanese goods worth $13.83 billion and 267 types of Chinese goods worth $2.86 billion, and Taiwanese companies will gain access to 11 Chinese service sectors including banking, accounting, insurance, and hospitals.  According to KITA, 14 of the top 20 South Korean export items to China overlap with those of Taiwan, including electronic circuits, semiconductor devices, and liquid display devices, and account for 60 percent of total ROK exports to China.  The implications of the ECFA for South Korean exports have led analysts to urge Seoul to push its own FTA talks with China.  China and South Korea concluded a joint feasibility study on a bilateral FTA in May but have not yet launched official trade deal talks. Instead, President Lee and Premier Wen signed a memorandum of understanding to hold additional discussions on sensitive issues at their recent meeting.  The ECFA is expected to have a minimal impact on large Korean conglomerates like Samsung and Hyundai, which have China-based production facilities, since most of their products are made and sold within China.  Hyundai Motor Co. on May 30 reported more sales in the Chinese market in April than in Korea for the second consecutive month.

The Federation of Korean Industries (FKI) released survey results on June 20 showing that South Korea may lose all technology advantages over China in less than four years for eight key export items such as steel, semiconductors, ships, and cars, which accounted for 64 percent of all ROK exports in 2009, representing a total of $232 billion.  To maintain competitiveness against China, the FKI has called for “an urgent need to develop new technologies through a steady expansion of investment in R&D.”  A Citi Investment Research & Analysis report on June 17, however, suggested that recent wage increases in China will likely benefit ROK exporters by boosting their price competitiveness and Chinese consumer demand.  Following Beijing’s June 19 announcement of a possible currency appreciation, the ROK Commerce Minister also indicated that a stronger yuan would have a limited impact on Korean exports as about half of ROK exports to China are re-exported to third countries.  In addition, KOTRA is reportedly taking steps to better support South Korean businesses based in China by reducing its operations in advanced markets to free up resources for emerging markets like China, where KOTRA will focus on Shenyang or China’s western inland region.  On May 6, the Ministry of Knowledge Economy announced the establishment of KITA’s new “China Desk” aimed to promote direct Chinese business investments.

China-ROK FTA talks were a top agenda item during Premier Wen’s meeting with President Lee on May 28 in Seoul, where Wen indicated that talks could be launched later this year or early 2011. They also agreed to cooperate in new fields of high technology, green growth, trade protectionism, G20 coordination, and global economic governance.  South Korea appears reticent to pursue China-ROK FTA negotiations in the absence of KORUS FTA ratification, although it is getting harder and harder for South Korea to defer the opening of FTA talks with China.  With heightened security tensions on the peninsula, Wen called for joint efforts to maintain economic policy coordination in a meeting with Korean businessmen in Seoul on May 29 and pledged to create a favorable investment environment for ROK businesses in China.  China and South Korea have also focused efforts on developing a free trade area with Japan.  As the coordinating country for trilateral dialogues in 2010, South Korea hosted the third trilateral summit in Jeju on May 29-30 and the fourth trilateral foreign ministers meeting in Gyeongju on May 15-16.  Premier Wen, President Lee, and Prime Minister Hatoyama Yukio agreed to create a permanent secretariat in South Korea in 2011 and issued a 10-year blueprint for trilateral cooperation in such areas as economy, security, environmental protection, and cultural exchange.  However, South Korean analysts remain uncertain about prospects for a trilateral FTA given stalled FTA talks between Seoul and Tokyo since 2004.

Engaging China after Cheonan

The Cheonan incident has dominated the China-ROK diplomatic agenda and overshadowed the bilateral economic agenda. However, there is no clear evidence that the longer-term economic relationship has been affected by tensions over how to deal with the aftermath of the Cheonan incident.  While the Obama administration has voiced strong support of President Lee’s handling of the incident, China’s cooperation remains essential to ROK efforts to secure a new resolution or presidential statement against the DPRK at the UN Security Council.  Since South Korea is relying on Washington to make the case, the Cheonan issue indirectly pits Washington against Beijing and places pressure on the US to secure Chinese acquiescence to a tough UN Security Council statement on behalf of South Korea.

In response to President Obama’s G20 press conference remarks criticizing China’s “willful blindness to consistent problems,” the Chinese Foreign Ministry spokesman on June 29 reaffirmed China’s “fair and irreproachable” position, stating that “China borders on the Korean Peninsula, and we have our own feeling on the issue … we have more direct and intense concerns.”  The Cheonan crisis has thus far strengthened alliance cooperation between the US and South Korea while also demonstrating the importance of coordination with China as both allies express frustration with Beijing’s response.  Seoul and Washington announced plans to conduct a joint naval exercise in the West Sea in early July. In response, a Global Times article on June 28 warned that such moves “would risk challenging China’s strategic bottom line and its coastal defense.”  US-ROK military efforts to reinforce deterrence capabilities through a show of force to North Korea following the Cheonan sinking have raised debate among Chinese military strategists who recognize that “the joint exercise is mainly aimed at deterring North Korea” but remain concerned about the strategic implications for China.

China’s current engagement efforts with Pyongyang and Seoul reflect its traditional policy of equidistance between the two Koreas, but critics have also raised questions about whether such a policy is anachronistic or truly effective in serving Chinese interests.  At the same time, North Korea’s continued provocations serve to undermine China’s regional and global role.  The G8 statement in June condemning the sinking of the Cheonan provides a basis for ongoing discussions at the UNSC, but the outcome depends largely on China.  In turn, Seoul and Washington are also unlikely to support the resumption of Chinese-hosted Six-Party talks on Korean denuclearization without a clear resolution.