[ANALYSIS] What 3rd term for Xi Jinping means for S.Korea

Under Xi Jinping's third term, South Korea will need detailed policies to leverage its strengths in chips, batteries as US-China tensions continue

By Kim Yoo-chul

Chinese President Xi Jinping and the Chinese Communist Party have tightened their grip on power further by approving Xi's third term in office.

Xi has already been in power for a decade, a period characterized by growing authoritarianism in the world's second-largest economy. Political analysts and executives at South Korea's leading export companies believe Xi will maintain his assertive stance in the coming years, especially regarding cross-strait issues and the ongoing trade dispute with the United States.

As Xi's extension could embolden him, Seoul's presidential office is now tasked to specify additional detailed plans for the battery and semiconductor industries. The two industries, in which South Korea clearly has global dominance, have been identified as nationally significant industries by the U.S. and China in their race for technological supremacy.

"Policymakers should understand that both Washington and Beijing's pressure on Seoul will grow as Xi is set to apply protectionist policies to its key trading partners by giving them preferential treatment, a similar policy espoused by the Biden administration," a senior trade policy secretary under the former Moon Jae-in administration said via telephone to The Korea Times. "Seoul's trade policies should be focused on addressing concerns about how various credit provisions will work in practice with regard to South Korean semiconductor and battery manufacturers in China and the United States. We have to understand that the limits of a middle power are real."

No transactional relations?

With less than three weeks until the U.S. midterm elections, various poll results have shown that Republicans may take more seats in the House of Representatives. But mainstream thinking suggests that regardless of the outcome of the elections, the hawkish policy stance toward China, which was originally sought by the former Trump administration, will stay.

"Despite its yearlong trade war against the United States, China still views its bitter relationship with the United States as transactional. But the central point is that it's very unlikely Washington may concede on some issues it considers as competitive even after its midterm elections," said Yeon Won-ho, head of the economic security team at the Korea Institute for International Economic Policy.

"Because it's just unrealistic to expect South Korea's middle-level power to alleviate geopolitical tensions, it is necessary from Seoul's viewpoint to set up an independent body with trade and finance ministry officials and presidential secretaries for a coordinated approach on chip and battery supply chain-related issues."

Yeon stressed that Seoul's role is somewhat flexible and expandable in areas relating to chips and batteries in China given XI's focus on semiconductor self-sufficiency.

Chinese President Xi Jinping looks on as former Chinese President Hu Jintao is assisted to leave the hall during the closing ceremony of the 20th National Congress of the Chinese Communist Party at the Great Hall of the People in Beijing, Oct. 22. AP-Yonhap

The U.S. recently identified China as posing a challenge to its national interests in the coming years. While it has also mentioned cooperative aspects in the bilateral relationship, such as promoting global health, no clear details have been announced on how and when this may be achieved.

Citing the U.S. Department of Commerce's recent decision to limit the sale of chip equipment to Chinese customers, Jeong In-kyo, a professor of international trade at Incheon University, said Seoul's top trade policymakers will need deep discussions with their U.S. and Chinese counterparts on ways to minimize outstanding risks as the world's top two economies are on track to strengthen their respective protectionist policies amid their deepening rivalry.

"I would recommend the country's trade policymakers take scenario-based strategies until the U.S.-China relationship sees an improvement," Jeong said.

Bernstein's analysts led by Mark Li said the newly announced restrictions plugged loopholes in the prior restrictions. China will not be able to improve its chip technologies as quickly as before and probably has no visible choice but to focus on the mature part of the business.

China is South Korea's largest trading partner, followed by the U.S. Last month, South Korea exported $13.4 billion to China, 60 percent of which was related to semiconductors, data from the trade ministry showed. However, the incumbent Yoon Suk-yeol administration is focusing on deepening bilateral ties with the U.S. both economically and diplomatically.

Given the volume of South Korean investments in China and the level of technology being applied to Chinese tech companies, chances are low for China to impose any discriminative measures against South Korean tech companies there in the foreseeable future. China is focusing on improving its self-sufficiency rate in memory semiconductors, which Samsung and SK currently lead.

"Because China needs to retain Samsung, LG and SK's tech affiliates in the coming years, at least until its self-sufficiency rate in memory chips and batteries reaches its target, South Korean tech firms will become one of the top beneficiaries of subsidies from both central and regional Chinese governments. Looking ahead, as Xi commits himself to continue China's rivalry with the U.S on the tech front, South Korean trade policymakers should set up hotlines with their counterparts in China and the U.S. to stress South Korea's deliverables regarding these issues and near-term position," said a lawmaker of the ruling People Power Party (PPP).

In the electric vehicle (EV) industry, which is also led by South Korea as the country is home to the world's leading battery producers ― LG Energy Solution (LGES) and Samsung SDI ― it is understood that the government will keep communication channels open with Beijing and Washington on a regular rather than an as-needed basis.

"The United States needs South Korea and China needs South Korea. South Korea has a lot of diplomatic options and I would say the key question is how to highlight the country's position to help Seoul maintain a kind of deliberate ambiguity," an executive at SK said.

No imminent breakthroughs visible in Seoul-Beijing ties

Given South Korea's support for various Washington-led initiatives such as Chip 4, the Indo-Pacific Economic Framework (IPEF) and joint and trilateral military drills including Japan, no signs are appearing yet for improvements in Seoul-Beijing relations, say political analysts.

Beijing stands opposed to Seoul's deeper military ties with Washington. While it's unlikely for South Korea to be accepted as a member of the Quad, viewed by China as a kind of Asian version of NATO, China was hoping to see fewer military drills with the U.S.' key Northeast Asian allies, if not stopped altogether.

Under Xi's third term, China plans to put more emphasis on handling the Taiwan Strait issue. The country has shown a quite muted response to recent military provocations by North Korea. Because there is consensus by Washington and Seoul officials that North Korea is very close to conducting another nuclear test ― its seventh such test ― if it happens, South Korea's defense cooperation with the United States will deepen further.

"The Yoon Suk-yeol administration has clarified its pro-U.S. stance as well as its aim to improve Seoul-Tokyo relations and its active participation in the regional security alliance between the United States and Japan," said Kim Han-kwon, a professor at the Korea National Diplomatic Academy. "I would say chances are very low for Xi to visit South Korea or for China to declare the ending of its discriminative measures against South Korean firms due to Seoul's earlier decision to deploy a U.S.-based anti-missile shield system."