A more complicated Korea-China relationship

By Troy Stangarone

Later this month, South Korea and China will mark the 30th anniversary of formal relations. Normally this would be a time for diplomatic pleasantries, but the anniversary comes at a complex time for the relationship.

When the two countries first established diplomatic relations 30 years ago, the Cold War had just ended. While China remained politically a one-party communist state, capitalism and liberal democracy were seen as ascendant and the United States was the world's undisputed superpower.

These shifts paved the way for the rapid development of economic ties between South Korea and China. In 1992, total trade between the two countries was only $6.3 billion. Trade would grow so rapidly that by 2003 China would displace the United States as South Korea's largest trading partner. Last year,
total trade stood at $301.5 billion.

But the world has changed over the last three decades. China has become the world's second-largest economy, while the United States has faced relative decline. China's economic growth has also come with an understandable desire to play a larger role in regional and global affairs, but also a growing assertiveness. That assertiveness that has resulted in informal economic retaliation against South Korea, but also deepening geopolitical competition between China and the United States with significant economic implications for South Korea.

Initially, these tensions came to a head with the decision in 2016 to deploy the U.S.-produced THAAD missile defense system.

China warned against the system's deployment and turned to informal sanctions to economically coerce South Korea. Nearly all Lotte Marts in China suddenly had fire and safety violations. Chinese group tours to South Korea stopped. K-pop concerts were canceled. New Korean movies and games were no longer approved for the Chinese market.

Beijing's point was clear: South Korea could deploy THAAD, but it could not expect the type of access to the Chinese market that it once enjoyed if it did.

The dispute reflects the geopolitical competition between China and the United States for two reasons. While deployed to protect against the growing threat from North Korea, THAAD also had the potential to enhance the United States' ability to monitor ballistic missiles from China. Perhaps more importantly, however, it was a tangible symbol of deepening cooperation between the United States and South Korea at a time when Beijing was looking to expand its own influence.

The former Moon Jae-in administration sought to bring China's economic retaliation to an end with the "three nos" ― no new THAAD deployment, no integration into a regional U.S. missile defense system and no trilateral military alliance with the United States and Japan. At the time, there were no new THAAD batteries available for deployment and no one expected the type of deep cooperation with Japan in the near future that could allow for an integrated missile defense system or trilateral military alliance.

However, with the Yoon administration looking to deepen ties with the United States and potentially deploy additional THAAD batteries, the issue has risen back to the surface with China calling on South Korea to maintain the "three nos" and expand them to include restrictions on the operation of THAAD.

In calling on South Korea to maintain the "three nos," it is not clear if China kept its own side of the understanding. In addition to South Korea's commitments, the understanding called for the normalization of economic relations. Chinese tourism, however, remained below pre-THAAD levels up to the pandemic, and it was only during the pandemic that Beijing finally approved a new South Korean movie and game for release. China was clearly in no rush to normalize economic relations.

While not formally part of the "three nos," North Korea's behavior is clearly a significant factor in the context of the deployment of THAAD. Unfortunately, China is now a less constructive partner in resolving the challenge of Pyongyang's ever growing nuclear and ballistic missile ambitions.

Geopolitical tensions between the United States and China are also increasing pressure on South Korea's economic relationship with China. The U.S. initiated Indo-Pacific Economic Framework is still in its infancy, but there are already concerns in South Korea that China could retaliate against South Korean participation. Washington and Beijing are also trying to sway South Korean cooperation over semiconductors, which are critical to both countries' economic futures.

In the years ahead, geopolitical tensions could grow. China has continued to demonstrate its willingness to use economic coercion on other countries and has formed a "no limits partnership" with Russia that is a challenge to the interests of the United States and South Korea. Should China's recent military exercises around Taiwan foreshadow a future invasion, pressure on South Korea to end high-tech economic engagement with China would grow significantly.

The geopolitical environment that produced the stunning growth in trade between South Korea and China has passed and has been replaced by one of geopolitical competition and Chinese assertiveness. These factors make the future of the relationship more complex and potentially less economically vibrant.

Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.