Economic initiatives involving Russia, China derailed under Yoon administration

President Yoon Suk-yeol and first lady Kim Keon-hee arrive in Madrid, Spain, on June 27 for the NATO Summit. Korea Times photo by Seo Jae-hoon

S. Korea looks to Europe in bid to cut dependency on China

By Kim Bo-eun

HONG KONG ― An apparent shift in the external economic policy of South Korea's new government has put the brakes on a number of efforts in Russia and China that were initiated under the previous administration.

And while the shift also reflects developing situations such as Russia's invasion of Ukraine, the abrupt sea change that has occurred with the leadership change has come at the cost of government funds, time and effort.

Under the previous administration of Moon Jae-in, an ambitious plan was drawn up to build a power grid spanning South Korea, China, Japan, Russia and Mongolia. The idea was for countries in northeast Asia with high energy demand to be able to access wind and solar power, along with natural gas, from the resource-abundant easternmost parts of Siberia and Mongolia.

Possibilities were discussed at the 2017 Eastern Economic Forum in Vladivostok, Russia, which was attended by the heads of state of Russia, South Korea, Japan and Mongolia. The plan had support from both the demand and supply sides, as it met their needs.

Former President Moon Jae-in delivers a keynote speech at the Eastern Economic Forum in Vladivostok, Russia, on Sept. 7, 2017. Yonhap

Government-level exchanges between South Korea and China had also taken place to explore possibilities of economic cooperation with China's northeastern province of Liaoning that borders North Korea.

This was part of Moon's "New Northern Policy" seeking strengthened economic ties with Russia and Central Asian countries, as well as north-eastern China. The previous administration launched a presidential committee for the initiative in 2017, which aimed to build foundations to collaborate with North Korea and Russia for logistics, explore possibilities of a free-trade agreement with the Eurasian Economic Union (EAEU) and look into opportunities in China's overseas infrastructure project known as the Belt and Road Initiative, according to the government policy website. The EAEU is composed of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan.

Such plans were put on hold as relations with North Korea soured under the latter years of the Moon administration. But they have now been entirely derailed, due to dim prospects of improving ties under the Yoon Suk-yeol administration that takes a hardline stance toward North Korea. The outbreak of the Kremlin-led war in Ukraine in March, and Korea joining sanctions on Russia, also played a part.

"The northeast Asia power-grid plan definitely lost its drive," a South Korean government source said, while also conceding that policy changes are inevitable, given the five-year term of Korea's president.

The Moon administration pushed for a number of economic initiatives in Russia and China, which have derailed under the Yoon administration. gettyimagesbank

Events had also taken place to look into Korean businesses' role in China's Greater Bay Area initiative, which aims to create an integrated economic and business hub with Hong Kong, Macau and nine cities in southern China.

Such forms of collaboration have lost their momentum due to the Yoon administration's intentions to forge closer ties with the U.S. and its allies, as the rivalry between the world's two largest economies shows no sign of abating.

Last month, South Korea for the first time attended a NATO meeting, along with Japan, as the West seeks to team up with other major democracies to counter an increasingly assertive Russia, and China that has backed the Kremlin.

This policy shift toward the U.S. has naturally resulted in an alignment in economic policy as well.

Korea has joined U.S.-led initiatives such as the Indo-Pacific Economic Framework and the Minerals Security Partnership, both of which seek to cut dependency on China for key resources and items by building alternative supply chains.

The Yoon administration is now seeking to boost economic ties with Europe and Australia, as a means to diversify trade away from China ― Korea's largest trade partner ― which took up 25 percent of the country's exports in 2021.

During his visit to Spain for the NATO meeting, Yoon met with various heads of European states and promoted Korea's chip-making and nuclear-power capabilities, as well as the country's defense industry and green-energy sector.

Presidential secretary for economic affairs Choi Sang-mok drew attention for his remarks in a briefing for reporters held on the sidelines of the NATO meeting, which reflected the government's positioning toward China. "The era of booming exports via China of the past 20 years is coming to end. We need substitute markets and diversification," he said.

He referred to the European Union, which with a GDP of $17 trillion is the largest market after the U.S. and is similar in size to China.

But it is unclear how much boosting trade with other regions will be able to substitute trade and investments with China and Russia. A commentary by Shanghai University of International Business and Economics professor of international relations Zhan Debin in China's state-run Global Times earlier this month said Europe cannot replace the Chinese market, referring to Korea's trade deficit with the EU over the past decade.

Regarding Choi's remark, the main opposition Democratic Party of Korea's spokeswoman, Shin Hyeon-young, said: "We would like to ask the Yoon administration if it is truly prepared to take on the shrinkage in trade and investments with China and Russia."