Managing relations with China

By Troy Stangarone

I'm often asked how South Korea should manage relations with China. It's a complex question. One that often requires deeper answers than can come in an interview or on the sidelines of a conference. Given that complexity, it is perhaps better to think about what are the key issues that should be considered when thinking about managing relations with China rather than what is the best specific policy approach.

The question often arises as part of a discussion about growing U.S.-China tensions. While a focus on policy is understandable, in this context, South Korea's perception of China's values and interests, as well as its understanding of the reshaping of the geopolitical order, will be a key factor.

In Seoul's relationship with Washington, the two countries often emphasize the shared values of democracy, freedom of expression and free market economics. At the same time, the two countries also share a range of interests from the peaceful denuclearization of North Korea to regional stability and an open economic system.

While the passage of the Inflation Reduction Act in the United States has caused consternation in South Korea, the U.S. response to South Korean and other concerns has largely been consistent with the values and interests the two share. There are efforts to find a solution and acknowledgment by President Joseph Biden at the recent state visit by French President Emanuel Macron that the law was flawed and never intended to disadvantage allies of the United States ― a response that fits more broadly into the shared structure in which they operate.

Beyond interests and values, managing relations with China also depends on how one views the reshaping of the geopolitical order. On a surface level, China is growing in relative strength to the United States, but below the surface, the world is undergoing multiple transitions related to energy, technology and the polarization of politics, that are reshaping the global order. What countries come to dominate clean energy technology, artificial intelligence, quantum computing, and the broader narrative about identity will reshape the geopolitical system. Perhaps in ways we cannot yet understand.

More broadly on economic issues, a key question relates to what type of economic partner China is and how vulnerable South Korea is to Chinese economic coercion.

From the perspective of trade flows, China is South Korea's largest trading partner. Last year, South Korea exported $162.9 billion in goods to China and imported $138.6 billion. In contrast, it exported $95.9 billion and imported $73.2 billion according to the Korea International Trade Organization.

Again, what's below the surface will matter. A significant portion of South Korean exports to China goes to the production of goods destined for the United States and other markets. A portion is clearly for final consumption in China, but the trade relationship reflects China's role as a global production hub rather than simply the value of China as a market.

With Beijing aiming to become self-sufficient in cutting-edge technologies such as semiconductors and green technologies, the future role of South Korean firms in the Chinese economy should also be a factor. Samsung once accounted for 23 percent of smartphones sold in China, today it accounts for less than 1 percent. Will its production of semiconductors in time be replaced by Chinese firms that look to undermine Samsung's global position? This is just one consideration.

Russia's invasion of Ukraine has also highlighted the need to reduce dependence on problematic trade partners. Given South Korea's own experience with economic retaliation, how dependent on China for key inputs can South Korea afford to be in the emerging global order?

Beyond economic issues is China's role as a security partner. Traditionally, China has been seen as an important partner for denuclearizing North Korea due to its economic leverage and historical ties to Pyongyang. However, China has become increasingly unwilling to pressure North Korea to engage in talks, as it continues to develop its weapons programs.

If China is no longer a viable partner in denuclearizing North Korea, how does that reshape South Korean thinking on foreign and defense policy?

In shaping policy with China, the question policymakers should be asking is whether China's interests and values align enough with South Korea to find an accommodation when economic disagreements arise. Or, when more challenging diplomatic and national security questions develop. But also how they view the changes in global influence that will come from changes in energy, technology, and identity.

The era of China serving as South Korea's main economic partner and the United States as its main security partner is at an end. What will come next is still taking shape, but as South Korea grapples with how to manage relations with China, these are just some of the considerations that Seoul should be examining ― along with the potential reliability of the United States, should Trump retake the White House in 2024. Deeper consideration of these issues should help shape a more cohesive policy for managing relations with China.

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