China and South Korea to explore possibilities of free trade pact

Seoul : The man seen as the next leader of China yesterday called for talks with South Korea on a free trade deal, saying a pact between the Asian economic powers and rivals would benefit both countries.

If a pact goes forward, it could leave the region's biggest economy, Japan, out in the cold, but the increasingly overlapping interests of the South Korean and Chinese economies make reaching a deal difficult. The three countries account for about one-sixth of the global economy.

"Reaching a free trade deal between China and South Korea meets the interests of both countries," Chinese Vice President Xi Jinping was quoted as saying in a meeting with South Korean President Lee Myung-bak by Lee's office.

South Korea and China have been jointly studying a trade deal for years but policy-makers in Seoul are wary of a backlash coming from the politically powerful farm lobby who would face stiff competition from cheap Chinese products.

China is South Korea's biggest export market led by steel and electronic products.

Two-way trade of $168 billion (Dh617 billion) in 2008 is expected to double by 2013 if they implement a free trade deal, according to a joint study.

South Korea's exports to China in November rose 54.7 per cent from a year ago, the South's finance ministry said this month.

South Korea has seen its leading position in sectors such as shipbuilding and steel eroded by Chinese manufacturers who have relied on cheap labour and steadily improved technology to grab greater global market share.

Setback

But in a setback for a major Chinese business, a South Korean court approved a tough restructuring plan to help revive struggling Ssangyong Motor that had been opposed by Shanghai-based SAIC Motor Corp, its majority owner.

The plan involves a sharp write-down of SAIC's investment in Ssangyong, which lags other domestic brands by a wide margin and is seen needing a massive amount of funding for a still slim chance of a turnaround, in a stark reminder of how overseas forays can go wrong.

South Korea, which has depended heavily on exports to fuel growth, has struck major free trade pacts in recent years, ratifying a deal with India last month and signing another with the European Union in October.

Call for revision

A deal with the US reached in 2007 has yet to be ratified by the assemblies of both countries, with some US lawmakers calling for a revision of its provisions on autos.

Xi, 56, is tipped to succeed Hu Jintao as Communist Party chief and president in 2012 and 2013 respectively.

His Asian tour, which also included Japan, follows a trip across Western Europe in October and appears to be another step in burnishing his diplomatic credentials.