From economic to diplomatic to military fronts, private sector and government both taking steps to avoid being caught in a clash of major powers<\/b>
\nIt\u2019s an uneasy time for Asian nations as the rivalry between China and the United States intensifies and uncertainty hangs on whether they can resolve their trade war beyond the 90-day truce. In this special series the South China Morning Post explores how the China-US rivalry is affecting four countries in Asia. In part two, Lee Jeong-ho looks at South Korea.
As the confrontation between China and the United States spills over from trade to a wider range of issues challenging their relations, South Korea is taking steps on the economic, diplomatic and military fronts to avoid being caught between the two giants.
South Korea, which relies on the US for its security and on China for its economy, is among the nations that stand to suffer serious collateral damage from the trade war. The clashes of the two heavyweights vying for greater geopolitical interests over the Korean peninsula have sandwiched the \u201cmiddle power\u201d, with South Korea unable to fully accommodate both the US and China\u2019s demands.
This is not South Korea\u2019s first experience being caught between major powers in a period of transition. Indeed, the peninsula\u2019s location has historically drawn great powers to engage it. Koreans have seen their lands used by major powers as a proxy to achieve geopolitical interests in the first Sino-Japanese war, the Russo-Japanese war and, of course, the Korean war, all of which resulted in millions of casualties and total destruction.
Vowing to learn from history, though, South Korea \u2013 both the government and the private sector \u2013 is implementing a new strategy to actively hedge the risks.
Economic shelter from the trade storm
The US-China trade collision is accelerating South Korean companies\u2019 plans to exit China and would further lessen their presence in the world\u2019s second-largest economy.
South Korean firms have long considered relocating their production facilities, due to rising wages and political uncertainties in China. Well before the current circumstances, the pace of South Korean manufacturers\u2019 investment in China had already slowed for the past few years due to China\u2019s unfair market practices and increased labour costs, according to a white paper by the Korea Chamber of Commerce in China.
Samsung Electronics, the world\u2019s largest mobile phone maker, closed its China network equipment manufacturing unit in Shenzhen last year, and moved a production base to Vietnam. Samsung is also considering shutting its Tianjin mobile phone production plant by the end of this year, according to South Korean media outlet Electronic Times.
Samsung did not respond to a request for comment.
Still, experts say the US-China trade war has firmed the resolve of South Korean companies to exit China and seek other destinations for their investments.
One beneficiary is Vietnam: South Korean investment there came to US$1.97 billion in the first half of this year, exceeding South Korean investment in China \u2013 US$1.60 billion over the same period \u2013 for the first time, according to data compiled by the Export-Import Bank of Korea.
The South Korean retail giant, Lotte, is diversifying into Vietnam, planning to build the Lotte Mall Hanoi, a US$600 million multi-purpose shopping centre, by 2020. Construction will include a hotel, flats, offices and a trade-centre complex.
Kim Ill-san, chief representative of the Korea International Trade Association in Vietnam, said the US-China trade war had spurred many South Korean firms to move factories from China and into Vietnam to avoid tariffs slapped by Washington on products made in China.
\u201cThe change in the price of raw materials \u2013 due to the US-China trade war \u2013 is working as a burden for South Korean firms in China, making them shift their production base to Southeast Asia, including Vietnam,\u201d Kim said.
\u201cChina\u2019s increased labour costs would also be another reason for the decision. The [monthly] labour cost of manufacturing workers in China, on average, is approaching US$800 per person, while in Southeast Asia it marks about US$250-400.\u201d
Kim Yun-hee, a senior trade commissioner at the Korea Trade-Investment Promotion Agency office in Beijing, said South Korean corporations in China were particularly concerned about the effects of a protracted US-China trade war.
\u201cIncreased cost and changes in exchange rates are some of the direct impacts of the US-China [trade] war on the corporations. Meanwhile, the increased uncertainties in the global trading environment are acting as an indirect impact to burden the businesses,\u201d Kim Yun-hee said.
With a revised US-South Korea trade agreement, or KORUS, recently concluded with the Trump administration, South Korean companies might also consider bringing businesses back to their home, observers said.
\u201cSoutheast Asia, so far, has largely been spared from Trump\u2019s tariff wrath\u2026 [but] Korean companies might also take another look at their own home market now that a revised KORUS agreement is in place. Higher costs aside, producing at home can at least give Korean companies US market access certainty,\u201d Sean King, vice-president of political strategy firm Park Strategies, said.
Diversifying production facilities would also ease some of the huge fallout South Korean firms have faced from the THAAD dispute.
South Korean firms came under great pressure from China after Seoul deployed the US military\u2019s Terminal High Altitude Area Defence system in Seongju county. South Korea says the anti-missile system is necessary to ward off threats from the North while China sees it as a challenge to its defences.
\u201cThe real turning point for South Korean companies in mainland China was… [being] mercilessly targeted by authorities after South Korea deployed THAAD\u2026 I think there\u2019s a \u2018before and after THAAD\u2019 syndrome for South Korean companies in mainland China,\u201d King said.
Minimising the US-China diplomatic factor
In addition to moving production out of China, South Korea is also trying to ensure its influence over the Korean peninsula.
Aside from the US-China trade war, of course, 2018 has been marked by the rapid thawing of relations with North Korea, with President Moon Jae-in seizing the chance to work with the North Korean leader Kim Jong-un. Seoul has focused on rebuilding its relations with Pyongyang, taking part in three inter-Korean summit meetings since April.
\u201cAn inter-Korean joint military committee will be activated shortly to avoid accidental military collision\u2026 the two Koreas have agreed to enhance exchanges and cooperation,\u201d the September Pyongyang Declaration stated.
One reason behind Seoul\u2019s peace initiatives was to remove the Korean peninsula as a bargaining chip in the US-China competition.
Park Byeong-seug, a South Korean lawmaker with Moon\u2019s Democratic Party of Korea, said Seoul was trying its best to be an independent actor by improving its standing with North Korea during a transitional period of power relationships.
\u201cIt is in Seoul\u2019s best interests to minimise its damage caused by the two countries\u2019 hegemonic rivalry \u2026 and the only way to achieve that is by enhancing the relations with Pyongyang to create a new diplomatic space. If we go back to the cold war, there is nothing much Seoul can do as an actor,\u201d Park said.
\u201cUS-China relations may further deteriorate beyond trade. A currency war and petroleum war between the two countries may ignite in the worst-case scenario.\u201d
The deterioration of inter-Korean relations will only squeeze Seoul\u2019s diplomatic space amid the intensifying US-China rivalry.
\u201cThe Korean peninsula becomes a subordinate factor of US-China relations if inter-Korean relations do not improve. This is why the Moon administration is focusing so much on improving inter-Korean relations\u2026 It will give Seoul the power to overcome the structural problem between the US and China to maximise Korean interests,\u201d said Boo Seung-chan, a research fellow at the Yonsei Institute for North Korean Studies in Seoul.
Wading into deeper military waters
South Korea is also building up its own defences amid the uncertainty of the US military commitment on the region.
Seoul announced in October plans to expand its maritime forces into a blue-water navy \u2013 capable of operating globally, across oceans \u2013 to safeguard its strategic interests against China\u2019s maritime expansion over the South China Sea.
A blue-water navy fleet \u201cwill contribute to expand the navy\u2019s operational area into far seas, to secure maritime traffic routes, and ensure the free maritime activities and the safety of our citizens\u201d, the South Korean navy reported to parliament in October, adding that it would also build an air command to support military aircraft and airborne weapon systems.
South Korea\u2019s navy has traditionally been almost exclusively concerned with coastal operations, to maximise its military readiness against North Korea. But as Beijing \u2013 which has overlapping exclusive economic zones (EEZ) with Seoul in the Yellow Sea \u2013 speeds up its military modernisation, Seoul\u2019s concerns have grown.
The South Korean defence ministry said in September that it would closely monitor China\u2019s installation of buoys in the two countries\u2019 EEZs.
That concern grew sharply last year as US President Donald Trump repeatedly complained that South Korea was relying on the US too much for its security, raising the possibility that the US might weaken its commitments to the region.
Moon Jang-nyeol, a professor at Korea National Defence University, said South Korea would continue to strengthen its naval force.
\u201cSouth Korea has long pursued having a blue-water navy to build a deterrent capability against the powerful peripheral states\u2026 Its decision to improve its naval force capacity is less likely to change, and its spending may continue to increase,\u201d Moon said.
\u201cBut the chance of South Korea engaging in international disputes such as the South China Sea is quite low. Its main goal is to balance the power over the region, more than actually engaging in those conflicts.\u201d<\/p>\n