South Korean President Park Geun-hye and Chinese President Xi Jinping agreed to settle the Korea-China FTA negotiation within this year at the summit on July 3. Currently, two countries are playing tug of war regarding the open range and concession level of the FTA.
Both countries have been trying hard to reach an agreement soon, but this is the first time they agreed to settle the negotiation within this year.
As the two countries also agreed to create a 13.5 trillion won direct exchange market for yuan in Seoul, the era of a “new economic partnership between Korea and China’”has begun. This is considered as an upgraded version of the “strategic cooperative relationship” agreed in June last year when President Park visited China.
The fact that President Xi made a solo visit to South Korea first before its so-called “blood ally” North Korea shows that a new horizon of Korea-China relationship has been created. Two countries enhanced the mutual understanding on various issues such as politics, diplomacy, security, economy, and trade during this summit.
There have been a total of 11 negotiations for a Korea-China FTA since May 2012, when the negotiations first started. The 12th negotiation will start this month, and it might be possible to reach a final settlement within this year.
Two leaders have reviewed the progress of negotiations very positively so far, as it could be the foundation for a more comprehensive FTA. They agreed to make the best efforts to settle FTA negotiations within this year.
In addition, they agreed to create a won-yuan direct exchange market in Seoul so that Korea could be prepared for globalization and appreciation of the yuan, and diversify the economic currency. From now on, it is possible to exchange won for yuan directly for trading purposes without exchanging to other currencies. With the two leaders present, the People’s Bank of China and Bank of Korea signed an MOU to designate a Chinese bank located in Seoul as a clearing house for yuan, so that the settlement of yuan could be done in Korea on a daily basis instead of Hong Kong.
Under the Renminbi Qualified Foreign Institutional Investor (RQFII) agreement, 80 billion yuan (13.5 trillion won, US$12.9 billion) has been assigned to Korea, so that yuan acquired after exports could be directly invested in Chinese bonds and securities which have relatively higher yields. The investment amount to China would be increased appropriately depending on the market conditions and demands of the yuan in the future.
A won-yuan direct exchange market will be established in Korea first, and the one in China will be considered later following the globalization level of the won. Bond issuances of yuan in Korea and other global companies will be encouraged as well.
The two leaders reconfirmed both of their positions strongly against the nuclear weapons of North Korea by issuing a joint statement. They agreed to put their best efforts towards the denuclearization of the Korean peninsula by resuming the six party talks.
They reaffirmed the mutual understanding of the Korean peninsula confidence process, President Park’s North Korea policy. Furthermore, President Park’s Dresden Plan to establish public infrastructure for the co-prosperity of South and North Korea has been supported by the General Secretary Xi. Two leaders also agreed to have frequent visits of their representatives to each country for strong cooperation on politics and national securities, regular “high profile strategic meetings for diplomacy and security” between the Chief National Security Officer in the Blue House and the State Member of Diplomacy in China, and annual visits of the Ministers of Diplomacy from both countries.