China eager to help break Japan-South Korea stalemate at summit and ease way to free-trade agreement

Laura Zhou

China will strengthen its influence in East Asia by mediating a bitter dispute between Japan and South Korea when their leaders arrive in Beijing on Monday, diplomatic observers said.

Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in are expected to meet Chinese President Xi Jinping separately in the capital before flying to Chengdu, in southwestern Sichuan province, where the visitors would join Premier Li Keqiang for an annual trilateral summit the following day, the Chinese foreign ministry said on Thursday.

This would be the eighth summit since 2008 after postponements caused by years of historical and territorial disputes despite the countries’ geographical proximity, similar cultures and close economic ties.

It will come at a time when Tokyo and Seoul – the most important US allies in Asia – are locked in a bitter feud over history and trade that showed no sign of being settled soon.

While the United States has kept its distance from the dispute, Beijing, increasingly seen as a strategic rival by Washington, was eager to mediate, observers said.

Despite its historical grievances against Japan, Beijing has been reluctant to take sides since last November, when a South Korean court awarded damages against Japanese companies for using forced labour during the second world war.

The Japanese government, which accused Seoul of not complying with export security regulations, took the disagreement into the economic sphere by putting export controls on raw materials vital to South Korea’s semiconductor industry in the summer.

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“China doesn’t take a side in the dispute but [can] allow the two countries to resolve the dispute through diplomatic means,” said Cai Liang, a research fellow at the Shanghai Institutes for International Studies think tank. 

“China is willing to offer a platform, and the trilateral summit itself is such a platform, which involves a lot of diplomatic manoeuvres by China,” Cai said.

According to Japanese and South Korean governments, Abe and Moon were expected to meet on the sidelines of the summit in Chengdu, which would be their first formal meeting since September 2018.

China is attempting to bring Japan and South Korea together when relations between the neighbours are at a low point. Photo AP

He Ping, an associate professor in political economy at Fudan University in Shanghai, said Beijing may bring the neighbours’ important roles in the global technology supply chain to bear in discussions, particularly against the backdrop of growing global economic headwinds.

“The trade disputes between Japan and South Korea are not simply about bilateral trade, but have an important impact on countries including China because of the regional production chain and global value chain,” He said.

Beijing could also encourage the two to play a bigger role in regional and global free trade, he said.

Fears of further economic contraction have increased in China, Japan and South Korea, now the first, second and fourth largest economies in Asia respectively, according to International Monetary Fund figures for 2018.

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According to official figures, exports from Japan and South Korea both slipped for a 12th month in a row in November, partly as a result of declining shipments to their bigger neighbour. Also last month, China reported a fall in exports for a fourth consecutive month because of the pressure of its 17-month long trade dispute with the US.

In Beijing on Thursday, Li Chenggang, assistant minister of commerce, said one of the key agenda items for the three leaders’ summit was to “inject more political impetus in a bid to make a practical breakthrough” in negotiations for a trilateral free-trade agreement (FTA), which Li said would be in line with their common interest in the face of a “complicated global economic environment”.

Beijing regards a trade pact with Japan and South Korea as an important part of its efforts to push regional economic integration forward and diversify its markets in the face of a growing sentiment against free trade led by US President Donald Trump’s more aggressive trade policy.

South Korea’s port city of Busan. Photo: Bloomberg

And the incentive to strike a deal for a market of close to 1.6 billion people, the combined populations of the three countries, has run high since the Trump administration, which had long accused Beijing of unfair trading practices and intellectual property theft, put punitive tariffs on US$3.4 billion of Chinese exports, prompting Beijing to retaliate with more tariffs.

Observers said that Beijing may want to wrap up negotiations with its neighbours before the November 2020 US presidential elections to avoid further uncertainty in relations between the world’s two largest economies.

Next year “could be a turning point because of the US presidential election and, if the deal could be reached before the end of next year, it could reduce the uncertainties over the trade war”, Cai said.

But Cai and He agreed that there would still be a long way for Beijing, Tokyo and Seoul to go to reach a deal, partly because of the tensions between Japan and South Korea.

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According to Chinese state media, a 16th round of negotiations between the three wrapped up in Seoul last month, when the parties discussed trade in goods and services, investment, competition, e-commerce, intellectual property rights, government procurement and rules of origin.

A three-way FTA would aim to reduce tariffs on around 92 per cent of tradeable goods, making it one of the biggest multilateral free trade deals China has negotiated.

Masahiro Kawai, a professor at Tokyo University, said such an agreement could also pave the way for Beijing and Seoul to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which involves 11 Asia-Pacific countries including Japan, Australia and Vietnam, but not the US.

China was excluded from the pact when it was first drafted in 2015 and Beijing saw it as part of then US President Barack Obama’s “pivot to Asia” policy to counter Chinese influence.

“Japan would certainly want more market opening in China for high-value added manufacturing and services sectors, and [South] Korea for automobile sectors and higher-level trade and investment rules on investment liberalisation and protection, IPR [intellectual property rights] protection, e-commerce,” Kawai said.

“If the three countries can agree on a high-level China-Japan-South Korea FTA, it would make Korea ready to join the CPTPP and make it easier for China to begin discussions for joining the CPTPP.”

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