In the last few years, China has had a spectacular economic development and has come to play an increasingly important role in the world economy. For a long time, the Chinese economy was a centrally-planned economy in which all companies were owned by the state. In 1978 China started an economic reform. In the beginning, in the late 1970s and early 1980s, trade was opened to the outside world and the Contract Responsibilities System was implemented in agriculture. By the end of the 1980s China had almost solved its food shortage problems. Around 1990 six special economic zones were established, including the Shanghai Pudong zone, which was a pioneer attracting foreign capital.
The Chinese economy has started an era of change. Structural adjustments are needed and there are many issues to solve. Among others:
1. The economic growth model, from an extensive economy to an intensive one; from large investment and high consumption of resources to a high technology model, high added value and low consumption of resources.
2. The distribution of mineral resources and the energy shortage.
3. The environmental issues, like the pollution of rivers.
4. Exchange rate reform.
5. Differences between the rich and the poor.
6. Differences between eastern and western China.
7. Growth and peace.
8. The creation of a harmonious society.
The Chinese Government deems Free Trade Agreements (FTAs) as a new platform to further opening up to the outside and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as particularly an important supplement to the multilateral trading system. Currently, China has 14 FTA partners comprising of 31 economies, among which 8 Agreements have been signed already.
A Korea-China free trade agreement will be a definite plus for the country at least statistically. The governing camp must risk in losing votes from angry farmers, fishermen and small-and medium-sized manufacturing companies.
The success of the deal will hinges on ensuring Korea's small-and-medium-sized manufacturing firms do not disappear due to low-cost Chinese imports. Farmers, fishermen, livestock breeders will also be marginalized.
The FTA will widen the polarization of small and big companies. It would be sad if kimchi were to be imported from China. The agreement will not create more jobs here as the neighboring country is competitive in labor-intensive industries.
The agreement will deepen non-economic ties between Seoul and Beijing. If South Korea can somehow work toward controlling North Korea's trade through South Korea, that would be nice. Seoul wants China's help in containing the Communist country.
Without China's support, the Kim Jong-il regime will find it difficult to sustain its moribund economy, and possibly its regime. Seoul also believes China is probably the most influential in restraining the dynastic regime from producing nuclear weapons.
China is the only country which has provided assistance to North Korea despite international sanctions. China is closer to North Korea than the South Korea is, politically and militarily. China and North Korea have been allies since the Korean War in 1950. The accord will hopefully balance China's relations vis-a-vis the two Koreas. China is more positive than Korea regarding the accord.
Following the FTA, China will further outdistance the United States and Japan in trade with Korea. The FTA will be far more important than any of Korea's accords with any other country or economic bloc. Seoul's action is also designed to prod the United States and Japan either to ratify or sign their FTAs with Korea.
Local electronics and IT makers want this move as a free trade agreement between China and Taiwan will go into effect in June. Talks will last longer than expected as negotiators will encounter impediments.
South Korea must ensure that China improves transparency to protect intellectual property rights.