The formal signing of the China-South Korea free trade agreement (FTA) will further enhance economic cooperation between the two neighbors as the free trade accord will facilitate a productive competition, experts said.
Chinese Commerce Minister Gao Hucheng and his South Korean counterpart Yoon Sang-jick formally signed the bilateral FTA in central Seoul Monday, three years after the two countries began talks on the deal in May 2012.
After Chinese President Xi Jinping's state visit to Seoul in July 2014, negotiations on the free trade pact made fast progress. President Xi and his South Korean counterpart Park Geun-hye announced the conclusion of substantive negotiations on the deal in Beijing in November 2014, and the two nations initialed the FTA three months later. "The formal signing means a signal flare to more deepened economic cooperation between the two nations,"Han Jae-jin, senior research fellow at the Hyundai Research Institute, said in an interview.
Han said South Korea seemed to have joined all China-led global projects for economic integration, including the Asian Infrastructure Investment Bank (AIIB) as well as the bilateral FTA, to go together with the Chinese economy, one of the world's fastest growing economies.
The implementation of the FTA was expected to intensify competition between companies of the two countries as China has been changing its focus from labor-intensive industries to technology-innovative ones. Competitiveness of Chinese manufacturers was forecast to advance at a fast pace in terms of technology, management and finance. "China's attention is moving from low value-added industries to high value-added ones like IT and chips where competition will get fiercer between South Korean and Chinese companies,"said Han.
The researcher, however, said that the two economies can advance together, while competing with each other, as" opportunities will come together with the crisis."
China's Xiaomi, Huawei and Lenovo were increasingly eroding the market shares in the global smartphone market of Samsung Electronics and LG Electronics, South Korea's tech giants. There were many Chinese companies going global and competitive such as the Alibaba Group.
After the bilateral FTA comes into force, Chinese firms could make inroads into the South Korean market through mergers and acquisitions (M&A) to secure higher technological competitiveness and brand value of South Korean companies.
South Korean firms can take the free trade pact with China as an opportunity for making a foray into the world's largest consumer market. The FTA would further open Chinese markets, and South Korean firms would face eased regulations. "South Korean companies should see the Chinese market as a place where they compete with Chinese and global companies in high-tech industries, not as a place where they can manufacture products with low labor costs,"said Han.
The researcher said that South Korean companies could succeed in the world's No.1 consumer market only when preparing for the changing trend in China toward high value-added, innovative industries and consumer demand for higher-quality products.
Jee Mansoo, research fellow at the Korea Institute of Finance ( KIF), said that the formal signing of the bilateral FTA drove China and South Korea into a closer relationship economically, but he cautioned that benefits from the deal may be lower than expected given the narrower width of liberalization and the slower pace of opening compared with other free trade accords.
Under the accord, South Korea will eliminate tariffs on 92 percent of all products from China within 20 years after the FTA implementation in return for China abolishing tariffs on 91 percent of all South Korean goods.
Other free trade deals tend to eliminate tariffs on as much as 99 percent of all products within five years after the implementation.
Jee, however, noted that the low-level of FTA between China and South Korea would reduce possible damages to farmers and industries of both countries, adding that it would be affordable FTA for people of the two nations.