Direct won-yuan trading on the way 

While North Korea is set to top the agenda at talks later today between Chinese President Xi Jinping and South Korean President Park Geun-hye, increasingly close bilateral economic relations won’t be far behind.

There are two main items on the economic to-do list for Beijing and Seoul: speeding up free trade talks and opening won-yuan direct trading.

Both goals would help deepen a growing business and economic relationship between Asia’s biggest and fourth largest economies despite their relatively young diplomatic ties, dating back to 1992. China has been South Korea’s top trading partner since for a decade, absorbing one quarter of South Korean exports. Bilateral trade totaled $266 billion last year, a rise of 7.5% from a year earlier.

 

Seoul’s presidential office said on Wednesday the two countries would sign an agreement to establish a won-yuan direct transaction market after the summit meeting. South Korean officials have said they are aiming for trade to begin before the end of this year.

Goldman Sachs says the creation of direct won-yuan trading has strong mutual benefits, including helping Beijing’s interests in internationalizing the Chinese currency.

“The creation would likely facilitate financial investment by Korea to China in yuan, meeting pent-up demand in Korea for Chinese financial assets,” the investment bank said in a recent report.

Korean firms such as Samsung Electronics Co. and Hyundai Motors Co. are already active investors in China. Samsung started operations in May at a huge memory chip-making plant in Xian, central China. Hyundai is planning to build a new plant in Chongqing in a push to increase its car production. South Korea had a trade surplus of $63 billion with China last year.

Free trade talks between the two sides began in 2012 but have made slow progress due to difficulties in reaching agreement on removing tariffs on sensitive items–agricultural and fishery products for Seoul, and petrochemical, steel and machinery goods for Beijing–according to people familiar with the matter.

“Though it won’t produce a free trade agreement, the summit will help the negotiators speed up their work to strike a deal,” said a Korean presidential aide. South Korea officials hope a deal can be done by the end of the year.

Separately, South Korean media reports say Beijing may call on Seoul to join its planned Asia Infrastructure Investment Bank, a Chinese version of the World Bank. Seoul has yet to make its stance clear in public.

 

Source: wsj

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