Macro-finance Salon (No. 131) and China-Korea Economic, Financial and Trade Cooperation Seminar

On the morning of November 13, Macro-Finance Salon (No. 131) and China-Korea Economic, Financial and Trade Cooperation Seminar, co-hosted by IMI and Korea Institute for International Economic Policy (KIEP), was held in Renmin University of China. Il Houng Lee, Member of Monetary Policy Board, Bank of Korea, Sungbae An, Director of the International Macroeconomics and Finance Department of KIEP, and Dr. Kyu Yub Lee, Research Fellow of KIEP, respectively delivered speeches on China-Korea cooperation in finance, economy and digital trade. Wei Benhua, Former Deputy Administrator-in-bureau, SAFE and Former IMF Executive Director for China; Ben Shenglin, Co-director of IMI, Founder and Dean of Zhejiang University Academy of Internet Finance, and International Business School; Zhao Xijun, Associate Dean, School of Finance, RUC; Tu Yonghong, Deputy Director of IMI attended the meeting and made comments. The meeting was chaired by Zhang Zhixiang, Former Director-General, International Department, PBoC and Former IMF Executive Director for China. In his opening speech, Ben Shenglin first thanked the KIEP guests for their visit on the occasion of the 10th anniversary of IMI. He said the important progress made in the negotiations on the Regional Comprehensive Economic Partnership (RCEP) in the Asia-Pacific region is a major and positive sign for regional and global economic development, given the uncertain prospect of China-US trade frictions. The establishment of a free trade area covering nearly half of the world’s population and nearly one third of the world’s trade volume will bring new development opportunities for the global economy. At present, China-Korea economic and trade exchanges have entered a “321” era in which bilateral trade exceeds $300 billion annually, direct investment exceeds $200 billion, and personnel exchanges exceed 10 million. Further promoting China-Korea exchanges and cooperation and East Asia regional integration are of great significance to promoting regional economic growth and globalization. Dr. Il Houng Lee delivered a speech entitled “China-Korea financial cooperation”. He pointed out that the dollar had dominated the international monetary system since the First World War, both as a reserve currency and a payment currency. Currently 60% of the world’s debts are denominated in dollars. Dollar liquidity in the market, therefore, plays an important role in global payment system operation. It also means Federal Reserve policies have stronger spillover effect. Reviewing the cooperation between China and Korea, the share of bilateral trade settled in RMB has been stable since 2016. Due to the narrow bid-ask spread, the implementation of preferential policies, the won against the RMB exchange rate has risen. Dim sum bond issuance and RM accounts by Korean companies are sensitive to market price. This suggests that with the infrastructure in place, markets begin to play an important role in determining the use of money. Finally, he noted that Asian countries still needed to build a more stable financial safety net through bilateral exchanges. The international monetary system needs more diversified anchor currencies, with digital currency as an option. Although the use of digital currency still faces challenges, it can be used as a reserve currency similar to SDR. Wei Benhua pointed out in his comments that although China’s economic growth rate dropped to about 6%, it was still very high in the world. China has a solid economic foundation and a large share in international transactions. China will learn experience of Korea’s early economic transformation and deepen economic reform to go through the economic transition period. The theme of Dr. Sungbae An's speech is economic cooperation between China and Korea. He stressed that China is Korea's main export destination, and the total value and share of goods exporting to China are constantly expanding. In recent years, Korea has gradually lost its traditional competitive edge, such as price advantage, in the international trade market. Korea has shifted from a heavy industrial products exporter to a main exporter of electric cars, batteries, biomedical products and so on. Great changes have taken place in the types of goods imported and exported from Korea to China, the scale of trade and the bilateral FDI as well. Sungbae An also touched upon the division of global value chains (GVC) and the cross-border production composed by simple GVC and complex GVC. As China becomes stronger, its role in the global value chain has shifted from processing and exporting final products to that of intermediate products, namely, from simple GVC to complex GVC. China has done better than Korea in this respect. Through the cooperation of global value chains, China has contributed to the growth of Korea's GDP. In the end, Sungbae An concluded that the economic cooperation between China and Korea can be reinforced through three aspects: service industry, high-tech industry and multilateral free trade agreement. Professor Tu Yonghong expressed her approval in this respect. Among the changes in the structure of China's trade with the United States, the export of high-tech products has risen exponentially, mainly due to international investment, imports of high-tech raw materials from the United States, and the growth of its own GDP. She also believes that the priority in the future is to strengthen direct investment between China and Korea, reform the industrial structure of the two countries, and establish closer ties, especially in electronic products and medicine. In terms of trade cooperation between China and Korea, Dr. Kyu Yub Lee emphasized the cooperation between China and Korea in digital economy and e-commerce. As the Internet develops, the flow of data is increasingly important. It’s worth noting that, the number of patents applied by China has increased a lot in recent years, surpassing many other countries. The quality has also been improved, mainly reflected in artificial intelligence (AI) technology, big data and so on. It’s fair to say that China has gained the strength to rival with the United States. One of the reasons why China's technology is taking such a big stride is its huge investment in research and development, which is second only to the United States. China accounts for a large share of the number of publications in major scientific research areas, and the amount is increasing faster and faster. China also has the largest e-commerce market in the world, while Korea ranks only sixth in B2C e-commerce sales. Kyu Yub Lee believes that China, Japan and Korea need to establish a common e-commerce market, which, once completed, will create great value. Professor Zhao Xijun quoted the data from the report on the Internet and e-commerce to illustrate the vigorous development of the digital economy in China and its huge contribution to the GDP. He stressed that in China, governmental policy plays a very important role. If China and Korea want to cooperate and expand bilateral trade, they need to start with the introduction and implementation of relevant policies. In doing so, there will be more potential opportunities for cooperation between China and Korea in the future.

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