Research On The Causes And Measures Of China-South Korea Trade Imbalance

Trade between China and South Korea has developed at an unprecedented speed ever since the two countries established diplomatic ties. However, along with the growth of trade, the trade imbalance has become more and more severe. By the end of 2005, China's accumulated trade deficit with South Korea has reached to 173.19 billion U.S. dollars which surpassed China's total export to South Korea. China has become Korea's largest source of trade surplus. The trade imbalance has become the biggest problem of the trade development of the two countries. It is now a big concern of the two governments and it needs to be resolved.At first, this thesis describes the current situation of China's deficit with South Korea. Then it analyzes the causes of the deficit and the impacts U.S has on China in making trade policy. At last, the thesis gives several policy proposals on Chinese trade policy. This paper consists of four parts. The first part gives a general idea of the trade imbalance existing between China and South Korea. The second part focuses on the three main causes of the deficit, deficit caused by differences in the structure of import and export commodities, deficit caused by South Korea's direct investment in China, and deficit caused by Korean trade protectionist measures. The third part makes an analogy of the role U.S plays in China-U.S trade relationship and the role China plays in China-South Korea trade relationship. It draws to a conclusion that China can learn from the American policy-making mechanism which is based on game theory and applies it in China-South Korea trade relationship. In the last part, the thesis gives some policy proposals to Chinese government. It proposed the establishment of China-South Korea FTA will serve as a long-term solution to the current trade deficit. Based on the analysis of the feasibility and the economic effects of the establishment of China-South Korea FTA, it is believed that the FTA will bring huge gains on production capacity and trade volume to both countries. Also, the FTA will urge the two sides to speed up investment liberalization process in order to promote industrial restructuring and upgrading. The FTA will help eliminate trade barriers between the two countries. Finally, the FTA should be built step by step beginning with the trade facilitation of the two countries. This paper mainly uses the method of empirical analysis and analogy. It does a deep research on China-South Korea trade deficit and makes a thorough examination of the causes and measures. The thesis gives a fresh perspective that China can learn from the game theory based American policy-making mechanism and that apply it in China-South Korea trade relationship. In this thesis, the trade facilitation is regarded as the first step toward the establishment of China-South Korea FTA. It is believed that this thesis is helpful and significant for the respect of building a long healthy trade relationship between China and South Korea.