Economic relations between the Republic of Korea (henceforth Korea) and the People’s
Republic of China (henceforth China) have been expanding ever since China undertook
the Four Modernization reforms in the late 1970s. Ever since then, bilateral trade
between the two countries has been growing steadily in terms of both the volume and
the variety of goods traded. Capital flows between the two likewise have been
increasing although the flows have been mostly from Korea to China and in the form of
direct investment. Between 1989 and 2000, for instance, Korea’s merchandise exports
to China grew from $213 million to $18.4 billion while China’s merchandise exports to
Korea grew from $3.9 million to $11.3 billion (ICSEAD 2002). In fact, China has now
emerged as Korea’s third largest trading partner in the world. Also, by the end of 1999
Korea had invested $4.3 billion in China where it had virtually no investment before the
late 1970s, and in the year of 2000 alone Korea invested $307 million in China (China
Statistical Press 1999, and Lee 2001). These increases in both trade and investment are
signs of growing economic interdependence and integration of the two economies,
which, we expect, will further economic growth in both countries.