Seoul and Beijing agreed to renew their currency swap arrangement worth 64 trillion won (US$55 billion) on October 10, fueling guarded optimism for a thaw in bilateral relations. The bilateral relations reached their highest point in 2015 but now dropped to the lowest point ever after the deployment of THAAD (the Terminal High Altitude Area Defense) system in South Korea which incited fierce retaliation in industries of tourism, retailing, and manufacture. The renewal of currency swap arrangement made South Korean officials and analysts think that the deal could lead to improved two-way relations, but most cautioned against reading too much into the pact. Lee Seong-hyon, a China expert at the Sejong Institute, said the currency swap deal could also benefit China as it helps to strengthen the Chinese yuan becoming an international currency. Also, the currency swap arrangement, with the “appearance” of the Chinese government willing to help South Korea, could strengthen Beijing’s claim that the Chinese government is not behind the economic retaliation against South Korea.
Guarded optimism prevails as S. Korea, China renew currency swap deal
SEOUL, Oct. 13 (Yonhap) — The currency swap deal with China is fueling guarded optimism for a thaw in bilateral relations that have taken a hit after South Korea decided to deploy an advanced U.S. anti-missile system on its soil, observers here said Friday.
Seoul and Beijing agreed to renew their swap arrangement worth 64 trillion won (US$55 billion), Bank of Korea Gov. Lee Ju-yeol, accompanied by Finance Minister Kim Dong-yeon, told reporters in Washington on Thursday (local time).
The two are in the U.S. capital for the meeting of the Group of 20 finance ministers and central bank governors, as well as the annual meeting of the International Monetary Fund and the World Bank.
South Korean officials and analysts expressed guarded optimism that the deal, reached on Tuesday, could lead to improved two-way relations, but most cautioned against reading too much into the pact.
“It could be a positive sign,” said Lee Dong-ryul, a professor of Chinese studies at Dongduk Women’s University.
Still, he said it is too early to say that the deal could lead to the lifting of the Chinese economic retaliations against South Korea that began in March.
In September, South Korean President Moon Jae-in said he shares the view that the extension of a currency swap deal is a signal for better relations with China.
On Friday, the presidential office did not make any public statement on the deal in an apparent sign of caution in dealing with the world’s second-largest economy.
A currency swap is a tool for defending against financial turmoil by allowing a country beset by a liquidity crunch to borrow money from others with its own currency.
The bilateral relations reached their highest point in 2015 when Moon’s predecessor, Park Geun-hye, attended a massive military parade in Tiananmen Square in central Beijing, the centerpiece of the 70th anniversary of China’s victory over Japan in World War II.
Park’s high-profile presence gave a boost to China as Western leaders skipped the military parade widely seen as a show of force by a more assertive China.
China — South Korea’s largest trading partner — has halted all tour packages to South Korea and penalized other manufactured goods as part of its retaliation against the deployment of the Terminal High Altitude Area Defense (THAAD) system.
Hyundai Motor and its smaller affiliate Kia Motors saw their combined sales in China tumble 45 percent on-year to nearly 577,000 units in the first eight months of the year.
The number of Chinese travelers to South Korea came to 281,000 in July, a drop of 69.3 percent from a year earlier, according to the South Korean data.
Lotte and Shinsegae — South Korea’s two major retail giants — have closed their stores in China following huge operating losses and opaque business outlook.
Lee Seong-hyon, a China expert at the Sejong Institute, also said it’s too early to tell whether the currency swap deal will translate into better economic ties between the two neighbors.
“From the Chinese perspective, South Korea didn’t fulfill China’s singular demand for the withdrawal of THAAD. There’s no reason therefore for China to give Seoul a favor,” Lee said.
China has repeatedly pressed South Korea to withdraw the missile system, claiming that the deployment could hurt Beijing’s security interests. Seoul and Washington said the anti-missile system is only meant to counter North Korea’s evolving nuclear and missile threats.
Lee said the currency swap deal could also benefit China as it helps to strengthen the Chinese yuan becoming an international currency.
China has been seeking to promote the yuan as an international reserve currency. In 2015, the International Monetary Fund decided to include China’s yuan in a basket of key international currencies in what IMF Managing Director Christine Lagarde said is “an important milestone” in the integration of the Chinese economy into the global financial system.
Lee also said the currency swap arrangement could strengthen Beijing’s claim that the Chinese government is not behind the economic retaliation against South Korea. China portrays it as a purely grassroots movement by consumers.
He said the currency swap is a government-to-government deal and has the “appearance” of the Chinese government willing to help South Korea.
“If South Korea takes China to the World Trade Organization for the unfair THAAD retaliation, China can use ‘this goodwill gesture’ as counterevidence,” Lee said. “I think China got two birds with one stone.”
South Korea didn’t raise issue with China’s trade barriers against South Korean companies during a meeting of the WTO Council for Trade in Services in Geneva earlier this month.