[NSP Report 62] Changes in Sino-US Relations and Korea's Future Diplomatic Tasks

Jeon Jae-sung

Professor of Political Science and International Relations, Seoul National University; Director of the Center for Asian Security Studies, East Asia Institute. He graduated from the Department of Diplomacy, Seoul National University, and obtained a Ph.D. in Political Science from Northwestern University in the United States. He subsequently served as an Assistant Professor in the Department of Political Science and Diplomacy at Sookmyung Women's University. His recent publications include "Is Politics Moral?", "East Asian International Politics: From History to Theory," and articles such as "A Critical Examination of Postmodern and Realist Critiques of Constructivist International Relations Theory," "The Rise of Great Powers and Response Mechanisms: Theoretical Analysis and European Cases," and "A Theoretical Study on the Emergence of International Political Modernity in Europe."

Joo Jae-woo

Professor of Chinese Politics and Diplomacy, Kyung Hee University. Professor Joo Jae-woo received his B.A. in Political Science from Wesleyan University and his M.A. and Ph.D. in International Relations from Peking University in China. He has served as a visiting scholar and researcher at numerous domestic and international institutions, including the Korea Institute for International Economic Policy, the Institute of East and West Studies at Yonsei University, the Institute for National Security Strategy, the National University of Singapore, National Chengchi University in Taiwan, and the Sigur Center for Asian Studies at George Washington University in the United States. From 2002 to 2005, he also worked as a columnist on Korean Peninsula issues for Asia Times Online (www.atimes.com). His recent publications include the book "China's Foreign and Security Policy towards North Korea and Trade Strategy" and articles such as "China’s Relations with Latin America: Issues, Policy, Strategies, and Implications," "Ideas Matter: China’s Peaceful Rise," "Mirroring North Korea’s Growing Economic Community Building," "China's Strategic Options for North Korea's Collapse," and "Sino-Russian Energy Security Cooperation and Korea: Focusing on Transportation Issues."

I. Introduction

The changes in the balance of power among East Asian countries, in the short term from the 2010s and in the long term over the first half of the 21st century, will be one of the most significant factors influencing the transformation of the East Asian regional order. Because the East Asian regional order remains a balance of power system where order is shaped by power in the absence of multilateral cooperation mechanisms, the distribution of national power among states is crucial compared to other regions, especially those where multilateral cooperation is established, such as Europe.

China's rise, which has become more evident since the mid-1990s, is the key factor driving changes in the East Asian balance of power. Since achieving rapid economic growth of over 9 percent annually after its reform and opening-up, China has become the largest economy in East Asia and is emerging as a G2 country comparable to the United States in the process of shaping the global order. As accumulated economic strength transfers to military and cultural spheres, China's influence will gradually expand not only in East Asia but also globally, and in this process, China will redefine its so-called core interests and seek to utilize various policy resources to promote them.

Separate from China's growth, the decline of US hegemony is also a very important variable in the East Asian regional order. After World War II and the Cold War, the United States established itself as a key actor in the East Asian order by maintaining a network of alliances and close economic relations in East Asia until the post-Cold War era. Although the US unipolar system seemed to be established after the end of the Cold War, the foundations of US hegemony have been severely weakened by the 9/11 terrorist attacks, subsequent criticisms of US hegemony, and the economic crisis of 2008. Following the decision in 2011 to cut defense spending by $487 billion over the next decade, the United States is signaling changes by comprehensively readjusting its defense strategy and financial plans. Projections suggest that the US strategy of primacy or hegemony, which shifted to a strategy of selective engagement based on multilateralism, is now moving towards a strategy of retrenchment.

The decline or replacement of hegemony is a relative game. The absolute weakening of US power and the absolute increase in Chinese power do not necessarily mean a replacement of hegemony. While the narrowing gap in national power between the US and China presents many challenges for the diplomatic tasks of East Asian countries and Korea, a shift in hegemony between the US and China would ultimately be a major event impacting the East Asian regional order. It is necessary to analytically distinguish what kind of change the power shift between the US and China will lead to.

In addition to the US and China, Russia and Japan, two other important actors in East Asia, are also experiencing changes in their national power, albeit to a lesser extent than the US and China. Russia has continued to recover its economy based on oil, is striving to create new growth engines, and is accelerating the strengthening of political leadership since President Putin's election. Recently, it has been emphasizing the strengthening of its relations with East Asia, economic ties with China, and active intervention in Northeast Asian international politics, and sought to highlight Russia's importance by hosting the Asia-Pacific Economic Cooperation (APEC) summit in Vladivostok in 2012. In contrast, Japan is facing numerous difficulties, including a prolonged economic slump, unstable political leadership, the long-term threat of an aging population, and power shortages following the 2011 Fukushima disaster, rapidly losing its status as an economic powerhouse. It has even ceded its position as the world's second-largest economy in terms of Gross Domestic Product (GDP) to China and is focusing on regaining national strength.

Therefore, the question of how changes in the balance of power among East Asian countries will bring about changes in the East Asian order, and how this will shape Korea's diplomatic strategy agenda, is a very important issue. Changes in the balance of power will act as a common important variable across diplomatic issues in various fields such as politics, military affairs, economy, and socio-culture. Will the post-Cold War US unipolar system shift to a bipolar confrontation between the US and China, ultimately result in a Chinese hegemonic structure, exhibit a pattern of cooperation and competition in a multipolar system, or will a multilateral cooperation framework be established to overcome the realist balance of power? Ultimately, the East Asian order designs of the United States and China will be the most crucial factors, and the final outcome of the power transition will be a matter of concern for all countries in the East Asian region. The US and China, after repeating cycles of conflict and cooperation, have entered into a structural competition since their summit in January 2011 to fully realize their respective desired East Asian order architectures. For Korea, as a nation on the front lines of direct competition between the US and China and the structural tensions surrounding their architectures, it is imperative to make every effort to ensure the continuation of peaceful and developmental competition and cooperation.

II. China's Rise and the Shifting US-China Balance of Power

While numerous factors influence the East Asian order, the differential pace of national power development among states is the most critical element. In a system dominated by the logic of the balance of power, the relative pace of national power development leads to changes in the system's attributes. Currently, the most prominent phenomenon in terms of absolute national power changes in East Asia is the enhancement of China's national power, with significant improvements in economic and military strength in terms of GDP and defense spending. In relative terms, China's GDP ranked sixth globally in 2000 and fifth in 2005, trailing Japan, which held the second position. However, since 2010, China has surpassed Japan and maintained its second-place ranking. In terms of defense spending, it has already become the second-largest spender, surpassing Japan. More importantly, the gap with the United States is narrowing, and it is projected that China will not only overtake the US in GDP around the mid-2020s but also experience a similar trend in defense spending given the current US trend of defense budget reductions.

However, the phenomenon of China's rise, when analyzed, encompasses concepts that have become important in 21st-century international politics, such as soft power, trends in power resources, structural power in international politics, and changes in state strategies. Therefore, the extent to which China's economic and military power growth will bring about changes in the regional order requires further analysis.

1. Economic Development

Since its economic reform and opening-up in 1978, China has maintained an average economic growth rate of over 9 percent. Even after the 2008 economic crisis, it has recovered rapidly compared to other countries and is projected to continue growing at over 5 percent annually. China's surpassing of Japan's GDP in 2010 to become the world's second-largest economy holds symbolic significance, indicating that China has once again surpassed Japan economically in East Asian international politics since the Sino-Japanese War of 1894. After surpassing Germany to become the world's third-largest economy in 2007, China overtook Japan again within three years. In 2010, China's economy was valued at $5.588 trillion, which is 38 percent of the United States' $14.84 trillion. However, according to International Monetary Fund (IMF) projections, by 2015, China's economy is expected to reach $10 trillion, approaching two-thirds of the US economy's projected $18 trillion. In terms of per capita GDP, China's $4,170 remains at the level of a lower-middle-income developing country, compared to the US's $47,920.

However, when measured by purchasing power parity (PPP), China's GDP is approximately $9 trillion, already reaching 60 percent of the US level. Even at international market exchange rates, the gap in market size between the two countries is narrowing, from 8.3 times in 2000 to 2.6 times in 2010, and projected to be 2.1 times in 2014. Furthermore, it is conceivable that China will soon catch up to the US in terms of PPP.

Regarding long-term projections, a 2006 report by the Economist Intelligence Unit (EIU), which has been analyzing economic data from countries worldwide since the 1940s, forecast that by 2020, China's GDP based on purchasing power parity would exceed that of the United States ($29.6 trillion vs. $28.8 trillion). Calculated at market exchange rates, China's GDP in 2020 would be $10.1 trillion, significantly less than the US's $28.8 trillion, but still projected to be considerably ahead of Japan's $6.9 trillion and Germany's $5.0 trillion (The Economist Intelligence Unit 2006; Lee Jae-bong 2007).

China's economic rise is also more clearly evident in the economic relationship between the Korean Peninsula and China. Since 1992, trade volume between Korea and China has increased 22-fold over 15 years, reaching $145 billion in 2007, a 22.8 percent increase from the previous year. This is remarkable compared to the 13-fold increase in China's total exports, from $84.94 billion to $1,218.15 billion, during the same period. In 2007, South Korea's exports to China were $82 billion and imports were $63 billion, resulting in a trade surplus of $19 billion. However, the trade surplus has been on a declining trend since peaking at $23.3 billion in 2005 (Choi Eui-hyun 2009).

China's economic rise is also bringing about significant changes in the East Asian economic architecture. The economic integration models in East Asia and the Asia-Pacific region can be broadly categorized as follows: 'Pan-Pacific Economic Integration' promoted by the US centered on APEC, encompassing the Asia-Pacific region; 'Economic Integration of East Asian Countries Only' (East Asianism, or East Asia only grouping) promoted by China centered on ASEAN+3, excluding the US; and 'Pan-Asian Economic Integration' (Pan Asianism) promoted by Japan, which seeks to counter China and includes democratic market economies in the Asian region such as Australia, India, and New Zealand, centered on ASEAN+6 and with the East Asia Summit (EAS) as its nucleus. Among these, economic cooperation centered on ASEAN+3 has seen the most significant development over the past decade, while US-backed economic integration centered on APEC has shown sluggish progress. In particular, East Asian countries have rapidly expanded the level and scope of economic cooperation over the past decade since the foreign exchange crisis of 1997-1998. Notably, while the US was preoccupied with the War on Terror, China rapidly expanded its economic influence in the East Asian region.

As a result of rapid economic growth, China has emerged as the largest trading partner for major Asian countries such as Japan, South Korea, Taiwan, and Australia over the past decade. It has surpassed the United States in trade volume with most Asian countries, excluding the Philippines and Malaysia. In the case of South Korea, trade dependence on China has deepened, with trade volume with China exceeding the combined trade volume with Japan and the US in 2009. Following the global financial crisis of 2008, China has been expanding its regional economic leadership beyond its role as a production network hub in East Asia, leveraging its vast foreign exchange reserves and financial capabilities.

Furthermore, since the late 1990s, China has pursued an aggressive Free Trade Agreement (FTA) policy, concluding FTAs with ASEAN, Australia, New Zealand, Hong Kong/Macau, Taiwan, and Chile, and initiating discussions on FTAs with South Korea and a trilateral FTA among China, Japan, and South Korea, thereby expanding its economic influence.

In this context, the new Asia-Pacific economic integration strategy centered on the US-led Trans-Pacific Partnership (TPP) can be seen as part of the US's policy toward Asia, aimed at blocking the expanding influence of China in the Asian region and strengthening economic ties with Asia. President Barack Obama announced the US's new Asia policy in Tokyo in November 2009 during his visit to Japan, outlining plans to strengthen relations with key allies such as South Korea, Japan, and Australia, as well as ASEAN, and to formalize participation in the East Asia Summit. In other words, the US intends to pursue a new strategy of forming a Free Trade Area of the Asia Pacific (FTAAP) based on the TPP. How China responds to these developments in the future will indicate the direction of China's economic rise...