South Korean President Moon Jae-in made a state visit to China from December 13 to 16. The significant visit marks a new turning point for economic cooperation between the two neighboring countries. On October 31, Seoul and Beijing agreed to patch up their differences over the deployment of the Terminal High Altitude Area Defense or THAAD system in South Korea and to put their strained relations back on the right track. Bilateral economic relations have since made some progress, but it is hard to say that they have fully been restored. Here is Cho Yong-chan, director of the America China Economic Research Institute, to explain the outcome of the South Korean president’s latest China visit, which signals the beginning of normalizing bilateral ties.

Moon’s four-day state visit to China is his first trip to the country since taking office in May. South Korea stressed the need for restoring mutual trust and relations that had worsened due to the THAAD dispute, while China evaluated the visit as a new beginning. Before his trip to China, Moon expressed his determination to ease bilateral conflict and build a constructive and future-oriented relationship. Following the South Korean president’s China visit, the two nations will expand their economic cooperation to other areas such as politics, security, culture and personnel exchanges. They produced substantial outcomes in economy, trade and investment, in particular. For instance, the two sides declared the start of negotiations on expanding their free trade agreement to include the service and investment sectors. They also discussed how to jointly nurture promising start-ups related to the fourth industrial revolution and touched on the fine dust issue as well. South Korea will hopefully be able to host the PyeongChang Winter Olympics next year under clear skies, free of fine dust.

President Moon and his Chinese counterpart Xi Jinping held a summit on December 14 and intensively discussed ways to restore bilateral relations that had been at their lowest ebb since the THAAD conflict erupted. The two heads of state agreed on four principles to secure peace and stability on the Korean Peninsula and to expand cooperation to politics, diplomacy and security. On the economic front, the two leaders promised to resume suspended cooperation projects and expand investment. They will also work together to reduce fine dust levels and prepare for the fourth industrial revolution. It is worth mentioning that the two sides declared the start of additional FTA negotiations over service and investment areas.

When Seoul and Beijing signed a bilateral FTA in 2015, the two sides stopped short of fully opening the service market. As a result, China has taken retaliatory measures against South Korea in the service area such as tourism, culture, content and logistics, taking issue with the THAAD deployment. Since early last year, South Korea had repeatedly demanded for additional negotiations on the service sector, but China refused to accept it. But following the normalization of bilateral ties, the two nations have now declared the start of the negotiations, two years after their FTA took effect. If the additional negotiations facilitate the opening of the Chinese service market, the market size will amount to 1 trillion US dollars in 2020, while the Chinese consumer market worth 5,000 trillion won or about 4.2 trillion US dollars will open. Currently, the Chinese market is open only in a limited way. But if the market opens more widely, South Korean companies related to well-being, environmentally-friendly products, finance, medicine and cultural content will be able to quickly advance to a niche market in China.

The South Korea-China FTA, which came into effect on December 20, 2015, focused on eliminating tariff barriers for goods. The two sides had agreed to hold separate negotiations on service and investment sectors later, with South Korea having an edge over China in these areas. But talks have stalled due to the THAAD conflict. Fortunately, the negotiations will likely gain traction following the South Korean president’s China visit. The two countries will deal with hallyu content, including dramas, music and games, and IT services involving e-commerce, logistics, tourism, finance and medicine in their negotiations to be held early next year. Depending on the result of the negotiations, South Korea could open the door of the Chinese service market that reaches 1 trillion dollars. President Moon’s China visit is also raising expectations for China’s “One Belt, One Road” project.

Chongqing is the foothold of the so-called “One Belt, One Road” initiative that has been aggressively pushed by President Xi since he came into power. So, the South Korean president’s recent visit to the city indicates his consideration of the Chinese leader’s ambitious project. The “One Belt, One Road” project covers some 60 countries. The GDP of the huge market with a population of 4.4 billion amounts to 21 trillion dollars. The construction of roads and railways in the region will lead to the creation of an enormous economic bloc in Eurasia. The envisioned bloc is expected to strengthen cooperation among involved countries and realize co-development. At present, there are plans to construct cargo trains connecting China with the Middle East as well as roads and railways linking all the way to Europe by way of Central Asia. The new railways will reduce the cargo transportation time between Seoul and Europe to less than two weeks. Transportation costs will also decrease from the current 9,000 dollars per freight car to 6,000 to 7,000 dollars. Trade barriers will be lowered and there will be more investment opportunities as well.

President Moon visited Chongqing on December 15, the third day of his China trip. His visit to the industrial city, which is a hub for President Xi’s trademark “One Belt, One Road” project, contains a message of stronger cooperation between the two nations. As this initiative has a similar purpose as Moon’s “new economic vision for the Korean Peninsula,” the two nations agreed to develop specific cooperation measures during the bilateral summit. As the project proceeds as discussed, South Korea can participate in China’s “One Belt, One Road” program, which is the worlds’ largest construction project of the 21st century. By taking part in the project of recreating the Silk Road by connecting land and sea ports, South Korean companies will be able to approach a wider market. Given the great significance of Moon’s China visit, a large-scale economic delegation accompanied the president.

The largest-ever economic delegation of 260 companies and groups went to China with the president. China is South Korea’s largest trading partner, but the massive delegation reflects President Moon’s view that the role of businesspeople is highly important to restore economic relations between South Korea and China in a pragmatic way. Samsung will invest 7 billion US dollars in its semiconductor business in China, while LG Display will also spend 4.4 billion dollars to build its production line in China. South Korea and China signed a memorandum of understanding or MOU in the manufacturing area. In finance, the Korea Development Bank and the Industrial and Commercial Bank of China signed an MOU for currency swap. The Export-Import Bank of Korea and its Chinese counterpart also concluded an MOU for joint support for infrastructure. Overall, the economic delegation paved the way for cooperation between the two countries.

The South Korean economic delegation announced various investment plans and signed MOUs. The positive development is expected to accelerate the thawing mood between South Korea and China, which has been noticeable since the two nations announced that they would normalize their relations. The business community in Korea is looking forward to a progress in South Korea-China relations and speeding up its efforts to explore the Chinese consumer market. Among others, the gaming, cosmetics and tourism industries are most enthusiastic. These industries have been hit by China’s ban on hallyu or South Korean pop culture since Seoul’s decision to install the THAAD system. They are now preparing for a variety of events to appeal to Chinese consumers. But experts are saying that South Korea shouldn’t be too optimistic, since the two countries still have differing views on the THAAD issue.

The recent South Korea-China summit is believed to put an end to bilateral conflict to some degree. But when it comes to North Korea-related issues, China and the U.S. have different opinions. China could retaliate against South Korea, the ally of the U.S., again at anytime. It seems necessary for South Korean manufacturers to advance and differentiate their products so their Chinese rivals can’t catch up with them. The tourism industry involving group tours from China was called an industry without a chimney. But it turned out only duty free shops benefited from the Chinese group tourists. Hotels, restaurants, general shopping malls and the chartered bus industry haven’t seen much profit, due to excessive competition. Korea should learn a lesson from China’s economic retaliation over the THAAD problem and sharpen the competitiveness of the tourism industry by strengthening its institutional mechanism.

President Moon’s China visit has helped restore mutual confidence between South Korea and China and laid the foundation for dialogue and cooperation. Based on that, the business community should produce positive results. The two countries have built the basis for future relations, putting the THAAD issue behind them. They should hopefully move toward a new era of development and cooperation together.