China Plans Talks With Japan, Korea on Free-Trade Area

The leaders of China, Japan and South Korea agreed to start negotiations this year on a free-trade accord between three of Asia’s four biggest economies.

China’s Premier Wen Jiabao, Japanese Prime Minister Yoshihiko Noda and South Korea President Lee Myung Bak met in Beijing yesterday as their trade ministers signed an investment agreement described as the “first legal document on trilateral cooperation in the economic field.”

The establishment of a free-trade pact will unleash the economic vitality of the region and give a strong boost to economic integration in East Asia, Wen said yesterday, according to a pool report. China has proposed coastal Shandong province as its base for a regional economic cooperation zone, Wen said, with Japan and South Korea to nominate appropriate locations of their own.

Cooperation among the three nations is “very important” to ensure that the Asia-Pacific region is the growth center of the world, Japan’s Noda said, according to the pool report. South Korea’s Lee, referring to economic problems facing the U.S. and Europe, added: “In times of crisis, if countries, for their own survival, carry out protectionist ideas, then the recovery of the economy will take a long time.”

A free-trade accord would bring together a market of more than 1.5 billion people. Closer economic and trade ties may also help defuse political mistrust in the region, a legacy of Japan’s invasion of China and the Korean peninsula in the early 20th century.

‘Comprehensive Framework’

The agreement would expand trilateral and bilateral trade and investment and provide “a comprehensive and institutional framework in which a wide range of trilateral cooperation would evolve,” the trade ministers of the three countries said in a joint statement May 12.

The global financial crisis isn’t over and the prospects for Europe’s debt issues aren’t clear, Wen said at the summit, according to the pool report. The Northeast and East Asian regions are faced with a lot of unstable elements that are difficult to predict, he said.

China welcomes Japan and South Korea expanding their investment in China and hopes they will be the primary destination for China’s investment, Wen said, according to the pool report.

North Korea

One pressing task for the region is to prevent tensions on the Korean Peninsula from escalating, Wen said. The three countries won’t accept further provocations or more nuclear tests from North Korea, South Korea’s Lee and Japan’s Noda said, according to the report.

Trade between the three countries rose to $690 billion in 2011 from $130 billion in 1999, according to a research report released by China’s Foreign Ministry on May 9.

“Closer cooperation between the three nations will not only be conducive to the development of each country itself, it will also boost the East Asian integration process and add drivers to world economic growth,” the report said.

China is the largest trading partner of Japan and South Korea, the report said. Japan and South Korea are China’s fourth- and sixth-largest trading partners respectively, according to China’s Ministry of Commerce.

No ‘Smooth Sailing’

“It will boost regional economic integration, industrial cooperation and technology advancement,” Wang Shenshen, an economist at Okasan Securities Co. in Tokyo, said before the announcement. “It won’t be smooth sailing to reach a final deal as it will encounter domestic opposition in each country.”

Chinese manufacturers may face challenges from imports of goods from South Korea and Japan, and South Korea’s agriculture industry may put up a fight, Wang said. Political turmoil in Japan is another uncertainty, she said.

China and South Korea announced on May 2 that they are starting negotiations on a bilateral free-trade agreement, a deal that South Korea’s finance ministry estimates would boost the nation’s economic growth by as much as 3 percentage points and create as many as 330,000 jobs over a decade.

China has free-trade agreements with 10 economies including New Zealand and Singapore, according to the Commerce Ministry’s website. The nation, the world’s biggest exporter, is negotiating deals with countries including Iceland and Norway, the ministry said.

China and Colombia have started to research the feasibility of setting up a free-trade zone, the ministry said this month.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net; Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editors responsible for this story: Paul Tighe at ptighe@bloomberg.net; Paul Panckhurst at ppanckhurst@bloomberg.net

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