The Evolution of China-South Korea Trade

China and South Korea signed the Joint Communiqué on the Establishment of Diplomatic Relations between the People's Republic of China and the Republic of Korea in August 1992，marking the official establishment of diplomatic relations at the ambassadorial level between two countries，the size of China's trade with Korea amounted to around US$5.02 billion，when the United States was South Korea's largest trading partner. Therefore，it’s very understandable that almost nobody had expected the bilateral trade between two sides would achieve leapfrog growth just in a few years. According to the data from the Ministry of Commerce of China，with a year-on-year increase of about 26.9%，the scale of bilateral trade had risen to US$362.35 billion in 2021，which means around 72-fold increase over the past three decades. That figure is also widely regarded as representative of changes in the economic relationship between China and South Korea. At present，China is South Korea's largest trading partner，and South Korea is China's fifth largest trading partner. The achievements in trade cooperation between two nations are extremely rare in the history of global trade.

Changes in the structure of trade

In the early years of the Chinese diplomatic normalization with  South Korea，top export commodities from China to South Korea were minerals，man-made fiber sand grains，characterized by low-technical content and labor-intensive industry，while South Korea's exports to China were mainly steel，plastic chemicals，machinery and equipment，classed as capital-intensive industries. With the adjustment of the economic and industry structures，the content of trade between China and South Korea changed a lot. The proportion of high-tech products from China continues to increase as its high-technology industries and manufacturing becomes more and more advanced. This is obvious in the businesses of semiconductors，it is doubtless that South Korea is maintained its competitive edge，while china’s fast developing in this industry is undeniable. According to a study led by the South Korea international Trade Association (KITA)，there is approximately 16.5% of South Korea's imports from China were semiconductors. The data from Korea Customs Service is also telling the same story，the country had imported about US$27.8 billion worth of products under HS CODE 85 which mainly include electrical machinery and equipment and parts thereof，Television Recorders and so on from China in the first half of 2022，early 24.1 percent increase compared with the same period of the previous year.

The structure of settlement currency has changed considerably. At the beginning days of the establishment of diplomatic relations between China and South Korea，the RMB internationalization has not yet started，and the won is also not an international currency. As a consequence，the US dollar was once the only settlement currency between China and South Korea’s trades for many years. The situation changed since 2009 of which is widely acknowledged as the beginning year of RMB internationalization. In 2010，a trading company located in Shanghai bought goods from a Korean company，RMB was chosen as for settlement tool in the transaction，marking the beginning of RMB settlement between China and South Korea. After that，the RMB started to play an increasingly significant role in cross-border payments between the two sides，and the transaction volume of RMB raised quickly. At the same time，the proportion of US dollars has been declining. According to the statistics released by the Bank of Korea，the country’s central bank，although the US dollar is still the largest settlement currency used in China- South Korea trade，RMB has become the second largest currency in trade between China and South Korea by proportion of settlement at around 7% in South Korea's export trade to China，and in settlement of South Korea's import from China，the RMB accounted for about 6.4% by 2021.

Just like most international trade through history，methods of payment in trade between China and South Korea was Letters of Credit. The condition was gradually develops to TT-based in recent years. As one of the most secure instruments available for international trade，Letters of Credit (LC) used to be the main settlement method for South Korea's foreign trade，hence t is natural that the LC were broadly used in China-South Korea trade due to the considerations of security in the 1990s. However，things have changed，it is estimated that about 59% of South Korea's exports to China now are using TT settlement，and about 68% of South Korea's imports from China adopted TT as method of payment. It is worth noting that new trade models such as cross-border e-commerce，new offshore trade developed so quickly in recent years. According to the report released by China International Import and Expo，in 2021，South Korea is one of the top three exporting countries to China through cross border e-commerce.

Background for the recomposition of trade

Both China and South Korea are major global trade players. Both of the two countries fully recognized that the trade is critical to prosperity by providing jobs，fueling economic growth and improving living standards at home，taking various measures to exploit global market. In the past three decades，the trade between China and South Korea has been maintained rapid growth rate backed by some good reasons.

Start with the bilateral relations. The stable and harmonious relationship between China and South Korea has provided a good external environment for the development of China-South Korea economy and trade. Throughout the history，the trade between China and South Korea was almost zero before the normalization of diplomatic relations. Nonetheless，soon after the establishment of diplomatic relations，the trade between the two countries began to take off. In 1992，China and South Korea successively signed the China-Korea Investment Protection Agreement，the China-South Korea Trade Agreement，and the China-Korea Science and Technology Agreement，providing a basic institutional framework for China-South Korea economic and trade cooperation. Five years later，China-South Korea relations were recognized by the two countries as a 21st century-oriented partnership，which was successively upgraded to 21st century-oriented comprehensive partnership and China-South Korea strategy partnership in 2003 and 2008. In 2013，China and South Korea issued the China- South Korea Joint Statement on the Future，which pushed the bilateral relationship one step further. The two countries implemented the China-South Korea Free Trade Area in 2015 brought positive element on trade. The two countries officially entered into the Regional Comprehensive Economic Partnership (RCEP) in 2022，which provided new momentum for China-South Korea trade. Even though some issues are still to be solved between the two sides，China-ROK relations have been kept improving over the past thirty years through mutual cooperation which laid a solid foundation for the development of China-Korea economic and trade development.

Second，people in both countries generally admit the positive effects that the research and development mutual (R&D) had on their industrialization and modernization，innovation and