Trade, Investment and Economic Integration of South Korea and China

The emergence of China has had a significant effect on the Korean economy. China is now the largest market for Korean exports and an important supplier of its imports. It has also become a serious challenger of Korea in the global markets for manufacturing exports. This paper investigates the effect of the rapid industrialization of the Chinese economy on its export structure and the bilateral trade between the two countries and examines the role that Korea's investment in China has played in transforming the export structures of the two economies. It presents evidence of increasing trade in parts and components and expanding production networks spanning the two economies. The paper concludes with a discussion of the prospects for future economic integration of China and Korea.