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HomeEconomicsThe Limits of China’s Financial Leverage Over South Korea – The Diplomat

The Limits of China’s Financial Leverage Over South Korea – The Diplomat


The Koreas | Economic system | East Asia

South Korea’s economic system is definitely weak to Chinese language financial coercion. However such pressures not often induce international locations to alter their overseas coverage outlook.

South Korea’s financial dependence on China is a well-documented truth. Regardless of Beijing’s determination in 2017 to embargo Korean items and providers as punishment for Seoul’s deployment of U.S. anti-missile batteries, South Korea’s reliance on Chinese language imports has solely grown since then. South Korean trade is especially reliant on Chinese language suppliers for crucial elements akin to large-capacity batteries.

Most Korea watchers in Washington see this financial dependence as a significant vulnerability in South Korea’s nationwide safety amid rising Sino-American competitors. Some, like Cato Institute’s Doug Bandow, go so far as suggesting that the South Korean “shrimp” shall be pressured to ultimately “select” between the U.S. and Chinese language “whales.” This line of considering implies that South Korea, like the USA’ European companions, will certainly fold as quickly as its financial lifeline turns into threatened by bad-faith actors in Beijing.

Nonetheless, such rhetoric doesn’t mirror the precise leverage that China has over South Korea, which isn’t as important as Bandow and others make it out to be. The nation’s economic system is definitely weak to hardship when subjected to Chinese language financial coercion. However such pressures not often induce international locations to alter their overseas coverage outlook. The present worry round Seoul’s financial orientation additionally misses that Washington has the capability to form South Korea’s responses to Beijing.

Circumstances all through historical past present that financial coercion not often works. Randall Newnham’s evaluation of Russo-German relations demonstrates how financial leverage exercised by a wealthier state delivers restricted geopolitical returns. Successive governments in Berlin and Bonn discovered it exceedingly tough to induce favorable conduct from Russia or the Soviet Union through the use of financial incentives. Simply as Chancellor Otto von Bismarck didn’t undercut a burgeoning Franco-Russian alliance by locking Russian bonds out of the German market in 1885, Chancellor Konrad Adenauer was additionally unable to compel the Soviet Union to dismantle the Berlin Wall by imposing a unilateral grain embargo in 1963.

China additionally has a poor observe document of utilizing its financial weight to alter the behaviors of overseas nations. Seoul nonetheless deployed U.S. anti-missile batteries regardless of Beijing’s casual embargo. Albeit painful, these measures additionally didn’t forestall the incoming South Korean administration from contemplating the deployment of further U.S. batteries within the nation. Furthermore, South Korea has continued to bolster its safety alliance with the USA, each militarily, by main naval workouts in June, and diplomatically, by the NATO Summit in Madrid.

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The place coercion fails to capitalize on financial leverage, Newnham argues that optimistic financial reinforcement is extra profitable in fostering adjustments within the overseas coverage outlook of a rustic. However, he qualifies this thesis with extraordinarily particular situations that should exist for the wealthier nation to successfully use its financial benefits. For instance, the Federal Republic of Germany gained the Soviet Union’s consent to soak up the Soviet satellite tv for pc state of East Germany by extending beneficiant loans and normal financial help. The optimistic help was efficient as a result of it befell concurrently with the financial and political collapse of the Soviet Union, which left Moscow extra weak to Bonn’s comparative financial leverage. This case research demonstrates that even when China had been to make use of optimistic inducements, they are going to be ineffective until South Korea is beneath excessive financial duress.

Thus Chinese language makes an attempt to make the most of Sino-Korean financial relations as leverage – whether or not by outright coercion or optimistic inducements – are unlikely to have the impact desired by Beijing and feared in Washington. If something, continued Chinese language financial coercion will almost definitely have the other impact of incentivizing South Korea to align extra carefully with the USA in a extra complete alliance.

The resilience of South Korea-U.S. relations despite Chinese language efforts doesn’t imply, nonetheless, that Seoul and Washington ought to relaxation on their laurels. China is able to inflicting huge financial harm in opposition to South Korea, even when that coercion is unsuccessful. And though financial stress not often yield favorable outcomes for the instigating nation, international locations on the receiving finish can extra simply face up to it once they have companions who can substitute the financial position of the coercive actor. Newnham cites that Bismarck’s makes an attempt to make use of coercive financial insurance policies in opposition to the Russian Empire within the late nineteenth century failed decisively as a result of Russia was in a position to fall again on French help.

This the place the USA holds the initiative in shaping the geopolitical realities within the Indo-Pacific. Recall that the Trump administration’s hesitance to assist its allies weakened U.S. standing throughout Asia, solely rising the area’s expansive financial ties with China. Alongside the identical line of considering, Washington’s proactive assist can extra successfully form Seoul’s risk-and-reward calculation in its engagements with Beijing.

Such a duty is as empowering as it’s daunting. It’s all the extra crucial that Washington understands exactly what South Korea’s financial safety issues are vis-à-vis China. The Yoon administration has put financial safety on the heart stage of its overseas coverage agenda, and proponents particularly title the USA as a key associate. The Biden administration’s willingness to develop multilateral responses to Chinese language financial coercion is due to this fact an encouraging signal for South Korea-U.S. relations. Whether or not future U.S. administrations can proceed to take action shall be crucial not just for safeguarding South Korea’s financial safety, but additionally for persevering with to frustrate the effectiveness of Chinese language financial coercion.

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