Korea’s Direct Investment in China and Its Implications for Economic Integration in Northeast Asia

wish to thank participants in the conference, especially Chang-Soo Lee, Kazutomo Abe, Woonki Sung, Masaru Umemoto, and Ronald Jones for their helpful comments on the paper. 1 Economic relations between the Republic of Korea (henceforth Korea) and the People’s Republic of China (henceforth China) have been expanding ever since China undertook the Four Modernization reforms in the late 1970s. Ever since then, bilateral trade between the two countries has been growing steadily in terms of both the volume and the variety of goods traded. Capital flows between the two likewise have been increasing although the flows have been mostly from Korea to China and in the form of direct investment. Between 1989 and 2000, for instance, Korea’s merchandise exports to China grew from $213 million to $18.4 billion while China’s merchandise exports to Korea grew from $3.9 million to $11.3 billion (ICSEAD 2002). In fact, China has now emerged as Korea’s third largest trading partner in the world. Also, by the end of 1999 Korea had invested $4.3 billion in China where it had virtually no investment before th