[Asia Report] "The US-China Economic Value Chain Remains Unbroken"

Half of Korean Investment in Early 2000s Went to Shandong
Qingdao and More Transformed Since China's Opening
Korean Companies Withdrew, Relations Grew Distant
China's Economy Faces Challenges, But 5% Growth Continues
KOTRA Qingdao Director Urges
"Continued Interest for Korea's Economic Future"

The coastal scenery extending from the 5.4 Square in downtown Qingdao (靑島) towards the pier vividly reflects the economic and cultural transformation of Shandong Province since the reform and opening-up.

The gateway to China from Incheon Port has recently changed. In June 2020, during the height of the COVID-19 pandemic, a state-of-the-art international passenger terminal, which cost about 600 billion KRW, was newly opened in Songdo. However, due to China’s strict lockdown policies and the deterioration of Korea-China relations caused by COVID-19, the number of people using this terminal is very small. In the past, large supermarkets around Incheon Port were bustling with Chinese shoppers, but now such prosperity is hard to find. The passenger ship to Weihai (威海), with a capacity of 700, was filled with only about 100 people, mostly Chinese merchants, and Koreans are hard to find.

Shandong (山東) Province is the closest part of China to the Korean Peninsula. Ultra-large cargo-passenger ships regularly operate from Incheon, Pyeongtaek, Gunsan, and other places to Weihai, Shidao (石島), Yantai (煙台), and Qingdao (靑島). Onboard visas, which were previously allowed on passenger ships, have also been blocked, and the visa issuance fees are not insignificant, so few consider traveling to China. The winter sea breeze is cold. The passenger ship that departed at 7 p.m. arrived at Weihai Port by 9 a.m.

◆Deep Ties with Korea

From a tourist’s perspective, Shandong Province’s proximity to Korea is a disadvantage. It takes just about 1 hour and 10 minutes by plane. Because of this, Beijing or Shanghai are the first choices, and businessmen prefer Guangzhou, which has overwhelming industrial infrastructure. However, considering the history since China’s opening, Shandong’s importance is very significant. In the early 2000s, when Korea-China economic exchanges were most active, more than half of South Korea’s investments were made in Shandong, especially in Qingdao. Korea’s development in textiles, shoes, food, and home appliances would not have been easy without Shandong’s labor force. But now, that is a thing of the past. As many businesses withdrew from China, relations have become distant.

Weihai, where the Beiyang Fleet’s main base was stationed in the late Qing Dynasty, is a representative military port of China. It serves as the gatekeeper protecting the capital Beijing and plays a role in checking the Korean Peninsula and Japan. It is a strategically secretive city guarding the Bohai Sea and the West Sea. Evidence of its closeness to Korea can be seen on street signs, where Korean language signs are often visible.

Leaving Weihai, we head to the nearby historic city of Yantai. Famous for its sorghum liquor, Yantai has deep ties with Koreans. At the end of the Goryeo Dynasty, Prime Minister Jeong Mong-ju passed through here on his way to the Ming Dynasty. Just ten years ago, there were hardly any high-speed trains, or even regular trains, but now major areas in Shandong are densely connected by advanced high-speed trains. I booked a Chinese train ticket via mobile from Seoul without any inconvenience, boarded the train at noon, and arrived in Yantai in 30 minutes.

These days, cash usage in China has greatly decreased. In restaurants, orders are placed via QR codes without waiters, taxis are hailed using the online app Didi Chuxing (滴滴出行), and payments are made through mobile systems like Alibaba or Weixin. The most impressive aspect of this trip was the taxi drivers, all of whom were friendly and provided accurate information to foreigners. We headed to Chaoyang Street (朝?街), a representative tourist spot in Yantai. As a city with a treaty port established in 1862, Yantai has many historical sites scattered around, which may explain the considerable number of tourists.

We boarded the high-speed train again and headed to the final destination, Qingdao. The route crosses a peninsula about 230 km away in 1 hour and 15 minutes. Because the distance is short, the high-speed train reached a top speed of 250 km/h before gradually slowing down. China’s high-speed rail network has expanded more densely than we imagined, like a spider web. Since its start in 2008, China’s high-speed rail development has grown to over 40,000 km (South Korea has about 1,000 km), connecting China and the ASEAN continent into a single economic zone. This is called the ‘high-speed rail economy.’ Shandong, located in the heart of the continent, forms the central axis of this high-speed rail economy.

◆From Tourist City to Economic City

Qingdao North Station surprises outsiders with its unprecedented size and splendor. Twenty years ago, Qingdao was an agricultural city with a population of 3 million, but it has long disappeared and has been reborn as a mega-city with a population of 9 million, surrounded by a skyline of magnificent buildings. The subway, first opened in 2015, is now under construction up to Line 16. Today, Qingdao’s scenery is larger and more dynamic than Haeundae in Busan or Songdo in Incheon, the most glamorous places in Korea. Previously classified as a ‘second-tier city’ incomparable to Beijing-Shanghai-Guangzhou-Shenzhen, Qingdao has recently been upgraded to a ‘quasi-first-tier city.’

It is questionable what kind of businesses occupy this huge forest of buildings, but it does not seem to be as hollow as outsiders fear. Qingdao’s pride, Qingdao Beer, home appliance companies like Haier and Hisense, the annual 100 million domestic tourists, and the vibrant domestic business connected by high-speed rail support the local economy. Last year, China’s economic growth rate was 4.5%, and considering the massive scale of the economy, the growth is still remarkable.

I visited the KOTRA (Korea Trade-Investment Promotion Agency) Qingdao Trade Center, which serves as a local compass for Korean companies. Hwang Jae-won, the trade center director who has been deeply involved in the Chinese market for over 25 years, closely monitors China’s economic reopening situation. He diagnoses that China currently faces the dual challenge of smoothly landing the overheated real estate market while overcoming the COVID-19 recession. China’s financial sector reforms and the social task of common prosperity are also topics of global interest. Can China catch both growth and distribution without damaging entrepreneurial spirit? Director Hwang emphasized, “For the future of the Korean economy, closely observing changes in the Chinese market and responding agilely is the most important task,” and urged continued interest in the Chinese market, saying, “Despite various conflicts, the close value chain between China and the U.S. is still not broken.”

In fact, China and ASEAN are the only regions in the world maintaining nearly 5% economic growth. Since these regions are geographically close to Korea and economically tightly connected, regardless of geopolitical fluctuations, they should not be excluded.

At the center of Qingdao is the May 4th Movement Memorial Square, which opposed imperialism in 1919, and a magnificent coastal tourist area stretching over 10 km along both shores. The forest of skyscrapers over 50 stories facing the sea attracts tourists with sophisticated modern views by day and dazzling building light shows by night. Against the backdrop of the sea park, young people shoot TikTok videos, musicians enjoy street performances, and they enjoy metropolitan life. Outwardly, the daily life of Chinese people appears peaceful and comfortable, not much different from Seoul or Tokyo. What I confirmed on this trip were: 1) rising prices in China, 2) more convenient mobile life, 3) nationwide high-speed rail connections, and 4) continued growth momentum. Europe, the U.S., and China all face internal contradictions and fierce conflicts, carrying the challenge of finding new answers. Whether China’s ‘endurance’ and ‘perseverance’ will overcome Western containment is a question for futurists.