Swap deal with China raises hope, concern

Korea may be breathing a sigh of relief after it agreed to “renew” its currency swap deal with China, despite diplomatic tensions over the U.S. anti-missile system deployed here.

Shares of companies such as AmorePacific with significant business presence in China rebounded as the government announced the swap renewal three days after the Oct. 10 deadline.

The effect of the recent measure has earned mixed evaluations. But for now, pessimists still seem to outnumber optimists.

Many analysts say the conflict with China is far from over, and the government is being “too optimistic” that the currency swap will pave the way for a resolution over the U.S. Terminal High Altitude Area Defense (THAAD) system.

Sung Tae-yoon, an economist at Yonsei University, said the swap does not mean an immediate beginning of improved relations, nor an imminent end to the conflict as the government rosily projects. “The conflict is still out there. It would be too rash to assume the swap deal would end the dispute for both sides,” Sung said.

Only the Korean government made the official announcement on the renewal, while China did not even bother to disclose the $56 billion deal.

There was no signing ceremony for the yuan-won swap this time, like in 2014 when they agreed to expand and extend the deal.

China’s agreeing to the renewal is more of a signal to Korea that it is Seoul’s turn to help maintain relations.

“It is not in the interest of China to see its relations with Korea deteriorate. Its swap renewal, however, is a signal, winking to Korea that it is now Seoul’s turn to do something about it that can justify Chinese reason to maintain the deal and improve relations,” said Kim Man-gi, a professor of Chinese business at Sookmyung Women’s University.

“The swap renewal raises both hopes and concerns. Just as Korea, China wants to see the relationship changed and improved. The deal came as a reflection of this, and China is going to see what Korea will do to keep its end of the bargain.”

Market observers say the swap has been “renewed,” not “extended,” despite the government claims it finalized the deal with China before it expired on Oct. 10.

China remains nonchalant to the swap, with foreign press assessing it did it to help internationalize the yuan as a key global currency, and nothing more.

Also from China’s perspective, it does not make any difference as to whether it swaps the yuan with the won, as the Korean currency is not really useful outside this country in global trading or in crises.

The U.S. ended its swap with Korea in 2010, and Japan in 2015. The former ended it for economic reasons. The latter did not extend it for political reasons due to tensions over the Dokdo islets and Japan’s wartime sex slavery.

Korea’s $56 billion swap with China is significant because it accounts for nearly 46 percent of the country’s total swap deals with other economies.

Without it, Korea’s currency swap portfolio is weak as the country has no deals with major economies of key currencies such as the U.S. dollar, euro and Japanese yen.

However, there are also observers who think Sino-Korean relations will improve.

“The long-lasting tensions between Seoul and Beijing will not finish overnight. But Beijing showed it will cooperate with Seoul if necessary. It is a significant event,” said Lee Sun-yup, a senior analyst at Shinhan Investment Corp. “I believe the worst is behind the two countries. There is room for the two to cooperate more in the future.”