SEOUL, South Korea—South Korea and China signed a free-trade deal on Monday that will remove tariffs on more than 90 percent of goods over two decades.
Trade ministers from the two countries met in Seoul to sign the pact between two of Asia’s biggest economies.
The agreement covers 22 areas, including finance and online commerce, but won’t include rice and autos.
South Korea’s trade ministry said the deal would boost the country’s gross domestic product by nearly 1 percentage point and create more than 50,000 jobs in the decade after its implementation.
The agreement will give South Korea’s small- and medium-sized companies wider access to the Chinese market while boosting China’s investment in South Korea, the ministry said.
It was the first time for China to include finance, telecommunications and e-commerce industries in a free trade deal, according to South Korea.
South Korea’s rice industry is not part of the pact but trade in 70 percent of agricultural goods will be liberalized.
The signing of the agreement came as China’s factory activity remained subdued last month with both export demand and employment contracting, according to an official survey on Monday that adds pressure on Beijing for more economic stimulus.
The China Federation of Logistics and Purchasing’s Manufacturing Index (PMI), which is based on a survey of factory purchasing managers, edged up to 50.2 in May from 50.1 the month before.
The index, based on a 100-point scale, has been hovering around the 50-mark since December. Numbers below 50 indicate contraction.
Separately, HSBC’s manufacturing index, which also uses a 100-point scale, showed that manufacturing contracted for a third straight month as new export business fell at the sharpest rate in two years.
HSBC’s PMI edged up to 49.2, a tick higher than a preliminary reading of 49.1 in late May, and up from 48.9 in April.
The latest data on China’s outsize manufacturing industry, which employs many millions of people, may spur policy-makers in Beijing to roll out more measures to keep economic growth on target.
“Even though the manufacturing PMI for May expanded slightly, it’s at a historically low level, and China’s manufacturing industry is facing relatively large downward pressure,” the federation’s report said.
China’s economy grew 7 percent in the January-to-March period, its slowest quarterly pace in six years.
Recent moves by Beijing to shore up growth include cutting interest rates three times in six months and slashing the bank reserve requirement ratio. Analysts expect more measures if growth slows more sharply.
HSBC’s survey found that production contracted for the first time in 2015 and factories shed jobs, let inventories fall and cut purchasing, all suggesting that manufacturing would continue to contract, said Annabel Fiddes, an economist at Markit, which carried out the HSBC survey.
“The latest survey data, therefore, suggest that more stimulus measures may be required to help boost domestic demand and recover some growth momentum,” she said.
AP
Image credits: AP/Ahn Young-joon