The Xi–Lee Reset Extends Beijing’s Regional Project—and Tests Seoul’s Commitments

Executive Summary:

• The Xi Jinping–Lee Jae Myung phone call on June 10 signals a tactical thaw after years of strain under Yoon Suk Yeol, reviving “good-neighborly friendship” language and soft power channels Beijing had suspended when Yoon restarted work on deploying the U.S. missile defense system THAAD.
• Korea’s trade and financial ties with the People’s Republic of China remain deep and are expanding incrementally through upgraded free trade agreement, digital governance frameworks, and modest renminbi (RMB) usage. This interdependence is pragmatic, however, and not an endorsement of Beijing’s regional order.
• Beneath the thaw, persistent maritime incursions, gray-zone coercion, and tech friction reveal that Beijing’s leverage and pressure tools remain fully active, capping how far trust can deepen.
• Seoul’s alliance with Washington, dollar-based trade flows, and strategic diversification in semiconductors anchor its core orientation firmly in the U.S.-led order—the hedge that balances Beijing’s gravity.

President Xi Jinping’s June 10 phone conversation with South Korea’s new president, Lee Jae Myung, signaled Beijing’s intent to reinvigorate ties with Seoul. Cast as a diplomatic reset, Xi emphasized five themes: strategic trust, supply chain stability, cultural exchange, multilateralism, and mutual respect for “core interests” (核心利益). At the same time, he framed the relationship as a source of “certainty” (确定性) amid “regional and international turmoil” (变乱交织的地区和国际形势注). Crucially, he called for ensuring that bilateral ties “always move forward on the right track” (始终沿着正确轨道向前发展)—a phrase Beijing typically uses to signal that the other side has drifted from its preferred posture and should course-correct (Xinhua, June 10).

This diplomatic pivot follows a period of sustained cooling under former Korean president Yoon Suk Yeol, whose tenure deepened Seoul’s alignment with Washington’s Indo-Pacific strategy, expanded trilateral security ties with the United States and Japan, and was defined—in Beijing’s eyes—by open criticism of PRC assertiveness. Relations had stagnated across political and cultural domains, with people-to-people ties largely frozen. Political and cultural exchanges stagnated, people-to-people contact froze, and a lingering dispute over the THAAD missile defense system remained unresolved in the background (China Brief, June 2, 2023).

Lee’s reset may reopen economic and cultural channels that froze under Yoon, giving Beijing fresh leverage to test Seoul’s posture. Yet maritime tensions and the enduring U.S. alliance mean Korea’s deeper orientation is unlikely to change.

A Conditional Thaw: Beijing Tests Seoul with Culture and Commerce

The Xi–Lee call revived the idea of “good-neighborly friendship” (睦邻友好), a theme Xi first championed with Park Geun-hye early in his tenure and once a fixture of bilateral framing under her administration (2013–2017) (Korea.net, June 4, 2014). With this language, Beijing is signaling its intent to pull Seoul back into its preferred Asian diplomatic orbit.

On the ground, commercial and diplomatic signals are already shifting. Tencent has reentered Korea’s media market via SM Entertainment, and discussions of restarting research and educational exchanges are gaining momentum. The Chinese Communist Party (CCP) appears ready to reactivate soft power tools that had been shelved since the THAAD backlash—but only if Seoul avoids overt alignment with efforts to contain the PRC in the Asia-Pacific. These emerging trendlines cluster under four main categories:

• Investment: In 2024, Tencent acquired a minority stake in SM Entertainment, marking the first major Chinese entertainment investment in Korea since Beijing’s informal cultural sanctions began in 2017 (Reuters, May 28).
• Media: While not officially declared, PRC regulators had eased bans on K-dramas and K-pop content on major streaming platforms like iQIYI and Tencent Video as of late 2024 (Korea Herald, May 30).
• Tourism: Korean tourism industry analysts projected a 30–40 percent increase in PRC tourist arrivals in 2025, citing warmer diplomatic tone and loosening restrictions (TTW, June 10).
• Education and research diplomacy: Momentum has accelerated in June 2025. Following the Xi–Lee call, China, Japan, and South Korea held a trilateral Innovation Cooperation Conference in Yantai and broke ground on the new China–Japan–Korea Innovation Cooperation Center in Shandong Province (MOST, June 26).

These moves remain modest in scale but symbolically and practically important. They serve both as trust-building gestures and as a quiet test of how far Seoul is willing to reciprocate under Lee’s more PRC-friendly posture.

Table 1: Decoding ‘Xiplomacy’ in the Xi-Lee Call, June 10

Seoul Deepens Trade Ties, but Stays Hedged

Despite a recent political chill, interdependence between the two countries remains robust. In 2024, Korea exported $133 billion to the PRC—still its largest trading partner—and imported $149 billion in return. Trade flows have held steady even as security frictions persist.

Beyond headline trade, institutional ties are quietly expanding. Both countries are members of the Regional Comprehensive Economic Partnership (RCEP), operate under the China–Korea Free Trade Agreement (CKFTA), and joined the Digital Economy Partnership Agreement (DEPA) in 2024. In late June 2025, the two sides held the twelfth round of negotiations on the second phase of the CKFTA in Seoul, making “positive progress” (取得积极进展) on cross-border services, investment, financial services, and negative list market access—a clear sign Beijing intends to bind Seoul more tightly into its preferred trade and tech standards regime (MOFCOM, June 27).

Financially, Korea holds a RMB 120 billion ($17 billion) quota under the PRC’s Renminbi Qualified Foreign Institutional Investor (RQFII) program (Bloomberg, July 3, 2014). This gives Korean investors direct access to onshore PRC assets—a channel reinforced by currency swap lines, first signed in 2009 and periodically renewed to reduce dollar dependence in bilateral trade (Korea Capital Markets Institute, November 1, 2012). By 2019, local currency-denominated interbank trading reached nearly RMB 4 trillion ($560 billion), and Korean firms are increasingly invoicing in RMB (Swift, September 1, 2015). This shift, linked to faster export growth, shows Seoul pragmatically tapping Beijing’s RMB channels—a side-effect that still feeds Beijing’s hopes of anchoring Asia’s financial flows in its own currency (Does RMB Internationalization Promote Cross-Border Trade?, October 8, 2024).

Table 2: Korea’s Position in the PRC’s Asian Integration Strategy

Threading the Needle: Trading with Beijing, Aligning with Washington

Despite recent gestures of goodwill, structural tensions remain entrenched. Maritime frictions, gray-zone coercion, and tech disputes continue to offset any meaningful reset.

PRC naval incursions into Korea’s claimed waters exceeded 330 in 2024—triple the number in 2017 (Safety4Sea, April 14; Friedrich Naumann Foundation, May 13). Fishing zone disputes, technology concerns, and gray-zone coercion continue to undercut diplomatic progress (Financial Times, April 22; The Times, April 22).

Meanwhile, Seoul’s alliance with Washington remains foundational. Over 80 percent of Korea’s global trade is still denominated in U.S. dollars, while RMB use accounts for just 1–2 percent (BIS, December 2011; Journal of International Money and Finance, March 2024). South Korea’s semiconductor strategy continues to align with U.S.-led diversification away from PRC supply chains, particularly amid tech war pressure on firms like SK Hynix and Samsung (Reuters, December 16, 2024).

 Table 3: Seoul’s Balancing Act Under Lee—Forecasts by Domain

Conclusion

The Xi–Lee call signals a tactical thaw and growing bilateral alignment in areas Beijing cares about most: trade volumes, capital channels, and shared digital governance frameworks. Over the next two years, Seoul is likely to keep deepening its economic and soft power engagement with China—reopening markets, normalizing cultural flows, and cautiously expanding joint standards-setting under frameworks like the CKFTA upgrade and the DEPA. If this track holds, the PRC will see modest gains in embedding Korea more firmly in its Asian integration blueprint.

Structural realities will continue to cap how far this reset can go. Maritime incursions and gray-zone coercion are likely to persist—or intensify—testing diplomatic goodwill. Meanwhile, the core alliance with Washington will anchor Seoul’s security posture and drive semiconductor diversification away from overdependence on PRC supply chains. In other words, while the PRC may see Korea as a critical node in its regional rewiring project, Seoul will keep threading the needle—leveraging Beijing for growth while remaining firmly planted in a global order that Beijing ultimately seeks to overturn.