The two sides would shift their focus to investing in information technology and telecommunications, biology, new materials, automobiles, iron and steel, energy conservation, environmental protection, energy resources, transportation and logistics, traditional medicine, infectious disease prevention and agriculture, according to their 2005 blueprint.

Investment from South Korea mainly focuses on the processing trade, but more companies have begun to invest in the service industry in China. In the meantime, the level of Chinese investment in South Korea has not been increasing by much. Mei said this could be because China's economic development is still limited, and South Korea's policies on foreign investment and foreign employees are still strict.

Although the two countries' trade and economic cooperation is growing, it is hindered by some other problems, Mei said. First, disputes between the two about history and culture have added extra political risks to their bilateral cooperation.

Second, South Korean enterprises have not yet realized that China has changed its development strategy. Some of them still treat China as a sales market, low-cost assembly base and a place to which to transfer their polluting industries, Mei said.

"If South Korean enterprises do not change their views, their growth in China might slow down," Mei said.

Third, while South Korean workers at South Korean enterprises have been studying the Chinese language to get ahead in their careers, their Chinese counterparts seldom receive employment promotions. This would not help South Korean companies to attract more Chinese workers, he said.

Fourth, many South Korean enterprises in China have stuck to a highly risky management strategy by taking out a large amount of bank loans, Mei said. Once these enterprises go bankrupt, their debts will become deficits for Chinese financial institutions. In a case in Shenyang, capital city of northeast China's Liaoning Province, four big banks were left with about $50 million in bad debts from South Korean companies.

Other obstacles remain. Some South Korean enterprises operating in China do not pay their Chinese employees and suppliers on time, and when their businesses take a turn for the worse, the owners flee the country and abandon their Chinese staff.

Liu said another problem with South Korean enterprises that invest in China is that they are mainly small and medium-sized ones whose investments are not very large and usually are concentrated in certain areas of the country.

"The result is South Korea's investment stability is not good," Liu said, adding that the investment situation would improve once the problems were resolved.

East Asian integrity

Mei believes that the two countries' growing trade and economic cooperation is part of the growing economic integrity of East Asia and that it will quicken the pace of that integrity.

"China's investment in South Korea is not optimistic yet," said Liu, noting such disadvantages as high investment costs, South Korea's protection of its domestic market and the so-called "China threat" theory. But because domestic investment in South Korea has slumped and many young people are unemployed, China has a chance to improve its investments in South Korea to get a bigger slice of the market and more advanced technology, she said.

"South Korea always considers itself as a perfect go-between of economic integrity of East Asia, seeking a position that can pushing multilateral cooperation," Liu said. She predicted that closer trade and economic cooperation between China and South Korea would quicken the pace of establishing a new division of labor in East Asia, which is important for regional integrity.