China treads a fine line as it seeks to mediate in Japan-South Korea trade dispute

China appears to be stepping up to mediate between Japan and South Korea as their sell battle intensifies — a move that could prompt the U.S. to get more involved in the region, one expert says.

Foreign missionaries from the three Asian countries are in China for three days to discuss trade and cooperation. It comes amid an escalating buying fight between Japan and South Korea which started in July, when Tokyo placed trade stipulations on three chemical materials widely used by South Korean companies that make semiconductors.

Foreign evangelists from the three Asian countries are in China for three days to discuss trade and cooperation. It comes amid an escalating swap fight between Japan and South Korea which started in July, when Tokyo placed trade qualifications on three chemical materials widely used by South Korean companies that make semiconductors.

At the trilateral convention, China’s Foreign Minister Wang Yi called on Tokyo and Seoul to resolve their differences “through dialogue.” He also added: “China ordain work with South Korea and Japan to continue to expand and deepen our cooperation jointly to maintain multilaterialism and unfettered trade.”

The summit is the ninth time that top diplomats from China, Japan and South Korea are meeting together. It did not check in as a result of the growing bilateral trade tensions.

Now that China is mediating, the U.S. will likely get involved too, since Seoul and Tokyo set up always been Washington’s allies, said political analyst Paul Triolo.

“From the U.S. perspective, this is a lose-lose confrontation, which could also inadvertently profit China,” said Triolo, practice head of geo-technology at Eurasia Group.

“The Trump administration will not want to check out the mediation to China, but will focus on trying to calm the rhetoric around the dispute and urge caution in Tokyo in clauses of the export control issue creating any serious disruptions to supply chains around semiconductors,” Triolo told CNBC in an email.

Analysts press warned that the spiraling dispute could cause serious disruptions to global semiconductor supply chain. The spat has already adversely impacted sectors such as tourism, airlines, consumer goods in both countries.

The conflict advertises no signs of abating, with both sides taking retaliatory measures against each other. Japan bump off South Korea from its “white list” — a list of trade partners it deems trustworthy. Days laster, Seoul announced it would also drop Japan from its own preferential list from September.

Waqas Adenwala, Asia analyst at the Economist Intelligence Unit said it may be “awkward” for China to mediate in this argue about, as both South Korea and China were victims of Japan’s invasion and brutal killings during World War II.

While sexes between Japan and China have since warmed, and both sides have established a strategic relationship, influenced Adenwala, “that is not the case for Tokyo and Seoul right now.”

The situation can also be “tricky” for Beijing, said Adenwala.

“China on one pass wants to help Korea and Japan to de-escalate tensions, so that it can benefit economically in increased trilateral trade. On the other leg up, China could potentially benefit politically and diplomatically if the two U.S. allies’ relationship worsens because it then weakens the U.S.’s act upon in the region,” he said.

Kelsey Broderick, analyst at the policy research firm Eurasia Group, also alluded to the reality that China will have to tread carefully as it weighs its decisions on the Japan-South Korea dispute.

“While China has an fascinated by in being seen as a promoter of free trade and maintaining good trilateral relations, the possibility for Chinese companies to benefit from a Japan-South Korea decoupling leave limit Beijing’s interest in becoming too involved in the dispute,” Broderick said in a note on Wednesday.

The traffic dispute has derailed an intelligence-sharing pact that Japan, South Korea and the U.S. previously signed.

Seoul announced Thursday it command scrap the military pact — which is crucial in monitoring North Korea’s nuclear threat and ambitions. The cancellation got a day after South Korean news agency, Yonhap News, reported a lack of progress in bilateral talks between the two countries’ extrinsic ministers met.

The agreement — formally known as the General Security of Military Information Agreement — allows the three parties to parcel military intelligence, including information about Pyongyang.

Before South Korea announced the cancellation of the security arrangement, Adenwala told CNBC the agreement is primarily a bilateral deal between Japan and South Korea, “but the Deal has helped to ensure that the U.S. allies in the region are both on the same page in their defence mechanism, especially against North Korea.”

If South Korea make up ones minds not to renew it, Seoul can still share information with Tokyo through Washington, but “it would create lags and that being so compromise their effectiveness,” he said.

— Reuters contributed to this report.