SEOUL - Free trade agreement (FTA) with China will boost South Korean economy in the long run as the possible deal was expected to increase the latter's exports to the world's No 2 economy, Nomura said Thursday.

"A bilateral FTA should be very positive for the South Korean economy in the long run. It will take a long time to seal the deal, in our view, but we estimate a bilateral Korea-China FTA would increase Korea's GDP by 3.7 percent in the long term, greater than the 1.6 percent lift from its FTA with the US or 1.5 percent from FTA with the EU," Kwon Young-sun, an economist at Nomura International in Hong Kong, said in a report.

South Korea and China declared Wednesday the start of negotiation for setting up the bilateral FTA following seven years of preliminary talks. South Korea's Finance Ministry expected the planned free trade deal with China to raise the nation's GDP by as much as 3 percent within 10 years after the implementation of the deal.

The potential FTA was expected to benefit the South Korean economy by increasing the nation's exports to China, which is South Korea's largest trade partner and the world's No 2 economy. Bilateral trade between China and South Korea reached $220.6 billion in 2011, higher than $100.8 billion? with the US and $103.1 billion with the EU.

South Korea's exports to China have slowed recently. For the first four months of 2012, South Korea saw its exports to China grow by only 0.9 percent on-year, while its exports to the US expanded 20.7 percent. It was unusual as the former is generally higher than the latter, said Kwon.

The economist noted that strong exports to the US have been driven by the automobile sector, while weaker exports to China were concentrated in the chemical, manufacturing and machinery sectors, mainly due to a mild recession in the euro area and slowing Chinese domestic demand.