Seoul, South Korea ? The visit last month of North Korea’s diminutive dictator Kim Jong Il to China is still making waves here in the South Korean capital.

The Chinese rolled Kim through showcases of their market reforms. The North Korean leader, who once denounced the Chinese for retreating from socialism, responded with dutiful words of praise for the Chinese model.

South Koreans applaud any evidence that Kim may be headed down a Chinese-style path. Like the Chinese, most South Koreans believe this may be the only way to ultimately persuade the North to abandon its nuclear weapons program.

But in conversations here with senior South Korean officials and others closely involved with North Korea, I detected unease, even alarm, at the growth of China’s influence and presence in the North. Some talked darkly about a Chinese “takeover” of the North.

South Korean mixed feelings about China are not new. But the Kim visit comes on top of a rapid broadening of Chinese economic ties to North Korea, described in detail in a new report issued by the International Crisis Group. Chinese trade and investment in North Korea has reached $2 billion annually. Bridges and highways in and out of North Korea are being built, making it easier to ship iron ore and other raw materials out. Hundreds of Chinese firms are investing into North Korea, in some cases grabbing deals away from South Korean companies.

Is China willing to use this expanded influence to compel Pyongyang to give up its nukes? Some in the Bush administration still cling to that hope. But the report argues strongly against that happening.

China may again drag Pyongyang back to the stalled six-party talks that it hosts. And it will move quickly to curb any North Korea provocation, such as a nuclear test, that could lead to war.

But China has an overriding interest in stability as well, opposing any attempt to destabilize the Kim regime. The Chinese will cooperate to stop Pyongyang’s laundering of counterfeit money through their banks, the report says, but will not shut down the North’s banking operations in China.

South Koreans don’t differ with China on the need to engage the North. Their own economic ties with the North are deepening. And Seoul too is consumed with the danger of triggering a war by trying to cut off the North’s economic lifeline.

But South Koreans now also worry that China’s stake in the North will only perpetuate the division of the Korean peninsula.

A South Korean businessman who works closely with the North Koreans told me privately that the North Koreans are unhappy with their dependence on Beijing and eager for an alliance with the United States. By refusing to deal directly with Kim Jong Il, he argued, “the Bush administration is pushing North Korea into the camp of China.”

We should explore such claims with a healthy dose of skepticism. The North Koreans are masters at playing off the Chinese and South Koreans against each other, as they did with the Russians and Chinese during the Cold War.

For Americans it may be more important that South Korean nervousness about China comes together with renewed interest in shoring up the strained alliance with the United States. This is partly behind a decision to negotiate a free trade agreement with the United States this year.

An FTA between the United States and Korea, one of the largest economies in the world, would be good for both economies. It should open more markets in Korea, removing a host of barriers such as restrictions on foreign investment. Korean officials, led by a young and ambitious American-trained trade minister, believe an FTA will spur a new round of needed internal reform and a jump in growth.

Anti-FTA protests were already taking place as I was discussing this with Korean officials. More are sure to come from those, such as farmers, most threatened by more open markets. But officials say the South Korean president is committed to pushing this through.

Privately Korean officials hope the FTA will also remind Koreans and Americans that the alliance has value beyond dealing with the North Korean nuclear threat. Differences over North Korea will remain. But both sides should push hard to quickly finish an FTA deal – and continue to talk quietly about our shared interests in maintaining a strategic balance in Northeast Asia.