China Continues Economic Retaliation Against Korean Business for THAAD Deployment

You would think this retaliation against Korean businesses for deploying a defense weapon system in response to a country backed by Beijing making nuclear threats would cause Korean businesses to want to completely abandon China. Well despite all this retaliation many Korean businesses still want to do business with China:

Korea is still suffering from the impact of China’s economic retaliation due to its decision to deploy the U.S. Terminal High Altitude Area Defense (Thaad) system in 2016.   

Among local retailers, Lotte was most affected by China’s wrath, as the Thaad battery was temporarily deployed on a golf course owned by Lotte Corporation.  

Lotte Shopping had 110 Lotte Mart branches in China in 2016. Seventy-four were slapped with business suspensions for failing to meet local regulations, but forced to stay shut for a year as the Chinese government refused to make re-inspection visits. 

With growing anti-Korean sentiment, the company withdrew all Lotte Marts from China in 2018. According to Lotte Shopping, its estimated loss of the Lotte Mart business in 2017 due to Thaad amounted to 1.2 trillion won.  

Fallout from the Thaad row continued with Lotte Shopping shutting down its five Lotte Department Store branches in the country one-by-one. The last remaining branch closed in August.  

Emart had six branches in China, but shut them all down in 2017.  

The cosmetics industry was also devastated, with Amorepacific being hit the hardest. The company’s net profit in 2017 fell 39.7 percent on year to 489.5 billion won, with revenue dropping 10 percent on year to 6.03 trillion won.  

The Chinese government banned all group travel to Korea through early 2018. Chinese tourists to Korea in 2017 dropped 48.3 percent on year to 4.17 million. Net profit dropped 39.7 percent on year in 2017 to 489.5 billion won and revenue fell 10 percent on year to 6.03 trillion won.  

Retailers have mostly recovered, with many of them opening more branches in Southeast Asia rather than China in an attempt to avoid anymore political risks.   

However, many still heavily rely on China for exports, which could leave Korean companies caught up in the middle again as tensions between the United States and China escalate due to the Inflation Reduction Act.The act aims to give tax credits for electric vehicle (EV) batteries with components sourced from either the United States or countries it has free trade agreements with.    

The change is forcing Korea to make a choice between losing tax credits in a huge market, or cutting ties with Chinese suppliers. Most EV battery materials are imported from China, with some 84 percent of lithium hydroxide imports and 81 percent on cobalt imports coming from China between January and July.   

There is also the chance for a recurrence of a dispute over Thaad, as President Yoon Suk-yeol has denied China’s request to not make any additional Thaad deployments.    

“If the current administration decides to deploy additional units of Thaad, it can increase anti-Korea sentiment in China and there could be additional retaliatory measures like last time, even hindering post-pandemic recoveries of the current duty-free and cosmetics sectors,” said Park Jong-dae, an analyst at Hana Investment & Securities. “But things are a bit different now considering a lot of cosmetics sales shifted online, which could allow consumers to make purchases despite the political clashes.”

Joong Ang Ilbo

You can read more at the link on how Korean dramas and video games are also being hit hard by Chinese retaliation.