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South Korea

South Korean firms breath sigh of relief amid thaw in China ties

Spat over deployment of US-developed missile shield led to freeze in relations between two countries and a boycott by some Chinese consumers of South Korean goods

PUBLISHED : Wednesday, 01 November, 2017, 12:43pm
UPDATED : Wednesday, 01 November, 2017, 7:52pm

For many companies caught in the middle of a year-long political dispute between China and South Korea, the detente announced on Tuesday formalises a thaw that has been in the making for months.

From airlines to retailers, industries have been moving towards a reconciliation as tensions eased. While Hyundai Motor and Lotte Group are among companies that are still working through the damage from Seoul’s decision to deploy a US-developed missile shield, some have seen business return to former levels.

“Thanks to today’s announcement, a thawing season will come earlier than expected,” Han Jae-jin, an economist at Hyundai Research Institute, said. He had projected 8.5 trillion won (US$7.6 billion) worth of damage to businesses ranging from tourism, entertainment and cosmetics to cars and retail due to the fallout from the missile shield THAAD, which stands for Terminal High Altitude Area Defence system.

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The dispute had prompted Beijing to retaliate economically, suspending sales of package tours and hindering the operations of South Korean companies operating in China. The government also heightened customs scrutiny of South Korean goods and excluded cars with South Korean batteries from government subsidies.

The agreement to restore relations paves the way for closer ties between two of Asia’s biggest economies.

Spring Airlines, China’s biggest budget carrier, confirmed on Tuesday that it had resumed some flights to South Korea after they were suspended in early July. The airline said at the time it was planning to restore service as easing tensions encouraged mainland tourists to return to the peninsula’s popular destinations.

A spokesman for Korean Air Lines said the carrier planned to restore capacity as improved relations would help increase travel demand.

Hyundai Motor is seeing signs of improvement in China, with car sales in that market at the highest level of the year in September, following a 64 per cent plunge in the second quarter. The South Korean carmaker said it would continue its efforts to serve its biggest market.

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Lotte Group, which provided the land for THAAD, has been one the hardest hit by the dispute. The conglomerates had to suspend operations in most of its 99 hypermarkets in China for alleged violations of fire-safety rules and halted a 3 trillion won theme park project in northeast China.

Lotte has not resumed any stores that had stopped operations in China as it waits for signs of improvement in business, according to a Lotte Shopping spokesman.

Lotte, which hired Goldman Sachs in September to advise on the sale of the China business, said on Tuesday the disposal plan was still on. It also said construction of the Shenyang theme park remained on hold.

Nevertheless, Lotte said in a statement it welcomed the improvement in relations. “It’s true that we had to bear losses and damage that’s hard for a single company to tolerate, but we always believed that there will be an improvement in the relations with China.”

Investors in South Korea have been upbeat throughout most of the year, with the benchmark Kospi index trading at a record high. The gauge jumped 1.1 per cent in midday trading on Wednesday, climbing for a fourth straight day.

Kim Hyun-su, senior fund manager at IBK Asset Management, said the key to resolving the missile conflict was US President Donald Trump and further improvement may be seen when he visits Asia this month.

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Many companies have found success by shifting strategy, hedging their bets against turmoil in China by expanding in places such as Southeast Asia, but few are willing to abandon the China market altogether.

Cosmetics company Amorepacific said in a statement it would focus on driving “new and sustained growth through diversification of its global businesses across China, Asean, North America and others”.

Hyundai Research’s Han said: “Korean companies will keep a two-track business for their post-China strategy. Koreans learned this time that they cannot depend on the Chinese only.”