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China Means Business in Economic Challenge Over THAAD

As anti-Korean sentiment in China grows stronger, Seoul appears to have few options at the moment to try and limit the impact on trade relations.

Tension flared early this month after South Korea began deploying components of a U.S. anti-missile system to the Korean Peninsula. China is strongly opposed to the missile battery and has been trying to block its deployment, seemingly through economic retaliation.

Park Sung-hoon, a professor of economics at Korea University, said he’s concerned about the future of economic relations, which have been solid for decades.

“The backlash [from China] is kind of dismantling what we have achieved so far,” he said. “We have no reliable sources on how long China will continue these measures.”

It’s unclear if Beijing is acting deliberately, which makes it much harder for South Korea to counter the growing economic unease.

Chang Do-hwan, a director with South Korea’s Ministry of Strategy and Finance, told VOA South Korea is prepared to deal with unfair trade measures. But for now, Seoul is unable to take “legal or official” action because Beijing has yet to acknowledge it’s taken any official action to pressure South Korea.

THAAD backlash

South Korea and the U.S. maintain the deployment of the Terminal High Altitude Area Defense (THAAD) system is solely to protect against North Korea’s growing nuclear weapons threat.

But China believes THAAD’s powerful radar will be used to spy on its military.

Park said he hopes China comes around.

“We hope China sees the necessity and inevitability of Korea’s alliance with the U.S., in defending the nation against the possible invasion from North Korea,” he said.

The South Korean corporation Lotte Group has become a main target of angry Chinese sentiment. The company, which declined an interview, sold the Korean government a golf course where the defense battery is expected to be stationed, possibly in the next few months.

Shoppers in China are boycotting some Lotte stores, and other have been shut down after failing safety inspections.

“We don’t know if it was provoked by the [Chinese] government or not, but a lot of people have been taking voluntarily action against Korean products,” said Ahn Duk-geun, a professor of international trade law and policy at Seoul National University.

Korea’s tourism sector is taking a hit as well.

This week, an estimated 3,000 Chinese tourists took a stand against THAAD by staying on board a cruise ship that docked at South Korea’s Jeju Island, a popular tourist destination for Chinese.

Chang with the Finance Ministry said the government is closely monitoring Korean companies facing financial risks because of the pressure from China. He said a relief fund would be available for small and medium-sized firms.

Sending a message

Beijing has a history of punching back economically when angered.

There was the so-called garlic war in 2000. Seoul jacked up import tariffs on Chinese garlic to protect local farmers, and China responded by banning South Korean exports of cellphones and polyethylene. Whether or not Seoul’s policy was flawed, China’s response was viewed widely as excessive.

However, the current retaliation against South Korea appears to be non-tariff related. China has experience there, too.

In 2012, Japan felt China’s wrath over a sovereignty dispute involving a group of islands in the East China Sea. The Chinese public responded to Tokyo’s actions to further assert control over the islands by smashing Japanese cars and boycotting Japanese products.

Limited options

South Korea sold goods and services were worth roughly $124 billion to China last year, about 25 percent of the country’s total exports.

Some local analysts have suggested businesses begin scouting new markets, as THAAD poses a formidable barrier to resolving the trade dispute.

In the meantime, Ahn suggested Seoul use a mediation provision in its FTA with China. It’s essentially a channel, he said, to discuss non-tariff issues when it’s unclear if the problem is intentional.

But Ahn is not hopeful about resolution.

“I think the situation will become worse,” he said.

He said it’s likely THAAD will be fully deployed and China will eventually formalize its economic sanctions against South Korea.

But even if China backs off its pressure, Ahn said, it’s inevitable that South Korean companies will expand into other markets because of growing competition in China, as well as increased labor costs and standards. “That’s an unavoidable direction.”