Most major South Korean companies are vulnerable to Chinese retaliation over the deployment of a U.S. missile shield on South Korean soil, a new report suggests.
Following the launch of four North Korean extended-range scuds into the Sea of Japan, the U.S. began the process of deploying a Terminal High Altitude Area Defense (THAAD) to South Korea last week. While the missile defense system is intended to defend South Korea against a potential North Korean strike, Beijing fears the deployment is meant to contain China and negate its strategic nuclear deterrence capabilities. The U.S. and South Korea announced plans to deploy THAAD to South Korea last summer, and since then, China has repeatedly threatened to retaliate. Some sectors of South Korea’s economy have taken hits as a result.
“If the United States and South Korea harm the strategic security interests of countries in the region, including China, they are destined to pay the price for this and receive a proper counter attack,” the People’s Daily wrote last September. Chinese foreign and defense ministries have said multiple times China will take “necessary measures” in response.
China is reportedly engaging in a state-run campaign against South Korean businesses to convince Seoul to reevaluate its controversial national defense plans. The impact of the campaign has been debated, but a new report from CEO Score, a local market research company, suggests China could hold most major Korean firms hostage.
The focus of China’s wrath has been largely directed at Lotte Group, which agreed to turn over a golf course in Seongju to the government for the THAAD anti-missile system. Lotte claims Chinese authorities have closed dozens of Lotte retail stores in China. Outside one store, Chinese protesters hung a large banner that read, “South Korea’s Lotte has declared war on China. Lotte supports THAAD. Get the hell out of China.”
The rift has also damaged tourism, entertainment, and certain imports.
There are concerns that China will expand its campaign to include more South Korean companies. CEO Score revealed that several top South Korean conglomerates had more than half their annual sales come from China in recent years. For example, sales in China accounted for 68.3 percent of LG Display’s annual sales in 2015 and 68.6 percent for the first nine months of last year. Orion Foods, a leading food and beverage company, was in a similar situation.
CEO Score reported that the combined sales for 70 major South Korean companies in China added up to $75.2 billion for the first nine months of 2016, roughly 18 percent of their total sales. Were Beijing to clamp down hard on South Korean firms, it could force South Korea to “pay the price.” The importance of the Chinese market for South Korean businesses could put them at risk.
Beijing has not said it is targeting South Korea over THAAD, but all signs point to South Korea’s defense plans with the U.S. as the reason behind China’s actions. “We don’t have to make the country bleed, but we’d better make it hurt,” a Global Times editorial wrote earlier this month.
Economic coercion is a common Chinese tactic when dealing with states unwilling to bend to its will. At this point, it is unclear how far China will take its efforts.
A full-scale trade spat would likely harm both sides, as both countries are major trading partners for the other.
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