LDN - Business

Fears of Chinese backlash over missile defence hit South Korean firms

[March 03, 2017] By Hyunjoo Jin and Adam Jourdan

SEOUL/SHANGHAI (Reuters) - South Korean companies on Friday bore the brunt of a perceived backlash from China over the deployment of a U.S. missile system outside Seoul, with shares tumbling on media reports of Beijing telling tour operators to stop selling trips to the country.

Several of Korea's biggest news outlets cited unidentified sources as saying Chinese government officials had given the verbal guidance just days after the Seoul government secured land for the missile system from Lotte Group.

South Korea and the United States say the missile system is defence against nuclear-armed North Korea, but China says its territory is the target of the system's far-reaching radar. To protest the deployment, Chinese state-run media have called for a boycott of South Korean products.

The Chinese are by far the biggest spenders in South Korea's tourism industry, propping up the world's biggest duty free market which generates about $8 billion in annual sales.

But on Friday, the price of shares in duty free retailer Hotel Shilla Co Ltd ended 13 percent lower while cosmetics maker Amorepacific Corp closed at a two-year low, as investors feared a decline in Chinese tourist dollars as well as a repeat of a backlash against Japan in 2012 over a territorial dispute and interpretations of history.

The share falls add to difficulties reported by South Korean companies in China since the Seoul and Washington governments in July agreed to deploy the Terminal High Altitude Area Defense (THAAD) system. On Thursday, an affiliate of the Lotte Group reported cyber attacks ostensibly originating from China.

Shares of Hyundai Motor Co also finished down 4.4 percent after photos of a vandalised Hyundai car circulated on Chinese social media, in an echo of the damage meted out to Japanese vehicles during protests in 2012.

Local police in a microblog post said the vandalism could be linked to a dispute over debt.

"If it is proved to be related to (the missile issue), such illegal behaviour is a smear on the public boycott campaign," state-run tabloid Global Times said in an editorial.

South Korea's embassy in China issued a safety warning for its citizens.

Chinese foreign ministry spokesman Geng Shuang on Friday said there was no anti-deployment movement in China, and that authorities would deal with anyone breaking the law.

"I hope the relevant side can listen to the people's voices and earnestly take steps to avoid further damage to China-South Korea relations and exchanges and cooperation between the two countries," Geng said.

STAB IN THE BACK

South Korean foreign minister Yun Byung-se said he was reviewing whether the guidance mentioned in the media violate international norms, Yonhap News Agency reported.

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A currency dealer works at a dealing room of a bank in Seoul, South Korea, August 25, 2015. REUTERS/Kim Hong-Ji

"If such reports are true, it would be an unfair action ... and very regrettable," the foreign ministry said earlier on Friday.

An official at South Korea's culture ministry said Korean tour operators had reported that Chinese peers had told them of the guidance to stop selling tours.

A Korean tourism official later told Reuters that the China National Tourism Administration (CNTA) had told tour operators in Beijing and beyond that all group tours to South Korea as well as advertising were banned. The official also said group tours made up about 40 percent of all Chinese visitors to South Korea last year.

CNTA did not immediately respond to a request for comment.

Chinese operators Ctrip and Qunar were accepting bookings to Korea on Friday. A salesperson at LY.com said the site has withdrawn all Korean tours, and Tuniu declined bookings citing the missile issue. LY.com could not be reached for comment, and Tuniu's spokesperson did not immediately respond to comment.

The number of Chinese tourists to South Korea has nearly quadrupled to 8 million over the past five years, accounting for nearly half of foreign visitors, Korean government data shows.

Yet shares of flag carrier Korean Air Lines Co Ltd also ended down on Friday, by 4.8 percent. A spokesman said the airline was worried about the reports and was monitoring the situation.

South Korean political parties condemned the action.

"It's despicable and arrogant. China is a G20 nation that should be leading the development of world order," Liberty Korea Party leader Chung Woo-taik said.

But for Professor Wu Xinbo at China's prestigious Fudan University, the deployment was akin to "stabbing China in the back".

"As a sovereign nation, Korea says its decision to deploy THAAD is out of consideration for national security," Wu told the Global Times. "By the same logic, China has the right to oppose THAAD on the basis of its own national security."

(Reporting by Hyunjoo Jin in SEOUL and Adam Jourdan in SHANGHAI; Additional reporting by Joyce Lee, Jack Kim, Ju-min Park and Se Young Lee in SEOUL, Ben Blanchard and Muyu Xu in BEIJING, and Christian Shepherd in HONG KONG; Editing by Stephen Coates and Christopher Cushing)

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