Korean Businesses Set for China Thaw, Though Wounds Remain

Korean Businesses Set for China Thaw, Though Wounds Remain

By Soohee Kim, BLOOMBERG, Nov. 1, 2017

For many companies caught in the middle of a year-long political dispute between China and South Korea, the detente announced Tuesday formalizes a thawing that’s been in the making for months.

From airlines to retailers, industries have been moving toward a reconciliation as tensions eased. While Hyundai Motor Co. and Lotte Groupare among companies that are still working through the damages from Seoul’s decision to deploy a U.S. 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 on Tuesday. He had projected 8.5 trillion won ($7.6 billion) worth of damage to businesses ranging from tourism, entertainment and cosmetics to cars and retail due to the fallout from Thaad -- which stands for Terminal High Altitude Area Defense system.

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 Korean goods and excluded cars with South Korean batteries from government subsidies.

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

Spring Airlines Co., China’s biggest budget carrier, confirmed on Tuesday that they have 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 Co. said the carrier plans to restore capacity as improved relations will 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 percent plunge in the second quarter. The South Korean carmaker said it will continue its efforts to serve its largest market.

On Wednesday, Vice Chairman Chung Eui-sun attended the opening of Hyundai’s first brand studio in China. “Hyundai Motorstudio Beijing is a physical place and an experience embodying our goal to champion sustainability and creative energy,” he said in a statement.

Hardest Hit

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 ($2.6 billion) theme-park project in northeastern China.

Lotte hasn’t resumed any stores that had stopped operations in China, as it waits for signs of improvement in business, according to a Lotte Shopping Co. spokesman. Lotte, which hired Goldman Sachs Group Inc. in September to advise on the sale of the China business, said Tuesday the disposal plan is still on. It also said construction of the Shenyang theme park remains on hold.

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

Record High

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 percent in midday trading Wednesday, climbing for a fourth straight day. Hyun-Su Kim, senior fund manager at IBK Asset Management, said the key to resolving the missile conflict is U.S. President Donald Trump, and further improvement may be seen when he visits Asia this month.

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. In a statement, cosmetics company Amorepacific Corp. said it will focus on driving “new and sustained growth through diversification of its global businesses across China, ASEAN, North America and others."

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

— With assistance by Kyunghee Park, Lisa Du, Heejin Kim, and Sterling Wong

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