Although not making an official statement about it, Beijing is de facto imposing economic sanctions against Seoul. Shops belonging to Lotte Corporation are being closed (23 shopping centres out of 99 have already been closed), with the company’s products are being subjected to a boycott. In this way, the Qingdao Quarantine Service has recently disposed of candies manufactured by one of the Lotte branches, having stated that a certain banned supplement had been found in their composition. On 3 March, the shop’s operating license in Dandong in the Liaoning Province was revoked for one month due to an alleged violation of fire safety rules. The construction of a residential complex and entertainment centre with a funding of up to USD 8 billion was suspended. On the other hand, Chinese media are also aggravating the situation by calling for a boycott of all Lotte shops and products.
In response, the Lotte Group decided to seek assistance from the authorities. A decision was made to send a letter to the Government of the Republic of Korea, asking it to explain to China that Lotte had just responded to a request for assistance in strengthening national security, and had not acted as a key member of the THAAD project. In addition, plans are underway to establish an operational task force consisting of employees of Chinese trade missions, with the aim of assisting domestic companies facing the challenges.
On 2 March 2017, the Government of China summoned representatives of major travel agencies and instructed them to discontinue the sale of both conventional and cruise tours to the Republic of Korea. All tour packages for which the contracts have already been signed are prescribed to use until mid-March. Also, according to KBS, China has ordered to ban Chinese cruise ships from calling at South Korean ports. All these sanctions could inflict damage on the South Korean tourism sector: Chinese tourists account for 47% of the total number of foreign tourists in South Korea. 111 thousand Chinese have already cancelled their orders for travelling to Jeju, which had earlier been made through different travel agencies.
According to experts, if the current situation continues, this year, the flow of tourists from China shall be cut by 70%, which will result in the reduction of sales at duty-free shops in the Republic of Korea by USD 3 billion 465 million, and will accelerate the growth of the country’s deficit in the tourism balance by $USD 9.5 billion.
South Korean media describe a number of examples of instances of discrimination. Ad they allege, Beijing restaurants are refusing to serve South Korean citizens, resorting to placing slogans like ‘South Koreans Not Welcome Here’ written near their entrances. In another instance, one of the retired PLA generals indicates the necessity of inflicting a pinpoint strike on the Suonzhu Golf Course, where THAAD missiles are planned to be placed. There are also reports of domestic harassment. For instance, there are reports that South Korean cars are being damaged by breaking the glass and puncturing the tires. Finally, there are talks about exemplary action to “abandon South Korean merchandise,” where boxes containing products of South Korean origin are by a tractor. On 5 March, residents of the northeast Chinese province of Jilin held a demonstration protest against THAAD, shouting slogans like “Down with THAAD! Boycott all South Korean products!”, “Patriotism Begins with Me! “Long live the Communist Party!” However, according to Lotte Shopping, the acts of vandalism or riots were not widespread.
Finally, the Chinese Government has banned game releases by South Korean developers in the country. Although the ban does not apply to those games that have already been released in the country, website sections that allowed for buying South Korean goods, listening to South Korean music or watching South Korean films were suddenly missing on many Chinese websites.
The Korea Times newspaper claims that Chinese media, especially the blogs, contain a great deal of fake news on South Korean topics, even citing an alleged fake interview with the head of Lotte Corporation, where he makes allegedly disrespectful comments about the Chinese, who he said, because of their poverty and spinelessness, would still continue buying the company’s products if the prices were reduced.
Against this background, on March 3, the Embassy of the Republic of Korea in China urged South Koreans staying in China to pay special attention to safety, and to avoid places of mass gathering and places of entertainment. It is recommended to get acquainted with the messages published by the local law enforcement agencies as often as possible, to become familiar with the official messages of the South Korean diplomatic missions and the media, keeping in touch with the Korean community.
Naturally, Seoul is trying to respond. On March 2, during a regular briefing, Representative of the Ministry of Foreign Affairs of the Republic of Korea, Cho Joong Hyuk, urged Beijing to stop worsening relations between the two countries, and expressed his willingness to respond to the pressure coming from China. Between March 7 and March 8, Seoul hosted a number of government meetings on measures of minimizing the damage incurred by domestic companies due to the Chinese sanctions. To this end, plans towards both economic and foreign policy efforts are to be devised. Plans are also underway to provide travel agencies caught in difficult positions with loans, as well as to develop projects on expanding the range of tourist flows in order to reduce dependence on the Chinese. In particular, we are talking about attracting tourists from countries like Russia, Kazakhstan, India, Indonesia, Vietnam, Philippines and others.
Is the forward plan to submit a motion to the WTO? Although this notion is under consideration, a few controversial moments exist. First, it would be necessary to prove that China’s protectionist actions are political in nature. And if this passes, the process of obtaining any kind of outcome through the WTO is time-consuming, as it involves the time-consuming procedure of creating a panel of arbitrators in the dispute, conducting an investigation and summing up.
At the same time, calls for “the homeland return of domestic companies operating abroad helping to solve the problem of unemployment among young people” rose up a notch. According to the leading Research Fellow at the Korean Institute of Economic Research, Yang Geum-sun, as of June 2016, 11,953 South Korean companies that employed around 3.5 million foreigners have been operating abroad, and if at least 10% or 587 industrial enterprises returned to their homeland, this would lead to the creation of at least 290 thousand jobs, meaning that 61% of young unemployed Koreans will be able to get a job.
Experts raise the question of how long the pressure shall be maintained. An article published in the New York Times dated March 2, 2017 mentions that China, for which South Korea is the fourth largest trading partner, is unlikely going to take radical measures, as, against the background of a slowdown in economic growth, it is undesirable for Beijing to break the established structure of cooperation. In addition, such pressure taints the image of China. Certain South Korean media are reporting that the Chinese police has detained a number of participants in the demonstrations against Lotte, and the Global Times newspaper has harshly criticized South Korea, indicating that the pressure measures should be applied not only against Seoul, as North Korea and especially the US should also bear responsibility for their actions. Huanqiu Daily also stressed the necessity of retaliating against the United States, which has promoted the THAAD project from the very onset.
What is next? a Moody’s Report dated March 10, states that Beijing’S actions could have a negative impact on South Korea’s sovereign credit rating. Although the ban on the sale of tours will not have a significant effect on South Korean economic growth as a whole, the income earned by South Korean travel agencies shall drop by approximately USD 9.6 billion. In addition, an increase in tension could have a negative impact on the sales of South Korean companies engaged in the production of cars and electronics.
The author believes that the situation is far from being resolved. According to the results of a survey conducted by the South Korean Association of Foreign Trade in the period from March 7 to March 10, 2017, out of 597 companies, 89% of South Korean companies operating in the fields of tourism, cultural contents and consumer goods on the Chinese market have faced or shall presumably face restrictive measures from Beijing within three months. In this context, one can only sympathize with both Lotte and other corporations operating on the Chinese market.
Konstantin Asmolov, PhD in History, Leading Research Fellow at the Center for Korean Studies of the Institute of Far Eastern Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook.”
