Un­wit­ting vic­tims of diplo­matic stand-off

Ghost stores, lost bil­lions as Korea Inc’s China woes grow. By Cyn­thia Kim and Adam Jourdan

Bangkok Post - - BUSINESS - PHO­TOS BY REUTERS

On a faded no­tice pasted to the pad­locked doors of the Lotte Mart su­per­store in China’s Ji­ax­ing, a date can still be read: March 6, 2017 — when the store was or­dered to “tem­po­rar­ily” close over al­leged fire safety is­sues.

The shut­tered en­trance and flap­ping no­tices are a blunt re­minder of how South Korean busi­nesses have be­come un­wit­ting vic­tims in a year-long diplo­matic stand-off be­tween Bei­jing and Seoul.

Last Sep­tem­ber, Chi­nese Pres­i­dent Xi Jin­ping warned his South Korean coun­ter­part that bi­lat­eral ties would suf­fer if Seoul did not prop­erly han­dle China’s op­po­si­tion to the planned de­ploy­ment of a US an­timis­sile de­fence sys­tem in South Korea.

Now — with the sys­tem’s in­stal­la­tion mostly com­plete amid grow­ing threats from North Korea — the fall­out is ev­i­dent in both the shut­tered Chi­nese stores of Lotte and the empty Seoul shop­ping dis­tricts once jammed with Chi­nese tourists.

The Ji­ax­ing out­let, south­west of Shang­hai — along with around 90 other Lotte Mart stores in China — re­mains shut over its sup­posed fire safety vi­o­la­tions. No in­spec­tors have turned up de­spite what Lotte says were re­peated en­treaties to rec­tify the prob­lems.

A skele­ton staff say they are be­ing paid min­i­mum re­quired wages, but Lotte is now con­sid­er­ing sell­ing up.

NEVER WORSE

Up­set over Seoul’s de­ci­sion to de­ploy the Ter­mi­nal High Al­ti­tude Area De­fence (THAAD) sys­tem, tour op­er­a­tors say China has qui­etly banned groups trav­el­ling to South Korea, once one of the most pop­u­lar des­ti­na­tions for Chi­nese tourists. Cruises have erased Korean ports from their trips and some flights have been cut.

“Things have never been worse since for­mal diplo­matic re­la­tions were es­tab­lished be­tween the two in 1992,” said Han Jae-jin, an econ­o­mist at the Hyundai Re­search In­sti­tute.

Seoul and Wash­ing­ton say THAAD is purely a de­ter­rent to nu­clear-armed North Korea, but Bei­jing wor­ries the sys­tem’s radar can pen­e­trate its ter­ri­tory and will up­set the re­gional se­cu­rity bal­ance.

Pub­licly, Bei­jing has main­tained it sup­ports “nor­mal busi­ness” and other ex­changes with South Korea has not com­mented on the sit­u­a­tion with Lotte or tour groups.

Near Dong­dae­mun in Seoul, a ma­jor shop­ping dis­trict, an out­door wear pop-up store had signs read­ing “THAAD re­tal­i­a­tion shock! Go­ing out of busi­ness sale!”. Dozens of sim­i­lar signs were seen across the 24-hour shop­ping precinct.

Cho Kyung-suk, who has been sell­ing women’s bags for 15 years in Dong­dae­mun, closed one of his three stores in Fe­bru­ary.

“With­out the Chi­nese tour groups and buy­ers, I was mak­ing only about one fifth of what I used to,” Cho said. If big com­pa­nies are do­ing badly, imag­ine us.”

VAN­ISH­ING SHOP­PERS

The num­ber of Chi­nese tourists, which used to ac­count for about half of all vis­i­tors to South Korea, halved in the first seven months of 2017 com­pared to a year ago. That meant $5.1 bil­lion in lost busi­ness for South Korea, based on the av­er­age spend­ing of Chi­nese vis­i­tors in 2015, data from the Korea Tourism Or­ga­ni­za­tion shows.

About 90% of the na­tion’s 160 tour agen­cies spe­cial­is­ing in in­bound Chi­nese tourism have closed, South Korea’s travel agent in­dus­try body es­ti­mates.

With­out the THAAD back­lash, Asia’s fourth-largest econ­omy was ex­pected to grow more than 3% this year. The cur­rent fore­cast is 2.8%, ac­cord­ing to the Bank of Korea.

In China, Lotte has been at the cen­tre of the storm, thanks to a land swap deal it agreed with Seoul so THAAD could be in­stalled.

Half a dozen Lotte Mart work­ers around China who spoke to Reuters said there was no sign stores were go­ing to re­open. Lotte em­ploys around 13,000 Chi­nese work­ers across the coun­try.

“Clos­ing down our China busi­ness is one op­tion we con­sider in the long-run as we can’t leave the stores closed like that for years,” an of­fi­cial at Lotte Mart’s Seoul of­fice said, de­clin­ing to be named.

Some lo­cal Ji­ax­ing res­i­dents said China’s re­sponse was war­ranted, even if it meant

some other stores and restau­rants nearby also closed or suf­fered.

“The shut­down is all linked to THAAD,” said Gao Yun­fei, 22, an e-com­merce worker from An­hui prov­ince out­side the closed Lotte Mart store in Ji­ax­ing. “It’s as it should be, it’s just a re­flec­tion of peo­ple’s love for their coun­try.”

K-POP TO DUTY FREE

Back in South Korea, the coun­try’s $8 bil­lion duty-free mar­ket, the world’s largest, is also strug­gling.

In wealthy neigh­bour­hoods of Sinsa and Apgu­jeong in south­ern Seoul, where posh boule­vards are packed with flag­ship stores and celebrity hair sa­lons, re­tail rent prices have dropped to the low­est since 2013, ac­cord­ing to the Korea Ap­praisal Board and lo­cal re­al­tors.

The Korea Duty Free Shops As­so­ci­a­tion has asked re­gional air­ports across the coun­try for rent dis­counts. Lotte Duty Free — the coun­try’s big­gest duty free op­er­a­tor — is even con­sid­er­ing clos­ing its flag­ship store in In­cheon In­ter­na­tional Air­port, af­ter in­cur­ring its first quar­terly loss since the 1980s this year.

“We don’t think the THAAD is­sue will be re­solved any­time soon, and there is noth­ing we can do to help,” an of­fi­cial at the Lotte Duty Free said, ask­ing not to be named.

With hopes of bet­ter ties, Lotte is still keep­ing its Chi­nese su­per­mar­kets, while big ex­porters like Hyundai Mo­tor are mud­dling through even af­ter its China car sales tum­bled over 60% in the sec­ond quar­ter.

But small shops don’t have that lux­ury, said a chil­dren’s wear stall owner sur­named Shin in Dong­dae­mun.

Chi­nese buy­ers were im­pos­si­ble to re­place, even though ven­dors were try­ing to tar­get vis­i­tors from Ja­pan and Thai­land.

“This whole area was just (driven by) China, and look at it now,” 53 year-old Shin said, point­ing to empty neigh­bour­ing stalls sell­ing hot-dogs and fa­cial masks.

“Every­one here lived off Chi­nese money.”

‘‘

Things have never been worse since for­mal diplo­matic re­la­tions were es­tab­lished be­tween the two in 1992.

HAN JAE-JIN ECON­O­MIST AT THE HYUNDAI RE­SEARCH IN­STI­TUTE

ABOVE The Ji­ax­ing out­let, south­west of Shang­hai — along with around 90 other Lotte Mart stores in China — re­mains shut over its sup­posed fire safety vi­o­la­tions.

NEWS1 VIA REUTERS

Ter­mi­nal High Al­ti­tude Area De­fence (THAAD) in­ter­cep­tors are seen as they ar­rive at Seongju, South Korea on Sep­tem­ber 7, 2017.

LEFT Peo­ple look into a closed Lotte Mart in Dan­dong, Liaon­ing prov­ince, China in this pic­ture taken on March 5, 2017.

Hyundai Mo­tor is mud­dling through even af­ter its China car sales tum­bled over 60% in the sec­ond quar­ter.

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