China intensifies economic retaliation against Korea
The Chinese authorities are slapping a series of economic retaliatory steps against Korea for its decision to deploy a U.S. Terminal High Altitude Area Defense (THAAD) battery here, industry officials said Friday.
Chinese tax and customs agencies have turned hostile toward Korean companies suddenly, carrying out tax audits and tightening customs clearance.
Korean companies are feeling more pressure after Seoul signed the General Security of Military Information Agreement (GSO- MIA) with Tokyo last Wednesday, which calls for the two countries to share military intelligence.
China has opposed the military intelligence-sharing pact as China considers it a move for South Korea to be part of the tripartite U.S.-led missile defense system in Northeast Asia, strongly favored by the U.S. and Japan.
The Chinese government’s official stance is that it has not enacted any sanctions against Korean companies over the THAAD or GSOMIA disputes. But a growing number of Korean companies are taking the brunt in controversial deals.
Lotte Group’s operations in China recently faced an unusual, sudden tax audit and fire safety inspections by Chinese authorities. About 150 stores, department stores and supermarkets in Beijing, Shanghai and Chengdu have been targeted by inspections since Tuesday. Factories of Lotte Confectionary and Lotte Chemical in China were also subject to unexpected scrutiny.
Industry officials interpret the sudden audit and inspections as revenge on the company which signed a deal with Korea’s defense ministry to offer its golf course in Seongju County, North Gyeongsang Province, as a site for THAAD.
“We have not prepared any specif- ic countermeasures yet,” a Lotte Group official said. “We are still trying to grasp the exact situation and find out the intentions of the Chinese authorities.”
Korean wave at low ebb
However, Korean entrepreneurs in China claim regulations against hallyu, or the Korean wave, have actually happened there. Since last month, rumors have spread via Chinese social media that Korean celebrities will be banned from appearing in TV commercials.
“Actress Jun Ji-hyun and actor Song Joong-ki disappeared from commercials just in a day, and also Korean dramas,” a Korean businessman in Tianjin said. “The Chinese government is obviously discriminating against Samsung, LG and Hyundai to provide benefits to their domestic competitors.”
He also said many Chinese began to look down on Korea, after President Park Geun-hye’s longtime confidant Choi Soon-sil’s meddling in state affairs began making headlines globally.
On Nov. 22, Beijing demanded higher production capacity from electric vehicle (EV) battery manufacturers, mainly targeting Korean manufacturers. Only Chinese carmaker BYD could meet the new standard, while Samsung SDI, LG Chem and SK Innovation did not.
“In fact, the regulation on EV battery makers had been prepared beforehand,” said a researcher of the Korea Institute for International Economic Policy (KIEP). “It can be interpreted as industrial protectionism on one hand, but can also be seen that the recent political feud between the two countries worsened the situation.”
The researcher said the battery regulation is the only obvious measure that has taken effect against Korean products. However, non-tariff barriers, such as anti-dumping laws and stricter customs clearance are pressuring Korean exporters as well.
China’s commerce ministry announced on Nov. 22 it began to reexamine five Korean solar panel material makers, including OCI and Hanwha Chemical, to expand anti-dumping laws on polysilicon.
Their Chinese competitors have continued to claim the products imported from Korea are dominating the market.
Tougher customs clearance
For retailers and producers of consumer goods, stricter customs procedures have emerged as a heavy burden. In Korea, many entrepreneurs have jumped into the clothing and cosmetic industries because of K-beauty and K-fashion fever in China.
According to the Korea International Trade Association (KITA), Chinese customs rejected 542 food and cosmetic products between January 2014 and September this year, the third-largest after Taiwan and the U.S.
During the first nine months of the year, Korea ranked second with 148 rejects.
AmorePacific and other large firms say they feel little effect on trade so far. Small and medium-sized firms, however, fear possible negative effects on their sales.
A beauty industry official said, “Small cosmetics firms may suffer, if they have strongly depended on small traders in Chinese.”
Clothing industry officials claim Chinese customs have intentionally blocked clearance of products imported from Korea on Nov. 11, China’s Singles Day.
Those businesses are worried about inevitable losses from Chinese consumers wanting refunds. They said Chinese authorities arbitrarily changed maximum weight standards to simplify customs clearance.
Amid their struggle, Dongdaemun Market is collapsing due to a fall in the influx of Chinese tourists.
Doosan Group said on Thursday it decided to discontinue overnight operation of Doota Duty Free. The duty free shop, which target visitors to the hub of K-fashion in eastern Seoul, posted the lowest sales revenue among duty free shops in Seoul. It posted a 16 billion won operating loss against 10.4 billion won ($8.8 million) in sales in the first half. It did not disclose its third-quarter results.
The Korean Embassy in China said Thursday it will mull over multiple countermeasures to prevent unjust discrimination against Korean firms. However, the government measures still seem unsatisfactory for enterprises. A Korea Customs Service spokesperson said, “Because China changes its policies too frequently, we frankly struggle to grasp the country’s recent measures and intentions.”