North and South suffer China hits
SEOUL/TOKYO: With geopolitical tensions rising in North Asia, China has tightened the economic screws on both Koreas — on the North for firing missiles, and on the South for deploying a shield to stop them.
In dollar terms, South Korea looks worse off, taking a US$4.7 billion (156 billion baht) hit from the drop in tourism alone. Adding in falling sales of South Korean cars, cosmetics and other goods in China, the dispute will cut 0.3 percentage point from growth this year, according to the central bank in Seoul.
North Korea has taken a massive blow, with China now refusing to buy coal, iron ore and lead, which accounted for more than 50% of the nation’s exports. While the amount of money involved is far less in the case of North Korea, the relative impact is huge on its much smaller economy.
One way Beijing expressed its unhappiness with the Thaad missile shield was by imposing a ban in March of package tours of Chinese visitors to South Korea. That’s translated into 2.3 million fewer Chinese tourists in the five months through July, versus the same period last year.
Based on the 2016 average spending of $2,060 per visitor from China, that’s cost South Korea $4.7 billion.
Sales of Korean vehicles in China have slumped this year as consumer sentiment mirrored that of the government over the missile shield.
Due to complicated pricing structures and different prices for various models, it’s difficult to estimate the revenue impact on the two companies, but it’s clearly large.
Lotte Shopping Co has been one of the worst affected South Korean companies. The company owned a golf course where the military has installed the missile shield and has been subject to retaliation China because it transferred the land to South Korea’s government.
About 90% of North Korea’s documented trade was with China in 2016. In February, China announced it had banned purchases from North Korea of coal and iron ore for the rest of the year.
Until the ban, coal had comprised about half of all North Korea’s exports to China.
The total cut in North Korean exports to China was $380 million in March-July this year, compared to the same period in 2016. While that’s small versus South Korea in dollar terms, it is a very significant cut for the regime in Pyongyang.