Lotte Suffers Retaliatory Action in China over THAAD Deployment

South Korean conglomerate Lotte is facing intense pressure from China after it agreed to swap land with the Korean government for deployment of THAAD, an American anti-ballistic missile system meant to defend South Korea against growing threats from North Korea. Although China has directed numerous harsh-worded objections against South Korea over its THAAD deployment since its initial announcement, the recent row against Lotte marks the first time China has threatened individual companies with retaliatory action over the Korean government’s decision.

Lotte, one of the country’s largest conglomerates, operates in a long range of industries, but is perhaps best known for its many department stores, duty-free shops, and large entertainment complexes. As one of the major players within Asian retail, Chinese consumers represent a large share of its revenue. According to company data quoted by Xinhua, Chinese customers account for 70 percent of revenue at its duty-free stores, and it operates over a hundred stores and entertainment venues in China. Even for its businesses in countries beyond China, Chinese consumers pose an important revenue stream. To say that continued success in the Chinese market is important to Lotte would be an understatement.

China’s state news agency, Xinhua, blasted Lotte in a recent editorial piece categorized under “military,” where it stated that Lotte is “one decision away from becoming an accessory to [threats to regional security and stability].” An oft-repeated threat in the editorial piece is that Lotte will face “severe consequences” if it decides to let the land swap deal through, and underlines that “Chinese people will not support a company complicit in damaging China’s interests.” Global Times, a more hardline publication, even said that Lotte should be forced out of China entirely as retaliation. It also went on to continue its attacks on South Korea, saying the country’s decision to deploy THAAD has made it “nothing to the Chinese.”

In spite of repeated threats that Chinese tourists will avoid South Korea because of its decision to deploy the defense system, the numbers tell a different story. In 2016, Chinese arrivals grew by 34.8 percent in South Korea, and the growth has continued into the beginning of 2017 as well.

While efforts to dissuade Chinese tourists from visiting South Korea may have been less effective than hoped, Korean entertainment companies have found it increasingly difficult to hold events in China. Lotte, which is continuing its expansion efforts in China, has been hit hard by what is increasingly looking like a trade war as well. Among its affected projects rank a US$2.9 billion theme park in China which was stopped by authorities in its construction phase. Lotte also recently shut down its e-commerce store on Chinese Taobao, as well as shuttered three supermarket chains it ran in China. It has also begun making moves to close down three of its Beijing department stores. According to “analysts” quoted by Global Times, “this is the price Lotte is paying for providing land for THAAD.”

It seems unlikely that the THAAD row will have much impact on Chinese willingness to visit South Korea, but the escalation of the conflict which puts private companies directly in the crosshairs over a state to state dispute sets a dangerous precedent for large stakeholders in Chinese tourism. Earlier this year, Chinese tourism authorities directed Chinese tour operators to avoid a Japanese hotel chain over the highly controversial political views of its chief executive—making the threats against Lotte China’s second attack on a foreign business in the first two months of the year. For Lotte, it remains to be seen if its retail and entertainment businesses in South Korea will be excluded from Chinese tour operators’ itineraries, but its tourism businesses—such as its new theme park—in China are already suffering from retaliation over THAAD.

As the case of Lotte proves, tourism—which China promotes as an excellent diplomatic tool to “boost people to people exchanges” in the region—is not immune to deteriorating state to state exchanges.

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Policy, Shopping & Duty-Free, Travel