The land-based Terminal High Altitude Area Defense, or THAAD, interceptor is one of the alternatives being discussed. Photo: AFP/Missile Defense Agency
The emplacement of a US THAAD missile battery has led to Beijing launching economic retaliation against Seoul. Photo: AFP / Missile Defense Agency

There were pleasantries aplenty as Chinese Foreign Minister Wang Yi, visiting Seoul on a two-day trip, talked with Foreign Minister Kang Kyung-hwa and paid a courtesy call on President Moon Jae-in ahead of a trilateral China-Japan-South Korea summit scheduled for Chengdu, China, later this month.

It was Wang’s first trip to South Korea in more than four years. While Moon sought Chinese cooperation on North Korea and invited President Xi Jinping to Seoul, Wang’s key points – repeated in meetings with Kang, with Moon and at a lunch attended by Korean media – were aimed at the United States. With China under an unprecedented onslaught from Washington, he repeatedly urged South Korea to maintain free and open trade.

There is some irony in that messaging. Wang called China and South Korea “close neighbors, friends and even more, partners” – but did not, apparently, offer a key carrot that Korean media, in the days preceding his visit, had speculated would be dangled.

In none of the public statements that have emerged from Wang’s visit was any reference made to the biggest blip in bilateral relations since the countries opened diplomatic relations in 1992: ongoing fallout stemming from the deployment of a US anti-missile battery in South Korea.

Some estimate that the issue – apparent economic weaponizing by China – has cost South Korea billions of dollars’ worth of losses.

While Korean eyes will be focused on whether, in the run-up to the trilateral summit later this year, the situation will be ameliorated, it points to the complexity of relations in a region where the competing interests of Beijing, Pyongyang, Seoul and Washington all intersect.

Shifting geopolitical/economic interface

With its shock 1950 intervention in the Korean War, China saved North Korea as a state, then battled South Korea and the United States to a standstill in 1953, when the war ground to an uneasy halt. Throughout the Cold War, Beijing-Seoul ties were frozen. Only after communism collapsed across Eastern Europe did Northeast Asian tensions thaw.

After China’s participation in the 1988 Seoul Olympics, Beijing-Seoul diplomatic relations were established in 1992. A brave new future beckoned. People-to-people contact and economic relations took flight.

According to data provider OEC, China took just 3.5% of South Korean exports in 1992; the US took 32%. But as commerce across the Yellow Sea surged, China overtook the US as South Korea’s leading export destination in 2003, taking 22% of Korean exports, as against the United States’ 19%. In 2017, China was importing more than twice as many South Korean goods as the US; the ratio was 25% to 12%. And Korean investment poured into China.

One question this raised was how deeply – or whether – the economic shift would lure democratic South Korea into communist China’s political orbit. A related question was whether China’s economic ties with Seoul could trump Beijing’s traditional political ties with Pyongyang.

Yet North Korea’s status as a central strategic risk in Northeast Asia and related imperatives – Beijing maintains a defense treaty with Pyongyang; Seoul maintains one with Washington – did not alter. If anything, North Korea’s global prominence rose after Pyongyang went critical in 2006.

Even conservative South Korean presidents recognized Beijing’s potential as a game changer: Diplomatic relations had been restored under right-wing ex-general Roh Tae-woo. In 2013, another conservative, Park Geun-hye, took office in Seoul. Early in her term, Park – a Mandarin speaker – cozied up to President Xi, hoping he would lean on North Korea. In 2015, she was the only democratic leader to attend Xi’s parade in Beijing commemorating the end of World War II.

But once it became apparent that Xi could not or would not trammel Pyongyang’s nuclear and missile programs, Park changed course. In July 2016, she agreed with Washington to install a US THAAD (Terminal High Altitude Area Defense) anti-missile battery on South Korean soil.

Beijing, stating that the system’s radars could snoop on its own defenses, warned darkly against the move. Still, the system duly arrived in South Korea, going operational in May 2017.  Beijing went ballistic.

A barrage of verbal broadsides were unleashed, but with China now being South Korea’s leading trade partner, a more damaging weapon was unsheathed: economic retaliation. Though under-reported at present, this dynamic continues to impact Korean business to this day.

No K-pop, no games; tourism, corporates hammered

Korean cultural content – largely K-pop and K-dramas, but encompassing K-film and K-games – had been wildly popular among Chinese: The term hallyu (“Korean wave”) was coined in China. But under THAAD’s shadow, K-pop acts found invitations being revoked. No K-pop concert has taken place in China since.

South Korean game companies have been unable to win licenses for games in China – formerly their biggest single market. According to the Korea Creative Content Agency, 60.5% of overseas sales of Korean game companies has been generated from exports to China – yet not a single Chinese license has been granted for a new Korean games since March 2017.

Tourism was a core target. Chinese tour groups – who once flooded the upmarket shopping precincts of Seoul’s Myong Dong district – stopped coming. Data from the Korea Tourism Organization show the beating the sector suffered.

In 2016, in the peak month of August, 873,771 Chinese visited South Korea. In 2017, the year of THAAD, numbers for the same month plummeted to 339,388 – a 62.1% plunge. There was a 40.9% recovery to 478,140 Chinese visitors in August 2018, and a further climb to 578,112 tourists in August 2019 – but numbers remain well south of 2016’s. In August 2016, Chinese made up 52.5% of visitors to Korea; this August, they were 36.4%.

Korea’s conglomerates took fire, too.

National flagship Hyundai Motor Co has been hit particularly hard. According to data supplied to Asia Times by Hyundai, in 2015, the company’s Beijing arm sold 1,062,826 vehicles in 2015, and 1,142,107 in 2016. But in 2017, the year of the THAAD brouhaha, sales plummeted to 785,006. There was little change in 2018, with sales of 790,177 vehicles. And as of end-October 2019, the company had sold just 513,850 units in China.

Lotte Group, a retail and construction firm, was specially targeted: It granted Seoul the land – a golf course – on which THAAD was installed. In China, local governments descended on Lotte’s 112 supermarkets across China, finding regulatory fault. The supermarkets were shuttered as Lotte pulled out.

South Koreans were shocked to see online video of Chinese schoolchildren singing, “Get Lotte out of China! Boycott South Korean products! It starts with me! Boycott THAAD!”

Hyundai Research Institute (HRI) projected South Korean losses from the THAAD retaliation to be US$7.5 billion – a 0.5% hit to gross domestic product – in a widely quoted 2017 report.

Damage continued ever after Seoul offered Beijing, in October 2017, “Three Nos”: No deployment of additional THAAD batteries; no cooperation in the US-led missile defense system; and no trilateral security alliance with Tokyo and Washington.

Difficult to prove

Two years later, an HRI researcher admitted the difficulty of accurately itemizing the overall impact. “It is very hard to measure the exact figures in terms of economic damage,” Cheon Yong-chan, a senior researcher at HRI, told Asia Times.

That is particularly so as Beijing never announced anything official on the issue. “The Chinese government never used the term ‘THAAD retaliation’ – that is a Korean term – and never said [to tourists], ‘You can’t go to Korea,’” Cheon said. “They just stopped coming.”

Korean journalists in China said that while travel agents were not given official guidance, they received verbal orders from officials to halt group tours. Cheon noted that the Philippines, too, has suffered tourism drops amid political disputes with China.

Still, the THAAD issue gradually dropped off South Korea’s radar. As a result, HRI never followed up its 2017 report. “The effect of THAAD retaliation continues, but is no longer considered a major issue,” Cheon said. “So we are no longer tracking related data.”

And there have been some positive signs in recent months.

Upbeat signals

Lotte told Asia Times that it does not disclose the size of its investments in China, but that, beyond its retail arm, “other businesses remain the same.”

This April, Lotte received official permission to resume work on a $2.6 billion shopping and leisure development in Shenyang, northeastern China. The project, which commenced in 2014, was suspended in 2016 after the local government stated that it had not fulfilled administrative requirements.

And although TV Korean drama imports were banned post-THAAD, since late October this year, two Korean dramas have been permitted and another is soon to be broadcast, the Ministry of Culture and Tourism told Asia Times.

During Wang’s Korea visit, a spokeswoman for the Chinese Foreign Ministry told a briefing in Beijing, “We agree to deal with THAAD and other issues properly so we can earnestly respect each other’s core interests.” Details, however, were not clarified.

“The ice is melting between the two countries, but spring has not yet arrived,” Renmin University of China Associate Professor Cheng Xiaohe wrote in comments published by China’s Global Times party-run tabloid. “The toughest time for bilateral relations has passed, but some problems caused by the deployment of the THAAD system in South Korea remain.”

Meanwhile, experts say all Korean business woes in China cannot be bundled under the convenient umbrella of “THAAD retaliation.”

Auto analysts say that Hyundai sales in China have suffered not simply because of political fallout, but because of a lack of new models for the Chinese market.

And Chinese tourism preferences are shifting. “In China, young people don’t like group tours, individual tourism is the trend, so we can’t see so many Chinese tourists groups in Myong Dong now,” Hwang Jae-ho, a China watcher at Seoul’s Hankook University of Foreign Studies, told Asia Times. “We need new strategies to woo Chinese tourists.”

Crucially, China remains South Korea’s leading trade partner – by a long chalk.

In 2018, China bought 26.8% of South Korea’s total exports, worth $162.2 billion, while the United States was a distant No 2, purchasing 12.1%, worth $73.1 billion. Moreover, when combined with No 4 export buyer Hong Kong – which acquired 46 billion’s worth – China’s total consumption of Korean exports soars to $208 billion.

Even so, in South Korea – a country where frothy nationalist sentiments have, in recent years, lasered in on Japan and the US – the lack of public, media and political indignation aimed at China is puzzling.

Why no anti-China moves?

An eight-point readout of Wednesday’s meeting between Kang and Wang, posted by Seoul’s Ministry of Foreign Affairs, made no mention of the THAAD issue. Nor did an official presidential office brief of the meeting between Wang and Moon.

Prior to Wang’s trip, Seoul had made no related complaints to the World Trade Organization. Even in specific sectors, there has been no retaliation.

Take online gaming. Chinese games are making deep inroads into the South Korean market while Korean games have been locked out of China for more than two years – a situation that infuriates the industry.

“The Foreign Ministry has never come up with plausible explanations although game companies have claimed numerous times that they have suffered in China and not been protected by the government,” Wi Jong-hyun, who heads the Korea Game Society, told the National Assembly in October, according to the Korea Times. He accused the ministry of “ignorance and apathy.”

Silence toward Beijing contrasts starkly with the current uproar against Tokyo.

A national boycott has been under way since the summer against Japanese products and travel. It started after – amid a heated diplomatic/historical/legal dispute – Tokyo emplaced new rules on the export of semiconductor materials to South Korea, and removed the country from a “white list” of preferential export destinations.

Yet the Japanese measures were pinpricks compared with the economic boot to the groin delivered by China.

Pundits are unclear what is behind the dynamic.

“It is one of two things: It’s either a left-right issue – in other words, the left does not criticize China, but criticizes Japan and America,” said Mike Breen, author of The New Koreans. “Or, it’s cowardly – you criticize the countries that will not retaliate.”

Another issue is the lack of an anti-China lobby. While there have been reported clashes on Seoul campuses over Hong Kong’s pro-democracy movement, a recent protest outside the Chinese Embassy drew tiny numbers – some 30 persons.

“Economic damage is not an issue people take to the streets about, they take to the streets over emotion,” Breen said. “There is no latent emotion toward China, unlike Japan, where there is a 100-years-old historical grievance, and toward the USA, where people think it throws its weight around.”

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