Ghost stores, lost billions as Korea Inc's China woes grow
13/09/2017 24:00
* One year after China's THAAD warning, S.Korean business
suffer
* Major S.Korean companies operating in China under pressure
* Travel, retail stores in Seoul hurt by fall in Chinese
tourists
* Lotte at centre of storm after providing land for THAAD
By Cynthia Kim and Adam Jourdan
SEOUL/JIAXING, China, Sept 13 (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 U.S. anti-missile 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. urn:newsml:reuters.com:*:nL4N1LS01Y
NEVER WORSE
Upset over Seoul's decision to deploy the Terminal High
Altitude Area Defense (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 popup 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 percent of the nation's 160 tour agencies
specializing 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 percent this year. The current
forecast is 2.8 percent, 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 neighborhoods 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
005380.KS are muddling through even after its China car sales
tumbled over 60 percent 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 neighboring
stalls selling hot-dogs and facial masks.
"Everyone here lived off Chinese money."
($1 = 1,129.3400 won)
(Reporting by Cynthia Kim, Heekyong Yang, Yuna Park, and Haejin
Choi in SEOUL and Adam Jourdan, Anita Li and SHANGHAI newsroom;
Editing by Soyoung Kim)
((Cynthia.Kim@thomsonreuters.com; 822 3704 5654; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))
Keywords: NORTHKOREA MISSILES/SOUTHKOREA CHINA