Businesses fear Thaad fallout

The U.S.-led deployment of the Terminal High Altitude Area Defense (Thaad) system to Korea could have a negative effect on trade and industrial cooperation between Korea and China as the Chinese government is protesting the decision.

The Ministry of Trade, Industry and Energy is closely monitoring tensions over Thaad developing as a trade barrier between the two countries.

Korean Trade Minister Joo Hyung-hwan met with his Chinese counterpart at the Trade Ministers’ meetings of the G-20 nations in Shanghai on Sunday, and promised cooperation to maximize the effects of the Korea-China Free Trade Agreement. The Trade Ministry is also reviewing export conditions of Korean firms more closely after the Thaad announcement, according to a ministry official.

“It is inappropriate to show concern about trade first,” said an official. “But we are closely monitoring whether our firms could suffer disadvantages.”

Korean battery makers including Samsung SDI and LG Chem are concerned about the negative impact of the Thaad decision on their plans to export lithium-ion batteries for electric vehicles to China. The Chinese government has been postponing certification for Korean-made EV batteries, which is necessary for them to receive subsidies from the China and gain competitiveness in the market.

“There has been hope that the subsidy issue might be resolved soon as Premier Li Keqiang said last month he will seek measures to solve the problem,” said an industry insider.

Game makers that have attracted significant Chinese investments are also feeling tensions increase as they feel Chinese investors might withdraw money over political reasons.

Experts say that it is less likely that the Chinese government would apply direct pressures, but more likely place invisible pressures on tourism and Korean cultural content.

Tourism and retail industries, including cosmetics, are worried about a reaction from Chinese consumers, one of the biggest sources of profit. The Korea Tourism Organization held an emergency meeting with tourism industry insiders to discuss measures against a possible fallout. According to the organization, Chinese accounted for 43.2 percent of the foreign tourists to Korea in 2014. If that percentage starts to fall, sales declines at department stores, duty-free shops, tourism agencies and cosmetics makers would be inevitable, the organization predicted.

The tourism industry is perhaps most sensitive about a possible spread of anti-Korean sentiment among Chinese consumers. “As Chinese media is releasing negative reports on the Thaad system, Chinese tourists might dislike Korea,” said a Hana Tour spokesman.

“There can be not only direct regulations but also indirect ones like tougher customs and inspections on Korean products entering the Chinese border,” said an insider at a local retailer. “The Chinese government can also intend to find fault with Korean businesses operating in the country.”

The K-beauty initiative might take a blow if Chinese people turn their backs on Korean cosmetics.

AmorePacific and LG Household & Health Care, which are expecting boosts in their second-quarter performances thanks to Chinese consumers, are dreading any movement by Chinese authorities.

“We are closely monitoring,” said a spokesman at the healthcare unit of LG. “Our stock price has been rising thanks to better Q2 performances, but the upward trend has been held up due to the China risk.”

On Friday, LG’s dropped 4.49 percent after the Thaad announcement. Amore Pacific’s stock price slid 4.42 percent. Other cosmetics companies including Able CNC, Cosmax and Kolmar declined 4 to 5 percent.

Duty-free shops raise about 60 percent to 70 percent of their sales from Chinese tourists.

“Since the two countries have had favorable relations for a long time, it is difficult to predict how the tides will turn,” said a spokesman at Lotte Duty Free Shop. “Because the Chinese government can have direct control on the private sector unlike other countries, it might have tourism agencies toughen conditions for consumers who want to travel to Korea

BY KIM MIN-SANG, LEE SO-AH AND SONG SU-HYUN [song.suhyun@joongang.co.kr]