Finance minister: China retaliation over Thaad unlikely

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Finance minister: China retaliation over Thaad unlikely


Finance Minister Yoo Il-ho tried to appease growing concerns Monday that the Chinese could take action against Seoul and Washington’s recent decision to deploy a Terminal High Altitude Area Defense (Thaad) system to Korea.

“There will be no large-scale retaliation from China,” the Finance Minister told lawmakers in Yeouido. “We speculate that [the Chinese government] will separate economics with politics.”

The Finance Minister added that the Korean government is working on a plan to respond accordingly. “Although we are concerned, it is unlikely that economic relations between South Korea and China will see a sudden decline,” Yoo added. “We will try to convince China that this is a political issue and not an economic one.”

However, private think tank Hyundai Research Institute released a report on Tuesday stating that South Korea needs to embrace the possibility of retaliatory action from China as it has retailiated in cases in the past.

The report highlighted actions that China has taken against other countries including Japan, the Philippines and Vietnam, as well as South Korea.

In the case of Japan, after the government imposed emergency import restrictions against Chinese leek, shiitake mushroom as well as on straws used in making mats, the Chinese government imposed a special tariff with a 100 percent rate on Japanese automobiles, mobile phones and air conditioners as retaliation. China took similar actions when there were territorial disputes with Japan, the Philippines and Vietnam, which also included advising Chinese tourists from making trips to these countries.

In fact in 2010 when China and Japan were locked in a territorial dispute over the Senkaku or Diaoyu islands, tourism by Chinese tourists shrank for three consecutive months after a 39 percent surge in September. During the same period Korea saw a 30 percent increase in Chinese tourists.

If China takes actions against Korean imports, the processed food sector could be hit the hardest as it accounted for the most imported items that failed to pass through customs.

“The South Korean government needs to review the possibility of import restrictions from China and if there is any sign of retaliation, it needs to raise the issue” with Chinese governments, said Han Jae-jin, a senior researcher at HRI.

The biggest concerns come from the growing dependency of China as South Korea’s key business partner. China is South Korea’s biggest trading partner as it accounts for 24.5 percent of all goods exported from South Korea and 21.7 percent in imports, according to the Korea International Trade Association.

As of May, Korea’s trade account amounts to $37.8 billion, of which $13.7 billion or 36 percent is from trade with China.

But some market insiders say any actions the Chinese would take might not have a huge impact on the Korean economy.

“Since 2012 the global economy has been showing signs of increasing their protectionism on trades,” said Lee Jae-man, a Hana Financial Investment analyst. Regulatory actions taken against Korean imported goods have grown from an average 10 cases a year between 2000 and 2011 to 25 a year between 2012 and 2015. China has already been expanding its trade protectionism through its custom tariff barrier.

“Hence China’s trade protectionism has been deepening since the global crisis [of late 2008, the trade tensions that may come arise from Thaad deployment] will not act as a new negative factor.”

As of May, Korea’s exports have fallen 11.5 percent year-on-year while exports to China have dropped 15 percent. There are expectations that any improvement would result from corporate restructuring and profit generated from the appreciation of the yen.

Market insiders said the cosmetics and household appliances industry will likely suffer if South Korea’s image deteriorates as a result of deepening tensions over Thaad. After Korea announced its agreement with Washington, shares of AmorePacific fell 4 percent from the previous trade.

But the defense industry is likely to benefit from the deployment of Thaad. In fact, LIG Nex1’s shares are up 3 percent since Friday. Other defense shares including Hana Techwin have increased the last three days.

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