Cautious optimism on China’s rapprochement

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Cautious optimism on China’s rapprochement

Businesses were cautiously optimistic on Tuesday after the Korean and Chinese governments promised to improve relations following months of diplomatic stalemate over a controversial missile defense system.

Rumors of rapprochement had been simmering all last month, fueling anticipation that economic exchanges might restart soon. Many Korean businesses welcomed the joint announcement on Tuesday.

But for companies already hurt by the diplomatic crisis, words are not likely to change their situation any time soon. Many are taking a “wait and see” approach before making any decisions on the Chinese market.

Earlier this year, the Chinese government imposed a series of measures targeting Korean businesses, including a ban on group tours to Korea and heightened inspections of Korean retail outlets in China.

The measures appeared to be retaliation against the Seoul government’s acquiescence to the U.S. military’s installation of a missile defense system known as Thaad that China believes threatens its security.

Lotte Group was among the most heavily hit, with its discount chain Lotte Mart forced to close 87 of its 112 locations in China for supposed fire safety violations. Sources in the industry believe the inspections targeted Lotte because the company agreed to give up its golf course in Korea to host the missile shield.

Tuesday’s news prompted rumors that Lotte Mart might reverse its decision to sell its Chinese stores, but in a statement released later that day, its parent company Lotte Corportation ruled out the possibility, saying it plans to “push forward with the sell-off as it is already under way.”

Domestically, Korean airlines, duty-free shops and tourism agencies were the biggest victims of sour relations between the two countries. In March, Beijing ordered Chinese tourism agencies to stop offering packaged tours to Korea, starving Korea of its largest source of tourism.

On the ground, industry sources don’t see any signs of change coming soon. A common response was that even if relations immediately normalize, the sales effect won’t come until Chinese tourist numbers pick up.

“There are a lot of problems that remain to be solved in the process of Chinese consumers reaching duty-free stores,” a source at one duty-free store said. “There are fewer planes operating from China to Korea, not to mention there aren’t any tourism packages being organized at the moment.”

Korean tour companies in China saw no immediate signs of change on Tuesday, nor did they any signal that Beijing might lift restrictions on group tours, according to a report from the Korea Trade-Investment Promotion Agency.

“Industries seem to be sensing improvement in the two countries’ relations,” the report said, “but there are no visible post measures […] such as the restart of group tours.”

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