China or America
The author is an economic news editor at the JoongAng Ilbo
The moment of truth has arrived sooner than expected for Korea Inc. Korean companies are being asked to choose between the United States and China in the Huawei Technologies battle, ground zero in the technology Cold War between the two superpowers.
Korean companies vividly remember the painful price Lotte Group had to pay for yielding its golf course on a mountain to the government to deploy the U.S.-led terminal high altitude area defense (Thaad) antimissile system two years ago. Beijing made Lotte the main scapegoat. Lotte Mart grocery stores across China were sanctioned by Chinese authorities and boycotted by consumers. Of 99 stores, 87 faced business license suspensions. Lotte, which made a foray into China in the late 2000s, with an ambition to set up 500 stores across the country, had to pull out.
Lotte Mart stores were sold to Chinese rivals after 11 years in the market. A project to build a theme-park and multi-use location in Shenyang, northeastern China, came to a halt for more than two years despite Lotte’s investment of 3 trillion won ($2.5 billion). The financial toll on Lotte alone from the Thaad retaliation is estimated at around 2 trillion won even when excluding the damage to the Lotte name.
Beijing has become more explicit. The Chinese Commerce Ministry has begun blacklisting foreign companies joining up with the United States to stop supplies to Huawei or take any hostile and injurious actions toward Chinese companies, including Huawei, and related industries.
According to The New York Times, Chinese authorities called 12 global IT companies and warned of “dire consequences” if they join the Trump administration’s sanctions against China. The names included Korean chipmakers Samsung Electronics and SK Hynix along with U.S. companies like Microsoft.
Korean companies cannot easily cut off ties with Huawei, not just out of the fear of retaliation. Samsung Electronics, SK Hynix and Huawei are closely connected in the global IT supply chain. Samsung has been running NAND flash memory plants and SK Hynix has been operating DRAM fabs in China. Huawei imports more than 12 trillion won worth of Korean chips, displays and other components a year. It is naive to think the U.S. sanctions on Huawei could benefit Korean IT companies.
Under the presidency of U.S. President Donald Trump, Washington no longer plays nice. The world has seen how Washington wrecked Chinese IT company ZTE through sanctions in spring last year. The Trump administration banned the import of chips and components from ZTE for violating the U.S. sanction on Iran and North Korea, shaking the company’s business by the roots. The ban was lifted only after ZTE paid $1 billion in penalties and replaced its management.
Korean companies are increasingly cornered. Other multinationals are in similar bind. But they have full assistance from their governments. Google, Intel, Qualcomm and other U.S. companies joined the sanction because the U.S. Commerce Department legitimately placed Huawei and 68 other companies on the “Entity List,” requiring permission to do business with any of them. Huawei also maintains a brave face because it has strong backing from the Beijing government. Other governments are drawing up strategies to best protect their companies caught in the crossfire in the trade war between superpowers.
Korean companies are alone and exposed to the crossfire. The Blue House said whether to join the anti-Huawei campaign should be up to the corporations. A task force Prime Minister Lee Nak-yon ordered to address the trade war has yet to become active. Companies don’t have the protection of their own government.
They should know better, since they had been more or less abandoned during the Thaad retaliation. Lotte merely accepted the government’s orders. But it paid a high price. Is it too much to ask the government to come to their help in times of need?
JoongAng Ilbo, June 11, Page 27