THAAD Retaliation from China Unlikely to Kill Business

Economic retaliation from China against the deployment of a Terminal High-Altitude Area Defense battery from the U.S. here is unlikely to wreak lasting havoc on business between the two countries, analysis suggests.

Despite warning signs, the economies of Korea and China are too closely intertwined for any drastic action to be effective or make much sense.

◆ Tourism

According to China's National Bureau of Statistics, 4.4 million Koreans visited China in 2015, accounting for 17 percent of the total 26 million and easily the biggest group. Chinese also account for the largest group of tourists visiting Korea at 8.07 million, almost three times more than the 2.5 million Japanese tourists. The number of Koreans visiting China grew eight-fold since 1995.

If Beijing were to ban all Chinese tourists from visiting Korea, anti-Chinese sentiment here could result in a sharp decline in the number of Koreans visiting China.

In 2012, Beijing pressured citizens to avoid travel to Japan as their territorial spat over the Japanese-controlled Senkaku or Diaoyu islands flared up. But the impact was short-lived, and the number of Chinese visitors to Japan rose from 1.31 million in 2013 to 6.37 in 2016. In contrast, the number of Japanese visitors to China fell from 2.71 million in 2014 to 2.49 million in 2015.

◆ Closely Intertwined Economies

China imported US$1.52 trillion worth of products from around the world last year, of which the largest portion came from Korea at $158.7 billion or 10.4 percent. Some 78 percent of that was intermediate goods that are used to manufacture Chinese exports. If the latest row escalates and China is no longer able to import Korean-made semiconductors and displays, its burgeoning electronics industry would take a huge hit.

In 2013, Chinese businesses invested $400 million into Korea, surging to $1.9 billion in 2015. Over the same period, Korea's share of Chinese foreign direct investment rose from 3.3 percent to 9.5 percent. Korean investments in China are twice as large, totaling $4.3 billion as of 2015.

There are around 40,000 Korean companies doing business in China, employing significant numbers of Chinese workers. LG's factory in China for instance employs 32,000 workers, while POSCO's steel mill there employs 20,000.

Jin Chang-soo of the Sejong Institute said, "China and Japan's territorial dispute led to a halt in exports of rare-earth elements, but both sides refrained from implementing across-the-board economic sanctions due to their mutually supportive economic structure."

◆ Need for Diversification

But Seoul will still have to convince Beijing to separate politics and business and explain why the THAAD deployment is vital to its security and not aimed at keeping China in check.

It also needs to bolster its economic defenses against Chinese business drying up. "We need to build an economic structure that would cause China to be hit hard if it applies economic pressure or sanctions against us and develop alternative markets," Jin said.

Japan has been resorting to a so-called "China Plus One" strategy since 2012 to minimize its economic reliance on China by diversifying production bases to Southeast Asia and other regions.