By Lee Hyo-sik
A growing number of retailers, travel agencies and other businesses catering to Japanese tourists or selling goods in Japan have begun feeling the pinch of deteriorating diplomatic relations with the world’s third largest economy.
Since President Lee Myung-bak made an unprecedented visit to Dokdo in August, bilateral ties between the two neighbors have hit rock bottom, with senior government officials from both sides engaging in a war of words over who is to blame for the worsening relations.
The government has been downplaying the adverse economic effects stemming from souring ties with Japan, stressing that Korea and its companies are strong enough to weather any fallout from the ongoing spat over the nation’s easternmost islets.
Emboldened by upgraded sovereign ratings and huge foreign exchange reserves, Korea decided Tuesday not to expand a currency swap arrangement with Japan.
Policymakers here have expressed confidence about the Korean economy’s supposedly improved ability to deal with adversity. The nation’s central bank reserves are currently measured at $322 billion, a significant increase from the $201 billion in late 2008 when the collapse of Lehman Brothers hit the global financial market hard.
It has also introduced a slew of measures to protect itself against speculative capital flow.
However, in contrast to the government’s optimistic assessment of overall economic conditions and the strained ties with Japan, local corporations doing business with the neighboring country are increasingly facing difficulties.
Hite-Jinro Japan saw its August sales drop for the first time since its establishment in 1988 compared with a month earlier. The Japanese unit of Korea’s largest maker of distilled liquor soju and beer has been feeling the effects of the growing anti-Korea sentiment in Asia’s second largest economy.
``We cannot say that our sluggish sales in Japan have nothing to do with the strained relations between the two countries. But the main reason behind our falling revenue is that Japanese consumers do not drink as much alcohol as they used to due to the public’s growing health awareness and the prolonged economic slump,’’ a Hite-Jinro spokesman said.
According to a recent survey of 500 companies catering to Japanese visitors or trading with Japanese firms, conducted by the Korea Chamber of Commerce and Industry (KCCI), 12 percent said they have suffered adverse effects, with 64 percent projecting they will become victims of the worsening bilateral ties if the current row continues.
By industry, 28.6 percent of travel agencies, hotels and other tourism-related businesses said they have sustained losses due to the increasingly-unfriendly relations.
A growing number of Japanese high schools have canceled trips scheduled for October and November, citing possible safety concerns for students visiting Korea.
Importers of Japanese automobiles are one of the hardest-hit sectors, with 25.8 percent of surveyed firms citing sales have fallen over the past two months.
A dealer selling one Japanese automobile brand in Seoul said the number of visitors to his showroom has dropped significantly compared to a year earlier, saying the worsening ties seems to have discouraged consumers here from purchasing Japanese cars.
Additionally, some food companies said they have not sold as many products to Japanese visitors as they used to, while food exporters saw shipments to Japan drop in August and September.
According to the KCCI survey, 64.7 percent of food makers here said their business will be adversely affected if the ongoing spat prolongs.
``In the past, the two countries dealt with political and economic issues separately. But this time both sides have gone too far and have become willing to mobilize all available measures to retaliate against each other,’’ said Lee Kyung-sang, director of the KCCI’s industrial policy division. ``The two sides should refrain from allowing matters to go from bad to worse and take steps to minimize the potential economic fallout.’’