Anxious but unable to complain out loud about THAAD

By Choi Sung-jin

“Our hearts are burning deep inside but we cannot say so openly.”

That’s what an executive said who works for a conglomerate with strong business interests in China, commenting on the decision Friday to deploy the U.S. antiballistic missile system known as THAAD, a move that drew strong objections from Beijing.

The business community is deeply concerned about the troublesome effects the military move will have on their trade with and investment in the world’s second-biggest economy, which is also Korea’s largest export destination, but cannot express it in public.

“Damages on exports are inevitable because of the missile shield’s deployment here,” another executive said, requesting anonymity. “We are of course worried about our business with China but finding it hard to raise issue with it. At stake is national security.”

Their biggest concerns are possible trade retaliation from the Chinese government. As soon as Korea and the United States announced the deployment of the Terminal High-Altitude Area Defense System, Beijing expressed “strong dissatisfaction and firm opposition,” in an unusually swift response.

Some observers here, while noting that China has long opposed the deployment of THAAD in Korea, feel that Beijing might have already prepared its next move.

“Beijing and Seoul have made great efforts developing their bilateral relationship to the present level. Such efforts, however, can be destroyed by one thing (THAAD),” said Chinese Ambassador to Korea Qiu Guohong, during his meeting with Kim Jong-in, interim leader of the largest opposition Minjoo Party of Korea, in February. “Once destroyed it will be difficult and will take a long time to restore.”

As to possible forms of trade retaliation, business sources here point to Beijing’s possible use of various nontariff barriers.

According to the Ministry of Trade, Industry and Energy, Korea’s exports to China totaled $137.1 billion last year, 26.1 percent of its total foreign shipments of $527.2 billion, and nearly double the nation’s exports to the United States, which stood at $69.9 billion, or 13.2 percent of the total. Last month, Korea’s exports to China fell 9.4 percent from a year ago.

The Chinese government has made economic retaliations for political and diplomatic reasons in the past. In 2012, Beijing suspended the export of rare earth resources to Japan over their disputes over Senkaku (Daioyu) Islands. In 2010, China stopped imports of salmon from Norway in protest against Oslo’s awarding of the Nobel Peace Prize to Liu Xiaobo, a dissident to Beijing.

Two of the Korean companies worried the most about Beijing’s economic moves are Samsung SDI and LG Chemical, which make batteries for electric buses and have made heavy investments in China.

Earlier the year, the Chinese government excluded the two Korean makers from its certification process under the pretext of realigning more than 1,000 battery makers operating in their country. Industry sources here regard Beijing’s moves as thinly-veiled discrimination against foreign companies to protect domestic firms. When makers are excluded from the certification process, they cannot receive the Chinese government’s subsidies, rendering them hardly able to compete with local rivals in price.

Officials at the two companies say Beijing’s move is mainly aimed at securing safety on mass transit vehicles rather than for economic nationalism, and they are awaiting a reasonable conclusion in this regard.

Other business experts said they are more worried about overall anti-Korean sentiment among the Chinese people than Beijing’s direct retaliatory moves.

“The Chinese government typically separates politics from economics and chances are slim that Beijing would take retaliatory moves directly,” said Lee Bong-geol, a researcher at the Institute of International Trade. “More important are the sentiments of the Chinese people. Some of them may initiate a boycott of Korean products.”

Aside from batteries for electric vehicles, consumer products such as automobiles and cosmetics could be hit, as well as tourism-related businesses, including air service and casinos, they said.

“Not only consumer products and services but also hallyu fervor could be damaged seriously,” Lee said. “The government and the business community need to cooperate closely to prevent such a calamity.”

According to the Bank of Korea report released Thursday, China exerts bigger influence on Korea’s economy than the U.S. does. If the Chinese economy grows 1 percent, Korea’s economy grows 0.3 of a percentage point, and if the U.S. economy grows 1 percent, Korea’s economy grows only 0.1 of a percentage point.