Businesses fear backlash from China

By Kim Yoo-chul

Major Korean companies fear possible retaliation from China following an agreement by Korea and the United States to deploy the Terminal High Altitude Area Defense (THAAD) anti-missile system here.

Company officials and analysts expressed concern that THAAD may stoke anti-Korean sentiment in the neighboring country.

They also said business ties with China could worsen, heightening uncertainties about the Korean economy.

“The THAAD issue is more about politics and diplomacy, but it could hurt Chinese consumer sentiment about Korean products,” Hyundai Securities analyst Kwak Byeong-yeol said.

Company officials expressed worries over retaliatory actions such as higher tariffs and stricter rules on some Korean products manufactured in China.

China is the single biggest market for Samsung and LG Group affiliates, and Hyundai Motor and other Korean companies have invested billions of dollars there to build huge manufacturing facilities.

LG Electronics, Korea’s second-largest consumer electronics firm, said it’s paying attention to how the Chinese government and consumers will react to the decision.

“THAAD deployment in Korea may hurt the interests of Korean companies operating in China. We are also concerned that anti-Korea sentiment could spread there,” said an official at the Federation of Korean Industries (FKI), a lobby for Korean conglomerates, Monday.

Analysts did not rule out the possibility of the Chinese government introducing punitive measures over the decision.

In 2000, Korea hiked tariffs of Chinese garlic to 315 percent from 30 percent. As a counter-move, China imposed a sales ban on Korean mobile phones. Under the free trade agreement pact, Korea exports semiconductors, displays and smartphones free of tariffs.

However, China has rejected Samsung SDI and other foreign battery makers' applications for passenger electric vehicle (EV) battery certification.

“This shows that the protectionist threat from China is still real. The failure to get certification is a set-back,” said Mark Newman with Bernstein Research.

Chinese consumer sentiment may turn worse and this could hurt sales of home appliances and smartphones, company officials said.

Hyundai Motor said the automotive group is “closely monitoring” developments in China, the firm’s most crucial market.

“Hyundai-Kia’s top management is regularly being briefed about the estimated effects of the THAAD issue by officials at Chinese operations. We will respond depending on the development of the situation,” said one official, declining to be named.

Hyundai Motor is building its fourth and fifth car factories in Changzhou and Chungqing.

Korean Air and Asiana Airlines, Korea’s top two carriers, are preparing to fill in the possible voids in passengers due to the THAAD decision, company officials said.

“The THAAD decision will obviously negatively affect the tour industry,” said an official at Korean Air.

Finance Minister Yoo Il-ho said that the government has contingency plans to counter any retaliatory moves from the Chinese government.

“We don’t expect any large-scale economic retaliation from China. Still, we are working on a set of measures under diverse scenarios,” Yoo told a session of the National Assembly.

Local brokerages lowered their targets on share prices of companies that are heavily exposed to China.

LG Household and Healthcare, a cosmetics unit of LG group, and other companies exporting goods to China saw their stock prices fall sharply Monday, hit by concerns about a backlash.

Lee Kyung-min, an analyst at Daishin Securities, said uncertainties about the Korean economy will grow.

“Cosmetics and trourism-related stocks could show volatile movements on weak investor sentiment,” Lee said.