By Yoon Ja-young
China will step up its economic retaliation after the first parts of a U.S. missile defense system arrived in Korea, analysts said Tuesday.
The Terminal High Altitude Area Defense (THAAD) system is being deployed here to protect against increasing missile threats from North Korea.
Beijing has been taking diverse measures deemed as economic retaliation, claiming that the U.S. missile battery is against its security interests.
Most retaliation includes restricting tourists to Korea, suspending operations of Korean retail giant Lotte Mart in China and banning Korean entertainment content.
With the actual THAAD deployment, China will ratchet up its campaign against Korean companies, according to the analysts.
“China targeted Korean cosmetics and other goods that aren’t significant in terms of total sums last year, but it will certainly intensify retaliation to components and materials, which will really hurt us,” said Chun Yong-chan from the Hyundai Research Institute.
“It will continue retaliation in the services sector, which is relatively free from WTO regulation. Korea has been marking huge surpluses in services with China, and it knows that Korea is vulnerable when it attacks sectors like tourism,” he added.
Kim Kyung-hwan, an analyst at Hana Financial Investment, said China is entering the second phase in its retaliatory steps. It started the first step by using non-tariff barriers and government power for authorization as well as shutting down channels such as those for tourists and Korean content.
In the second phase, it started directly targeting Korean business operating in China such as Lotte as well as B2C companies.
“China is in a sensitive period in terms of politics. That is why it is taking more aggressive measures than expected,” he said, pointing out that the Chinese political circle is facing a transition period.
If the situation worsens further, an exodus of Chinese capital and renegotiation of long-term plans such as the Korea-China FTA may follow. The fourth phase will be direct restriction on exports and imports, according to the analyst.
“Though official restrictions of imports aren’t likely, it has unofficial measures such as those related with the environment, tax, safety and labor, which are easy to execute,” Kim added.
Following China’s retaliation, Seoul is considering taking the issue to the World Trade Organization (WTO). The government and the ruling Liberty Korea Party concluded that China’s retaliation based on political reasons goes against WTO rules.
“Chinese President Xi Jin-ping had criticized United States’ protectionism at the Davos forum. Now, China is taking unjust revenge,” said Lee Hyun-jae, policy chief of the party.
Vice Trade Minister Woo Tae-hee said that the government is examining whether the series of measures taken by China violate international norms.
He stressed that deployment of THAAD is self-defensive, and a sovereign decision to protect the country from North Korea’s threat.