A recurring Thaad nightmare

During China's economic retaliation on Korea, China zeroed in on certain areas where they had heated competition with Korean products around the globe. The solution for Korea lies in producing and selling items China desperately needs.

Choi Ji-young

The author is theeconomic news editor at the JoongAng Ilbo On Wednesday, the Chinese Foreign Ministry made an out-of-the-blue announcement. Over the deployment of the U.S. Terminal High Altitude Area Defense (Thaad) system in Korea, the ministry claimed that the past Korean government had agreed to the so-called “three no’s” plus “one restriction.” The three no’s refer to no additional Thaad deployments, no joining of a broader U.S. missile defense system and no Korea-U.S.-Japan military alliance. On top of that, the Korean government — or the previous Moon Jae-in administration — promised to limit the operation of the Thaad batteries already deployed in Korea, China claimed. That translates into a brazen demand from Beijing that the conservative Yoon Suk-yeol administration stop putting the interrupted Thaad deployment back on track.

As the operation of the Thaad missile defense system is directly related to Korea’s sovereignty, the Yoon administration cannot surrender to the pressure from China. After sending a strong message against China on Wednesday, Korea made it clear the following day that the antimissile system cannot be an object for negotiation. For Korean companies, however, the word Thaad is itself a nightmare as they saw their market share in China plunge precipitously after Beijing took retaliatory actions on their products after the Thaad deployment in Korea.

Let’s go back to 2017. After Lotte Group provided its golf course in Seongju, North Gyeongsang, as a base for Thaad batteries, the company was pressured by China from all fronts. Following Chinese consumer protests and boycotts of Lotte products and local contractors’ refusal to provide supplies, Beijing went so far as to force out Lotte Mart China. The fifth largest chaebol in Korea had to sell most of its assets in China at even lower prices than their market value and pulled out.

What about Hyundai Motor and Kia whose combined market share exceeded 10 percent in China before the Thaad retaliation? The two Korean carmakers — one of Top 3 foreign car brands in China — were compelled to replace their suppliers with local ones, followed by boycotts from local consumers and the government’s sly obstruction of business. Their market share, which fell to 2.7 percent last year, is expected to drop further to the one percent range this year.

That’s not all. No Korean game companies could get permit for their services in China, and no Korean dramas or movies could find local TV channels or movie theaters to show them in China. When I asked a Hyundai official why the automaker hold on to the China market despite Beijing putting brazen pressure on even joint ventures between Korea and China, he said, “How could we give up the world’s largest market if we really want to become a top-tier global carmaker?”

The official’s remarks explain the exact reason why Korean companies are sticking with China markets in the face of unjustified pressure and obstruction of business. Though China took such retaliatory actions in a surprisingly concerted manner, Beijing has never accepted its responsibility as the orchestrator of the boycott and instead attributed it to individual companies and citizens.

Five years have passed since, but China is still Korea’s largest export market as the country takes a whopping 23.4 percent of Korea’s all exports as of May. But a bigger problem is that Korea has not yet discovered a replacement for the China market even while Korea’s exports to China are rapidly dwindling. Many industry insiders single out the conundrum as a fundamental problem for Korea’s trade. After the shocking reversal in Korea’s trade surplus with China in May, Korea will likely record trade deficit with China for four consecutive months until August at least.

A deeper look into the alarming development points to more vexing reasons. A noticeable decline in Korea’s trade with China after Beijing’s economic retaliation often results from the fast growing competitiveness of Chinese products.

The predicament of Korean cosmetics companies in China shows it all. In the June 18 Shopping Festival staged by JD.com — the biggest online shopping event in the first half of the year staged by the second largest online retailer in China — not a single Korean cosmetics company made the Top 10 list. Korean exporters are already nervous about any possible retaliation from Beijing in case Korea joins the U.S.-led Chip 4 alliance with Taiwan and Japan. If China takes retaliatory steps against Korean products just like it did in 2015, Korean products will likely lose their competitive edge further in China.

Korea Inc. can learn from Taiwan. After U.S. House Speaker Nancy Pelosi’s trip to Taipei on August 2, China pressured Taiwan from all directions, yet stops short of banning high-tech imports from the neighbor. In China’s cutting-edge technology market, Taiwan takes up 25.2 percent, comfortably outpacing Korea (15.9 percent) and Japan (7.2 percent) as of 2021.

During China’s economic retaliation on Korea, the Chinese government and private sector zeroed in on certain areas where they had heated competition with Korean products around the globe. No doubt the solution for Korea lies in producing and selling items China desperately needs.