Effect of THADD: Retaliation from China Likely to Significantly Affect S. Korean Economy | BusinessKorea

Sunday, February 25, 2018

4 May 2017 - 10:15am
Jung Suk-yee

The Hyundai Research Institute said in its report on May 3 that the economic retaliation from China that has followed THAAD deployment in South Korea is likely to result in a loss of 8.5 trillion won (US$7.6 billion) on the part of South Korea in 2017 alone whereas China’s loss related to the same issue is estimated at only 1.1 trillion won. The losses are equivalent to 0.5% and 0.01% of South Korea’s and China’s nominal GDPs, respectively.

The Chinese government imposed a ban on travel to South Korea in March this year. According to the institute’s report released that day, South Korea’s annual loss in the tourism sector amounts to 7.1 trillion won (US$6.3 billion) assuming that the ban on travel leads to a year-on-year decline of 40% in the number of Chinese tourists visiting South Korea between April and December this year. The report added that China’s annual loss in the tourism sector is likely to be limited to 1.04 trillion won (US$930 million) on the assumption that the number of South Korean tourists visiting China falls by 20% in comparison to 2015.

According to the economic research institute, the bilateral trade between the two countries is showing little change in spite of the economic retaliation and China’s targets have been limited to a small number of items such as cosmetic products and foods. China adopted tariff-related measures such as anti-dumping and safeguard duties as its retaliatory measures in the early stage and is currently shifting toward non-tariff measures like sanitary and phytosanitary more recently. Under the circumstances, South Korea’s export loss for this year is estimated at 1.4 trillion won (US$1.2 billion) and China’s export loss for the same period is estimated at close to zero.

When it comes to investment, the Chinese government is currently putting pressure on South Korean companies in China by means of tax investigations, discontinuation of assistance, etc. Chinese companies in South Korea are undergoing discontinuation of development and cooperation projects, too.

In the cultural content sector, the Chinese government’s measures against the Korean Wave in China that have continued since July last year are likely to result in some shrinkage although the magnitude is estimated at less than 10 billion won (US$9 million).

“Both countries need to stop their emotional confrontation and seek for long-term cooperation,” the institute advised, adding, “They would be wise to try to beef up their partnership in various fields such as diplomacy and national defense as well as economy.”


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