THAAD Aftermaths

China announced South Korea lost the vice president position in the Asian Infrastructure Investment Bank (AIIB).
China announced South Korea lost the vice president position in the Asian Infrastructure Investment Bank (AIIB).

 

The Global Times of China stated on July 8 that South Korean government agencies, enterprises and politicians advocating the deployment of the THAAD system should be subject to sanctions immediately after the South Korean government’s official announcement on the deployment of the missile defense system in the Korean Peninsula. On the very same day, South Korea lost its vice president position in the Asian Infrastructure Investment Bank.

Experts are predicting that pressures will be put on South Korea in various forms, although drastic and immediate economic sanctions are rather unlikely, in that China has resorted to such sanctions on repeated occasions whenever its strategic national interests have been threatened. For example, the Chinese government banned the export of rare earth metals in 2010 after Japan arrested a Chinese fishing boat captain in the Senkaku or Diaoyu Islands. Also in 2010, the Chinese government stopped importing Norwegian salmon after Norway awarded the Nobel Peace Prize to Liu Xiaobo. Two years later, China applied tighter quarantine rules to fruit imported from the Philippines in the wake of its disputes over the Scarborough Shoal or Huangyan Island.

China’s past sanctions against South Korea include one related to garlic. In 2000, the South Korean government raised its tariff rate applied to Chinese garlic from 30% to 315% in order to protect South Korean producers, and then the Chinese government banned the import of South Korean mobile phones and polyethylene.

S. Korea Lost AIIB VP Position

South Korea lost its vice president position in the Asian Infrastructure Investment Bank (AIIB) immediately after its announcement on the deployment of the THAAD system on July 8. The decision of the bank that is led by China is seen as its retaliation.

The decision is likely to have significant political and economic impacts although it does not affect South Korea’s investment and position as a member of the board of directors of the bank. South Korea is likely to be ruled out in a number of projects to be launched by the international bank.

At present, South Korea accounts for 3.81%, the fifth-largest, of the AIIB in terms of shareholding. China represents 30.34% of the bank, followed by India (8.52%), Russia (6.66%), Germany (4.57%), Australia (3.76%) and France (3.44%). France is expected to take the place of South Korea for the vice president positions along with Britain, Germany, India and Indonesia.

The position is of great importance. South Korean President Park Geun-hye met with AIIB president Jin Liqun in September last year to ask for the position in person. Besides, the accession to the AIIB was a determination the South Korean government made in spite of the possibility of diplomatic conflicts with the United States.

Shockwaves through S. Korean Stock Market

On July 8, when the deployment of the THAAD system in South Korea was officially announced, a market cap of more than three trillion won disappeared in the South Korean stock market with regard to stocks relating to China and Chinese consumers such as cosmetics, casino and tourism. Experts are pointing out that entertainment stocks could be negatively affected as well depending on how the Chinese government responds to the decision to deploy the missile defense system. Tangible and intangible non-tariff barriers are also likely to come into play in the form of customs clearance delay and the like.

According to stock market experts, secondary and tertiary impacts are on the horizon as a result of the Chinese government’s response. Specifically, the stocks mentioned above lost a market cap of approximately 3.2 trillion won that day while the aggregate market value of defense stocks edged up by 50 billion won or so. In short, the determination to deploy the THAAD system in the Korean Peninsula led to a market capitalization decline of no less than 3.15 trillion won in a single trading session.

 

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