Publisher Note
An increasing number of Chinese news outlets have advocated economic retaliation against South Korea since the South Korean government decided to accept the Terminal High Altitude Area Defense (THAAD) system in the Korean Peninsula. For example, the Global Times, affiliated with the People’s Daily, put out an editorial suggesting five countermeasures, adding that China should stop having any relation with South Korea and block South Korean companies from entering Chinese markets.
Actually, China has resorted to economic retaliation on repeated occasions during its past political and diplomatic disputes with other countries. For instance, China stopped importing Norwegian salmon after the Norwegian Nobel Committee awarded the Nobel Peace Prize to anti-Chinese human rights activist Liu Xiaobo in 2010. Two years later, China stopped exporting rare earth metals to Japan after Japan arrested Chinese fishing boats in the vicinity of the Senkaku or Diaoyudao Islands.
South Korean experts have different opinions as to whether the Chinese government will do so in response to the deployment of the THAAD system in the Korean Peninsula. Some of them say that economic retaliation is rather unlikely in view of the high level of intertwinement of the bilateral relations Seoul and Beijing while the others advise that it would be wise for the South Korean government to get ready for some retaliation. According to the former, any trade dispute between South Korea and China is likely to do much more harm than good to each side with the size of trade between them already large and, as such, China is not going to employ economic retaliation in order to respond to the deployment of the missile defense system.
As of June this year, South Korea was the largest exporter in China’s international trade. Specifically, South Korea accounted for 16% of China’s total imports for that month, followed by Japan (14%), the United States (14%), Taiwan (13%) and Germany (9%). China was the fourth-largest export destination for South Korea during the period, when 26%, 20%, 9% and 7% of South Korea’s exports went to the United States, Hong Kong, Japan and China, respectively. Since the establishment of diplomatic relations in 1992, South Korea has made a direct investment of US$69.7 billion in China until 2015. This amount is second only to its direct investment in the United States during the same period, US$88 billion, and China’s investment in South Korea ranks eighth among its international investments by destination. In 2015, China took up 9.5% of total foreign investments in South Korea to rank third. In short, South Korea and China are inseparable trade and investment partners.
The former are also saying that China is in no position to impose sanctions in a blatant way given its international standing and its membership in the World Trade Organization (WTO). Still, invisible restrictions are already beginning to take shape in the form of a lower standing of South Korea in the Asian Infrastructure Investment Bank (AIIB), a complete halt of business visa issue, South Korean electric vehicle battery manufacturers’ failure to obtain certification in China, a decline in exports attributable to a rising anti-Korean sentiment in China, indefinite postponement or cancellation of the airing of South Korean broadcasting programs and idol singers’ concerts, restrictions on Korean Wave content business in China, import and purchase regulations on cosmetics at duty-free shops, cancellation and postponement of exchange and cooperation projects between local governments and enterprises, etc.
Various South Korean industries have benefited much from the rise of the Chinese economy. Now, however, South Korea’s economic health is being threatened by its excessive dependence on Chinese markets. Last year, South Korea’s dependence on exports to China amounted to 26% and 45.2% of inbound tourists in South Korea were Chinese.
The South Korean government’s decision to accept the THAAD system in the peninsula was made under the circumstances of such a high economic dependence. China’s rush to economic sanctions by taking advantage of the situation could be a kind of blessing in disguise. Since its conflicts surrounding the islands, Japan has encouraged Japanese companies in China to relocate to Southeast Asia. The South Korean government needs to be determined to reduce its reliance on the Chinese economy in case of retaliation. Economic exchange and trade are reciprocal in the end. In that case, China cannot avoid losses resulting from trade restrictions, either.