After the Lotte Group decided to provide a site for the terminal high altitude area defense (THAAD) system on the Korean peninsula, sanctions on South Korean companies doing business in China and Chinese consumers’ boycotts of South Korean products are accelerating.
According to local media in China, the City of Beijing fined the Chongwenmen Branch of Lotte Mart 44,000 yuan for an illegal advertisement. It is also noted that China began to put pressure on the Lotte Group even though the illegal advertisement is not a serious violation of law and Chinese authorities could have imposed a smaller fine. Such a note is widely appreciated as the Chinese government’s punishment on Shenyang Lotte Town whose construction is currently suspended started from a minor fire fighting law violation.
China’s retaliation against the Lotte Group is showing a sign of expanding not only to sanctions on South Korean companies in China but to general Chinese consumers’ boycotts of them.
According to Chinese sources on March 1, Chinese giant online shopping site JD.Com shut down its online shopping mall Lotte Mart which on February 28. JD.Com has been seeking cooperation since it signed strategic partnership with Lotte in 2015. Lotte Mart on JD.Com started to operate in July last year.
Experts predict that if the Chinese government's punishment stance is strengthened, the Lotte Group's damage will be huge and beyond comparision. The worst scenario is that if the punishment becomes prolonged, the Lotte Group will have no choice but to give up their business operations in China. Lotte Mart which currently has the largest business scale in China among Lotte Group affiliates is operating 115 stores in China since making a foray into China in 2007, and Lotte Super is running 16 stores since entering China in 2012. Lotte Mart’s Chinese sales were 1.019 trillion won (US$866 million) last year. Lotte Department Store also has five stores under its management in China.
In addition, Chinese government-run media have taken the lead in instigating people, mentioning other major Korean companies such as Samsung and Hyundai as boycott targets. China's official media’s stories pushing for Lotte boycotts are inviting a flurry of provocative and pungent comments that Chinese tourists should not use Lotte Duty-Free Shop in South Korea after Lotte's withdrawal from China and boycotts of goods of the Lotte Group.
There is a growing concern that rabble-rousing public opinions against Lotte and even Korean products in China will grow into boycotts of products of all Korean companies including Samsung and Hyundai. Some analysts say that these moves may be based on cliquish patriotism to sledgehammer Korean companies with competitiveness one after another with the Lotte Group boycott case as a rare opportunity and protect Chinese firms.
"China is the biggest market for Samsung and Hyundai, and punitive measures on these companies will result in complicated consequences," the Chinese government-run Global Times said in its editorial on March 1. "However, as conflicts between China and south Korea are escalating, troubles will face those South Korean companies sooner or later."
"The rest of famous Korean distributors except Lotte Group should be boycotted by Chinese consumers," the Global Times added, menacing all Korean distributors doing business in China.
If such punishments and threats developed into consumer boycotts, damage to domestic companies will surely snowball. Not only Lotte but Korean automobile, information technology (IT), cosmetic and beauty care companies will face a massive shock wave. Hyundai Motor already delayed the launch of the Sonata Hybrid, which was scheduled be to be launched in March this year by one year after China refused to certify LG Chem batteries. AMOREPACIFIC worries that the clearance of cosmetic products may become complicated as China executes retaliation against Korean firms and products due to South Korea’s plan to deploy the THAAD System on its land. If a brake is put on AMOREPACIFIC’s Chinese business, the South Korean cosmetic company will face a big trouble in posting 12 trillion won in sales by 2020. The tourism industry is also on red alert. According to Ctrip, the largest online travel agency in China, South Korea came in 7th in Chinese people’s favorite springtime holiday destinations, down by four notches from last year's 3rd place. Domestic duty-free shops which rely on Chinese tourists are also expected to get a direct hit. Chinese people’s purchases account for 80 percent of total sales of Lotte Duty-Free Shops such as those in Myungdong and Jamsil in Seoul.
Petrochemical companies such as Hanwha Chemical and OCI and LG Chem are also concerned about China's trade retaliation. Currently, China is taking nearly the half of South Korea’s petrochemical exports. If China raises anti-dumping tariffs on Korean petrochemicals as in a case of solar power generation module-related disputes between the US and China in 2010, it will be a direct hit to the Korean petrochemical industry. "South Korean petrochemical companies cannot survive in the Chinese market if and when a 10-percent tariff is imposed on Korean petrochemical products as an anti-dumping tariff. Imposing a 10-percent tariff is an easy action that the Chinese government can take,” said an official in the Korean petrochemical industry. "There is no market to replace China at the moment."