Retaliation with Stocks
As China is continuously putting a comprehensive pressure on South Korea over the deployment of the U.S. missile defense system THAAD, Chinese capital has been fleeing the South Korean stock market. It has the aftereffects on the capital market as well. The discrimination against South Korean companies, such as Hyundai and Kia Motors, Lotte Shopping and AmorePacific, and hallyu stars has gone too far and China’s retaliatory measures over the THAAD issue are becoming more strengthened.
According to the data from the Financial Supervisory Service on August 1, Chinese investors net sold 1.22 trillion won (US$1.09 billion) worth of South Korean stocks for a year from July last year when the country decided to deploy the THAAD system to June this year. The speculation that China money’s exodus will occur due to China’s retaliation over the THAAD deployment is becoming a reality.
Total foreign investors net purchased 17 trillion won (US$15.14 billion) worth of stocks over the same period. Accordingly, some believe that Chinese capital is leaving the country owing to political reasons. Foreign investors net sold domestic stocks only in November last year during 12 months from July last year to June this year. However, Chinese investors net sold the stocks for nine months in a row during the same period. They made a small net purchase of 7 billion won (US$6.23 million) in June but this was largely due to the fact that they paused the sale as the KOSPI index showed a rapid rise. Chinese investors maintained the “Sell Korea” trend by net selling 60 billion won (US$53.43 million) worth of stocks in the KOSDAQ market in the same month.
A CEO at Shanghai-based private fund company, who asked not to be named, said, “China is used to the top down system in which the Chinese government provides the direction and people follow it as a guideline. As the Chinese government has strengthened supervision of capital outflow, it is hard for Chinese investors to increase investment in South Korea due to the THAAD issue.”
Some say that it is partially due to the fact that the Chinese government is conducting an intensive investigation into the M&A process of its conglomerates and paying sharp attention to capital flows this year. In fact, China’s total overseas investments plunged from US$187 billion (210 trillion won) last year to US$29 billion (32.57 trillion won) from January to July this year.