SOUTH KOREA. Fears are deepening in the country’s travel retail industry of a severe Chinese backlash following the South Korean government’s decision to deploy the US-developed advanced missile defence programme Terminal High Altitude Area Defence system (THAAD).
As reported, the government plans to deploy THAAD some 220k southeast of Seoul by late 2017, a move that has outraged the Chinese government.
The resultant storm is gathering force by the day. Chinese reports earlier this week revealed that local TV channels have been told to postpone any new programmes featuring South Korean stars
“We are deeply concerned,” a senior duty free retail executive told The Moodie Davitt Report. “The market has been recovering strongly after the MERS collapse last year but this makes us all uncertain.”
Another veteran retailer told us: “In Korea, many people, especially in the travel industry, are worrying about the impact of THAAD on sales. Some travel and event reservations by Chinese have been cancelled due to the uncertainty. From yesterday the Chinese government made multiple visa issuance for Koreans wanting to visit China much stricter… which means it takes a lot more time and money to get a multiple visa. Chinese media are condemning Korea almost every day and urging Chinese companies to stop Hallyu [Korean Wave] events in China. I am worried that the impact will go on for several months as it is worsening.”
Today’s online version of The Korea Herald, a widely respected bi-lingual daily media, dedicated a lengthy article to the impact of the THAAD dispute on duty free retailers.
Citing industry sources, it said that the number of Chinese tourists who have booked their trips through tour agencies that schedule a visit to Lotte Duty Free in Seoul in September during Zhong Gui Jie (one of the three major Chinese holidays) is down -20% year-on-year.
The report noted: “The duty free industry has braced itself for the outcome that could, some worry, be even more serious than that of MERS.” It quoted an unnamed store official who said: “What scares us most is when sanctions are actually imposed (by the Chinese government). There is a growing concern in the industry that its impact could be worse than MERS. It can be the worst crisis ever.”
Another expert industry source told The Moodie Davitt Report: “One thing that’s certain for sure is Korea should never make decisions that could bother China in any way.”
Regina Hahm, Equity Analyst (Cosmetics, Hotel & Leisure, Fashion) Research Center at Mirae Asset Daewoo, told The Moodie Davitt Report: “The market is getting severely uncertain, especially since the THAAD matter.”
She, in common with many involved in Korea’s tourism sector, worries that Korean political decisions that upset China may come back to bite.
That already seems to be happening. And yesterday things took a turn for the worse after a spokesman for the Korean Defence Minister hinted that the country might share information gleaned from the deployment of THAAD not just with the US but with Japan. As Hong Kong newspaper The South China Morning Post noted today, “If South Korea drifts into the orbit of the US and Japan, China’s influence on the Korean peninsula could be badly compromised.”
The stakes for South Korea’s travel retail sectors are frighteningly high. As the MERS health crisis showed last year, a sharp downturn in Chinese arrivals will devastate the sector. Chinese visitors represented 47.1% of all arrivals in the first half of 2016, generating a significantly higher percentage of total duty free sales.
A market that was in full-fledged recovery is now faced with deep uncertainty. Perversely, a system designed to protect the country is leaving one of its most important business sectors wide open to attack.