SEOUL - China has the economic power to move markets, and it isn’t afraid to use it.
South Korean stock trading offered a case in point Friday, with a selloff in hotels, cosmetic makers and other tourism-related companies that made the country’s benchmark the worst performer among Asian equity markets. The slide followed a Yonhap news agency report on China ordering travel agents to halt sales of holiday packages to South Korea.
South Korean pain may bring collateral benefits to others.
"Thailand and Japan will be the immediate beneficiaries" of a redirection in Chinese tourists, according to K. Ajith, an analyst at UOB Kay Hian Pte in Singapore.
"There is actually no industry in Korea that is free from THAAD risks," said Jung Sang Jin, who helps manage the equivalent of $33 billion at Korea Investment Management Co in Seoul, using the abbreviation for the US missile-defence system. "Many companies have plants in China, and China could halt operation at those plants."
Among the holdings of Mr Jung’s employer is Amorepacific Corp, South Korea’s biggest cosmetics company. Chinese authorities have ordered the destruction of about 700 kilogrammes of Amorepacific’s imported product, saying they included bacteria. The company slid 13% Friday.
Calls to China’s tourism administration to ask about the Yonhap report on the travel restrictions weren’t answered. Kim Yeong Ju, an official at South Korea’s state-run Korea Tourism Organization, said its Chinese counterpart issued the ban, which also covers flights to South Korea and hotel bookings. Almost 50% of the foreign visitors to South Korea in 2016 were from China, according to the KTO.
Lotte Group, the Korean shopping mall and hotel giant, earlier this week agreed to provide land for the THAAD project, which the US and South Korea agreed upon in July, triggering the latest chapter of tensions between the countries.
"The decision to deploy THAAD is like stabbing us in the back," Cheng Yonghua, China’s ambassador to Japan, told Bloomberg News Friday. "Regional security issues need to be settled via negotiation and communication."
South Korean tourism and consumer stocks were among the benchmark Kospi 200 index’s best performers until the second half of 2015, largely on the back of surging Chinese demand. Hotel Shilla Co, a hotel and duty-free store chain, sank 13% Friday. Shilla, a unit of the Samsung group, has slumped more than 50% from a record reached in September 2015.
China has wielded this card in the past. In August, Korean entertainment stocks plunged amid speculation China will regulate South Korean content. When imprisoned dissident Liu Xiaobo was awarded the Nobel Peace Prize in 2010, imports of the country’s salmon plunged. It’s something the new US administration will have to keep in mind, with a Communist Party newspaper floating the prospect of "tit-for-tat" retaliation should President Donald Trump start a trade war with China.
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The move may be more about conveying China’s displeasure than inflicting lasting wounds to the relationship, said JJ Kang, head of equity at Franklin Templeton Investment Trust Management Co in Seoul.
"China never does things that are against their economic interests," Mr Kang said. "Shoppers will do anything they can if they want Korean products. Tourism will be difficult but it is hard for China to drag this problem on long-term."