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(News Focus) Murky clouds hang over Lotte after THAAD land swap

All Headlines 14:51 February 28, 2017

By Kim Seung-yeon

SEOUL, Feb. 28 (Yonhap) -- The land swap between Lotte Group and the government to deploy an advanced U.S. missile defense system deals a big blow to the retail giant's business in China, as concerns are growing over possible retaliatory measures from Beijing, analysts said Tuesday.

A Lotte Group affiliate wrapped up an agreement with the defense ministry earlier in the day to hand over a golf course in the southeastern rural city of Seongju, to be used for the installment of the Terminal High Altitude Area Defense (THAAD) battery.

Seoul and Washington signed a deal to deploy the THAAD system on Korean soil in July last year against North Korea's missile threats, incurring the wrath of Beijing, which claimed it will be used to spy on its military development.

It took a few months for the board of Lotte International Co., the owner of the Lotte Skyhill Country Club, to give the final go-ahead Monday. It had deferred to draw a conclusion in the past few meetings, citing the sensitivity of the matter.

With the land-swap deal completed, market analysts said Lotte may face a serious backlash from China in the near future, casting a shadow on the firm's prospects.

China's state-run media have slammed Lotte, warning there will be "possible negative ramifications."

(News Focus) Murky clouds hang over Lotte after THAAD land swap - 1

In the latest commentary published Monday, China's state-run news agency Xinhua blamed the retail firm for "opening a Pandora's box in Northeast Asia" by offering its land to the military, saying it will only accelerate Pyongyang's nuclear ambitions by making the region more unstable.

"The decision could turn into a nightmare for Lotte, which depends heavily on Chinese tourists to South Korea for revenue from duty-free stores," it said in a separate editorial.

Lotte, the fifth-largest family-run conglomerate in South Korea, is one of many with the highest exposure to China. It first tapped the world's second-largest economy in 1994, with now a combined workforce of about 20,000 in 24 subsidiaries raking in some 3 trillion won (US$2.64 billion) in annual sales, according to the group's data.

Its duty-free business basked in some 6 trillion won in annual revenue last year, of which 70 percent, or about 4.2 trillion won, came from deep-pocketed Chinese tourists.

(News Focus) Murky clouds hang over Lotte after THAAD land swap - 2

While Beijing has yet to make any aggressive moves against Lotte in an obvious way, market analysts voiced concerns the land swap could certainly put a drag on the conglomerate's reputation in China.

"It seems inevitable that (Lotte) will be hit (by the decision) in the short term as Lotte Shopping, in specifics, has set up a lot of businesses in China ... in the worst scenario, they may have to consider a pullout," said Lee Ji-young, an analyst at NH Investment & Securities Co.

A spokesman at Lotte Group declined to comment on the matter.

Shares of key Lotte affiliates took a downturn following media reports on the THAAD land agreement Monday, with Lotte Shopping Co. plunging 3.32 percent to close at 233,000 won. It was trading down nearly 1 percent late Tuesday morning.

Lotte's construction of a big shopping and entertainment town in Shenyang was suddenly halted by the Chinese authorities late last year after a fire inspection, which was widely suspected by market watchers as an indirect retaliation from Beijing.

Another multibillion dollar commercial complex is currently under construction in Chengdu for completion by 2019.

(News Focus) Murky clouds hang over Lotte after THAAD land swap - 3

Lotte could be further troubled in the domestic market should China decide to take actions out of vengeance, analysts noted, citing a recent downtrend in the number of inbound Chinese tourists.

The growth of Chinese tourists visiting Korea marked a sharp fall in the latter half of last year, recording a mere 1.8 percent on-year gain in November, from a 70.2 percent on-year gain in August, according to data by the Korea Tourism Organization.

Although the number has slightly rebounded over the last two months, it is not unlikely to see China take any administrative measures, such as limiting visa issuances to travelers or imposing trade restrictions, analysts said.

"The next few months will be critical in terms of the THAAD issue with China because any policy changes to be made in that time could send a shock wave to Korean companies and increase uncertainties over their business prospects," said Byeon Kyung-rok, an analyst at Samsung Securities Co.


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