China Ire Over Missile Defense Worries Korea’s Tourist Industry

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South Koreans watch a television broadcast reporting the deployment of a Terminal High-Altitude Area Defense, or Thaad, system, at the Seoul Railway Station in Seoul, on July 13.

Photographer: Chung Sung-Jun/Getty Images
  • Visitors from China account for majority of duty-free sales
  • Backlash against Thaad deployment in South Korea feared

A potential backlash from China against the deployment of a missile defense system on the Korean peninsula is raising worries among South Korea’s tourism and leisure industries that increasingly rely on Chinese tourists to drive sales.

South Korea and the U.S. plan to deploy the Terminal High-Altitude Area Defense, or Thaad, system in an area about 220 kilometers (136 miles) southeast of Seoul. The decision drew a stern rebuke from China’s foreign ministry, which said the system’s powerful radars threaten its national security, and warned it would take “necessary measures to safeguard” its interests in the region.

The warning sent chills through the country’s tourism and leisure industries, which heavily depend on Chinese visitors for sales, and would be hardest hit if China were to restrict or hamper travel to South Korea.

Hotel Lotte, the world’s third-largest operator of duty-free stores and the biggest in South Korea, said visitors from China accounted for 70 percent of sales at its duty-free stores in the first six months of the year. That’s up from 62 percent in 2015 and 59 percent in 2014.

‘Huge Risk’

Samsung Group’s Hotel Shilla Co., the country’s second-largest duty-free operator, said about 65 percent of its sales are to Chinese tourists. While not as reliant on visitors from China, several major hotels in Seoul said that as much as a quarter of occupants are Chinese tourists.

“It’s a huge risk factor for us if China retaliates because of the Thaad deployment,” said a duty-free industry official, who did not want his name used since he was not authorized to speak on the matter.

In a report on the leisure industry, Samsung Securities estimated the 2017 operating profits of Hotel Shilla, Paradise and Grand Korea Leisure could fall 2.6 percent, 2.3 percent, and 0.8 percent, respectively, if the number of Chinese visitors were to drop by 1 percentage point.

Several economists said it was too early to say how the country’s overall economy would be impacted since China has not taken any retaliatory action.

“The entire economy can go bad but it’s also possible that only certain industries or companies will be affected,” said Cho Seong-hoon, an economics professor at Yonsei University.

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