Photographer: Qilai Shen/EPA

China's `Financial Statecraft' Takes Shape in Risk for Investors

Tapping Chinese demand can be great for business, but it also leaves companies and economies vulnerable if the single-party state decides it doesn’t like a country’s policies -- a dynamic that global investors may not yet fully appreciate.

"Financial statecraft is an integral part of China’s foreign policy," Marc Chandler, a Brown Brothers Harriman strategist, put it. Case in point: recent news has tallied the cost for South Korea, which has run afoul of Chinese interests by pursuing an American missile-defense shield.

  • The country’s currency swap-line with China, some $56 billion worth, expired Tuesday with no renewal agreement yet in place
  • Chinese tourist visits to South Korea during the "golden week" holiday plunged 70 percent compared with last year, China’s largest travel website reported
  • China’s direct investment into South Korea tumbled 63 percent in the first nine months of 2017 amid a broader push to curb overseas investment

Among the stocks worst hit is Amorepacific Corp., which counts on Chinese shoppers for half of its cosmetic sales. The company is opening more shops in China, reducing reliance on tourist arrivals at home, though other Korean enterprises showcase the risk of a mainland presence. China forced Lotte Shopping Co. to suspend operations in 87 out of 99 its hypermarkets starting in March for alleged violations of fire-safety rules.

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