BUSINESS

[News Focus] Korean companies exit China as THAAD crisis continues

By Won Ho-jung
  • Published : Sept 15, 2017 - 15:58
  • Updated : Sept 15, 2017 - 18:06

Korean companies operating in China are exiting the market, as anti-Korean sentiment stemming from intergovernmental tensions over Korea’s deployment of an American anti-missile system continues to hit sales.

On Friday, Lotte Shopping said in a disclosure that it had “selected a managing firm and is considering selling Lotte Mart’s stores in China, but no details have been decided at present.”

On Thursday, reports citing sources at Lotte said that Lotte Shopping had decided to sell its Lotte Mart brand’s 112 stores in China under the management of Goldman Sachs. Lotte Mart is a discount retail chain run by Lotte Shopping.

A shuttered Lotte Mart outlet in China (Yonhap)

The announcement came after the chain denied for months that it had plans to leave the Chinese market. In March, Lotte Group Chairman Shin Dong-bin stated on the record in an interview that the group “hopes to continue doing business in China.”

Lotte has been one of the worst-hit Korean companies in China, as it had provided the Korean government with the site for the deployment of the Terminal High Altitude Area Defense system as part of a land swap deal.

Beijing has ramped up safety and sanitary inspections on Lotte Mart stores since early this year, leading to the forced and voluntary closures of about four-fifths of its branches.

In the second quarter of this year, Lotte Mart in China saw just 21 billion won ($18.5 million) in sales, roughly one-tenth of sales compared to the second quarter of last year.

To keep its Chinese business afloat, Lotte had injected 360 billion won in March and another $300 million at the end of August.

It is unclear whether Lotte will be able to sell all of its branches. Industry watchers are also carefully monitoring whether this move will lead to Lotte’s downsizing or the sale of its other businesses in China, including theme parks and department stores. Lotte denies that any other businesses are currently being considered for sale.

“We are not considering selling our China confectionery or beverage businesses,” said an official with Lotte group. “We may, however, pursue other measures such as restructuring.”

Lotte Mart’s planned exit follows an announcement in May that its rival in Korea, E-mart, will be closing down its six Chinese branches once their leases expire. At the time of the announcement, E-mart’s parent company Shinsegae said that the closures were due to long-standing losses in China rather than the tensions between the two countries.

Retail is not the only industry that has taken a blow. Hyundai Motors is also suffering from the fallout. The company entered China through Beijing Hyundai Motor, a joint venture with BAIC Motor, in 2002.

Last month, the company’s Chinese plants halted and restarted production, as parts suppliers had been holding back shipments due to overdue payments.

Hyundai Motors confirmed that BAIC Motor has been pressuring Hyundai to either switch parts suppliers to Chinese companies or lower prices paid to Korean parts companies, as Beijing Hyundai’s sales have halved in recent months. Chinese news outlets have been reporting on the deteriorating relationship between the two partner companies, hinting that BAIC Motor might move to completely dissolve the partnership.

Industry analysts in Korea have noted that BAIC’s aggressive approach toward Hyundai will have a negative effect on Korean auto parts companies in China, including Hyundai Mobis and Hyundai Wia.

By Won Ho-jung (hjwon@heraldcorp.com)