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Lotte China probe fans THAAD retaliation fears

The tax investigation and safety inspection facing Lotte Group in China this week has sparked concerns Friday that the neighboring country is pressuring Korean companies in retaliation over South Korea‘s decision to deploy a US advanced missile defense system here.

The Chinese government has not revealed the reason behind the large-scale inspection, but analysts believe it is linked to the decision by Lotte Group to host the Terminal High Altitude Area Defense system on a Lotte-owned golf course in Seongju, North Gyeongsang Province.

Amid a domestic investigation in Korea over Lotte Group Chairman Shin Dong-bin and other family members earlier this year, the country’s fifth largest conglomerate agreed on a land swap deal with the Ministry of Defense last month to enable the THAAD deployment.

The Korean Embassy in Beijing and Lotte Group are still trying to ascertain if this is a regular inspection or retaliation for the THAAD deployment.

“It is difficult to say if this is about the THAAD deployment without any confirmation from China, but it is also hard to think of any other reason for these unprecedented measures.” a Chinese business expert said on the condition of anonymity.

The fire and safety inspection over Lotte offices and stores commenced on Tuesday without any warning.

On Wednesday, the Chinese authorities launched a tax investigation and raided the regional headquarters of Lotte Group in Shanghai.

While the exact number of locations that were targeted is unknown, there are more than 155 Lotte Mart stores in China. Lotte Confectionary factories and Lotte Chemical in China also faced inspections.

This is the first time that Lotte has faced massive simultaneous investigations since it officially opened its headquarters in China, according to a Lotte employee. The China headquarters opened in Shanghai four years ago in an attempt to strengthen its Chinese businesses.

More concerning is the group‘s brand which may be tarnished in the course of the investigation and inspections which could damage other businesses heavily relying on Chinese customers, such as Lotte Duty Free Shop, the anonymous expert said. Around 78 percent of Lotte Duty Free Shop‘s total sales depends on Chinese customers.

During a press briefing on Thursday, the spokesperson of the Chinese Foreign Ministry said that he does not have information regarding the matter. But he reiterated that China “strongly opposes the deployment of THAAD by the US in the Republic of Korea.“

Ever since the South Korean government officially announced its decision to deploy THAAD in Korea in July, China has ratcheted up pressure on Korean businesses. China has banned Korean dramas, movies and TV shows from being aired on its television stations. It is reported that China has taken steps to limit the number of tourists visiting South Korea.

Shares of Lotte affiliates plummeted upon the news. Lotte Shopping saw a decline of almost 5 percent in morning trading while shares in Lotte Confectionary fell more than 3 percent before recovering in afternoon trading.

Lotte Shopping closed 1.41 percent down at 210,500 won ($180) and Lotte Confectionary at 177,500 or 0.28 lower than the previous trading. The benchmark Kospi fell 0.66 percent on Friday.

By Park Ga-young (