SINGAPORE ― The trade dispute between South Korea and China is expected to take a turn for the worse as Beijing is expanding its economic retaliation against Seoul over the deployment of a U.S. missile defense system.
So far China has focused on boycotting Korean products and pressuring tourism agencies not to book tours to Korea, calling for Seoul to cancel the deployment of a Terminal High Altitude Area Defense (THAAD) battery.
However, Beijing is now allegedly trying to use its influence to interfere with Korean companies’ private business deals in other countries.
According to industry sources based in Singapore, China has pressured a Malaysian firm to cancel a business agreement with a large Korean chemical company to start a joint venture in the Southeast Asian country.
“Before the THAAD issue surfaced, we reached an agreement to start a joint venture with a Malaysian company whose major shareholder is Chinese,” the company executive in charge of ASEAN operations said, asking not to be named.
He also asked for his company not to be identified for fear of additional problems with its Chinese operations.
The executive based in Singapore said the ASEAN headquarters of the mid-sized Korean conglomerate agreed to set up a 51:49 joint venture with both production lines and sales in a bid to expand its business in the ASEAN region.
“However, with the THAAD dispute escalating, the Malaysian firm supported by Chinese money unilaterally called off the deal citing the THAAD issue,” he said. “It is ridiculous that the Chinese government tried to interfere in a private business deal because of a political dispute. I’m deeply concerned that China’s retaliation is reaching a serious level beyond the boycott of goods and travel restrictions.”
China’s alleged influence peddling came amid both the U.S. and South Korea urging China to stop its retaliatory actions.
A group of U.S. senators have called on President Donald Trump to demand China halt its retaliation. They also asked Trump to demand China to reconsider its opposition to the deployment of the missile defense system.
During a World Trade Organization (WTO) meeting in Zurich, Switzerland, from March 28 to 30, Korea filed a formal complaint with a WTO panel against Beijing for its trade actions. This was the first time for Korea to officially take issue with China’s retaliation.
Antonio Fatas, a professor of economics at INSEAD, said what is happening is the result of two things.
“First, the political confrontation is happening related to THAAD,” said Fatas who teaches at the Singapore campus of the European business school.
“The second thing is the very strong industrial policy that China has always followed where it uses political force to try to help its own industries.”
The professor, in particular, pointed out that it is important to understand the changing dynamics of economies in Asia.
He said China’s growing clout in Asia and the U.S. ignoring the region, under the administration of President Donald Trump, is allowing Beijing to push further across the region to get its companies more business.
“So some of what you might see is not just against Korean businesses but is pro-Chinese businesses,” he said. “The two are mixing.”
In recent years, China has been one of the biggest investors in Malaysia and other ASEAN countries.
According to property consultancy Cushman & Wakefield, Chinese firms, mainly developers, invested an estimated $1.85 billion in Malaysia between 2014 and 2016, emerging as a top property investor there.
Industry watchers say Korea’s economic losses are likely to snowball unless the issue is resolved soon.
“I expect China will seek all possible options to force Korea to give up THAAD,” a Korean businessman based in Singapore said, asking not to be named.
“The problem is that despite China’s irrational measures, there is nothing we can do at a company level.”
According to one of the latest reports by the Korea Development Bank, if China expands its economic retaliation, Korea will sustain losses worth up to $20 billion ― $11.7 billion by the duty free and tourism industries and $8.3 billion by all others.