SOUTH KOREA (REUTERS) - It was always likely to be a controversial land swap deal with the government.

But the Lotte group may have underestimated the economic fallout from the Terminal High Altitude Air Defence System.

It is a year since China warned the US anti-missile project, being built on a former Lotte golf course, could damage strategic ties with South Korea.

And businesses on both sides of the border are suffering.

Lotte had to close its shops in China and tour companies says Chinese tourists have been banned from South Korea.

Chief director of Overseas Koreans in Korea Association Kim Sook Ja says: "The number of Chinese tourists has decreased rapidly due to the impact of the system, that's why I had to close. And there are plenty of others like us."

Half of all visitors to South Korea used to be Chinese.

But now that number has halved - depriving the country of an estimated US$5 billion (S$6.74 billion).

Even street traders are feeling the impact.

South Korean street food vendor An Hong Sung says: "Before lots of Chinese tourists came here to shop. We even employed Chinese part-timer staff, because we had so many customers. We used to sell 300 to 400 omelettes a day, now it's barely 100."

Seoul and Washington say Thaad is purely a deterrent to a nuclear-armed North Korea.

But Beijing worries the system's radar can penetrate its territory.

Founder and chief strategist of Inside Outbound China, Oliver Sedlinger, says: "Of course there is strong influence of politics. China has been opening up for so many years now, and I think for successful tourism exchange you always need good diplomatic relations."

Beijing says it still supports "normal business" with South Korea.

But Hyundai's another international name which says it knows different.