Faced with continued pressure in China over Thaad crisis, many South Korean companies exiting market

A Lotte Mart is seen closed in Jiaxing, Zhejiang province, China on Sept 8, 2017.
A Lotte Mart is seen closed in Jiaxing, Zhejiang province, China on Sept 8, 2017.PHOTO: REUTERS

SEOUL (The Korea Herald/Asia News Network) - South Korean companies operating in China are exiting the market as anti-South Korean sentiment stemming from inter-governmental tensions over South Korea's deployment of an American anti-missile system continues to hit sales.

On Friday (Sept 15), 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.

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 had 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 Defence system as part of a land swap deal.

Beijing had 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 (S$24.9 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 US$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 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.

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.