The Chinese government appears to be embarking on economic retaliation against South Korea over the decision by Seoul and Washington to station the Terminal High Altitude Area Defense (THAAD) system on the peninsula.
Beijing's action targets the local tourism industry, as it has instructed its private travel agents to cut the number of tourists to Korea by 20 per cent on-year. The state-led regulations will also reportedly include curbing low-price package tours and discouraging shopping in Korea.
The travel agents have no choice but to follow the regulations as their government is considering imposing fines about 300,000 yuan (S$61,483) on rule-violators.
In September, the number of Chinese visitors to Korea came to about 730,000, up 23 per cent from a year ago. As the number reached 250,000 for the first week of this month, Korea's tourism sector was predicting record-breaking growth.
After the news jolted stocks of local industries including tourism, air carrier, lodging, cosmetics and duty-free retailer earlier this week, some analysts downplayed the Chinese move, claiming that the move is aimed at slashing side effects from the rampant down-market package tours to Seoul and Jejudo.
Chances are slim that the detailed policy like the 20 per cent slash in the number of visitors it allows will really be implemented, one analyst said.
However, there is an urgent need to review the past cases in which China really reduced the number of tourists to Japan and Taiwan when there was diplomatic friction with them.
So this move can certainly be interpreted as retaliation for South Korea and the US's THAAD deployment plan, which has been identified by the Chinese Foreign Ministry as a threat to the national security of Beijing as well as Pyongyang.
Alongside the government's political efforts to placate China by convincing it of the need to station the missile defence system, economy-related ministries should hasten countermeasures against a possibly severe blow to the tourism sector.
Chinese visitors, despite some unsavory happenings here, are helpful in building closer bilateral ties in culture and other exchanges. Consumption by Chinese tourists, needless to mention, is contributing to the gross domestic product with a variety of value-added effects.
They also take up a dominant portion of service industry customers in some areas, including Myeong-dong in Seoul, Jejudo and other popular tourist destinations. It is hard to deny that a flow of Chinese visitors have somewhat offset the slower-than-expected recovery in domestic demand and lackluster exports.
It is time for the Tourism Ministry to carry out profound consultation with tourism businesses and map out measures to minimise the damage. The ministry also needs to push for dialogues with its Chinese counterpart.
Given that the tourism-related industries and the overall economy have just started to bounce back after the Middle East respiratory syndrome hit the country last year, another setback arising from lax countermeasures would easily dent the business sentiment again. The pace of economic growth is still mild.
Simultaneously, the tourism industry needs to develop high-quality travel products, shifting from its offering of the habitual course linking the Gimpo-Jeju flight route.
The Korean government should also be alert to the scenario that China's retaliatory move could be tougher according to the coming development over the anti-missile defense scheme. So clever use of the lever between the US and China is essential for the government.
By securing various dialogue channels, Seoul should make full-fledged efforts to avert anti-dumping or countervailing measures from China on local manufacturers. It is our largest export destination.
Diversification of export destinations is the next issue, though it is necessary in the coming decades. For economic policymakers and conglomerates, a way to avert trade conflicts could be maximizing the synergy effects of the two sides' businesses through their bilateral Free Trade Agreement, which took effect in late 2015.
The Korea Herald is a member of The Straits Times media partner Asia News Network, an alliance of 21 newspapers.
