“I understand you, therefore I wait for you.” This is a message from a banner which Lotte has put up in the main branch of its Lotte department store. After Lotte had agreed to provide land for the Terminal High Altitude Area Defense System (THAAD) last February, it has been avoided by Chinese consumers and is now facing serious financial crisis, which is considered to be a typical form of THAAD retaliation by China. However, it is not only Lotte that is feeling the pressure, but many other Korean industries are now struggling with the aftermath that is following the decision to deploy THAAD. In this article, the Sungkyun Times (SKT) provides a brief introduction of the THAAD system and the Chinese retaliatory actions against its deployment on the Korean Peninsula and proposes how Korea can minimize the damage caused by the conflict over the THAAD deployment.
What is THAAD?
Definition THAAD stands for ‘Terminal High Altitude Area Defense.’ Basically, it is a kind of missile system, the main purpose of which, is to shoot down missile attacks from other countries. In other words, THAAD has a defensive purpose rather than an offensive purpose. There are a series of stages that a missile goes through and it can be divided into four parts; boost, ascent, midcourse, and terminal. The word ‘Terminal’ in its name means that it is specialized to shoot down an enemy missile while it is in its Terminal Stage. It was first developed by the United States (US) army in 1987 in order to deal with attacks from the Soviet Union and it is still being developed today.
|Four Stages of Missile Attacks According to Its Altitude / nap.edu|
History of THAAD’s Introduction
The discussion over introducing THAAD in Korea began in 2008, which brought about fierce controversy over its appropriateness. Deployment of THAAD reflects growing concerns about constant provocative actions from North Korea. Recently, the tension between South Korea and North Korea has been increasing and it is known that North Korean missile technology is greatly improved compared to that of the past, and now poses a more serious threat than ever to the safety of South Korea. Moreover, traditional weapons, like the PAC-2 and PAC-3, were insufficient to deal with missile attacks with a speed faster than Mach 5th. The US army proposed hosting THAAD on the peninsular to secure the nation’s security, convincing the Korean government that only one battery of the THAAD system can cover up to half of South Korea. On April 26th, two batteries of the system were set up at a former golf course in Seongju city and started operating immediately without any trial.
The Reason China is Taking Such a Strong Stand Against THAAD
The biggest reason as to why China is reacting so sensitively to THADD is related to the security issue. THAAD’s radar can detect and track enemies at a range of up to 1800km which is much broader than that of traditional missiles. Chinese authorities’ concerns are that their major military facilities can go under surveillance. In particular, the ballistic missile bases in three northeast provinces, Liaoning, Jilin and Heilongjiang, may be exposed. Therefore, they claim that if the real purpose of THADD is to deter nuclear threats from North Korea, it would be sufficient enough to deploy the Green Pine system instead, a missile system developed by Israel, with a radar range that reaches about 800km. Furthermore, there was also a problem in the process of deploying THAAD. When the Korea-China summit meeting was held last June, Hwang Kyo-An, the prime minister of Korea, maintained an uncertain attitude saying that there is nothing decided about the deployment of the system. Only 10 days after that, however, the Korean government unilaterally proclaimed that the Korean government would officially announce the deployment of THAAD in Korea. From a Chinese authorities’ point of view, they might have felt deceived by Korea’s sudden notification and concluded that Korea was an untrustworthy partner.
How does THAAD Retaliation take place?
The foreign ministry in China has made it clear that China is determinedly opposed to THAAD and will take any measures to secure its own safety and national interests. They also warned that Korea and the US are responsible for all consequences of the deployment. After the deployment of THAAD was announced officially, China began seeking retaliatory actions both in the public and private sectors.
Retaliation Led by the Government
The tourist industry is the industry which has most severely and directly been affected by Chinese economic sanctions. On March 2nd, the Chinese government held an official meeting with 20 major travel agencies to issue a guideline which forbids selling any kind of travel package to Korea. Since the concept of ‘backpacking’ is not familiar with the Chinese yet, travel agencies are involved in most of the tours, which makes the Chinese government’s actions even more powerful. The Korean tourist industry mainly depends on Chinese visitors. Last year, 46.8% of the foreign visitors in Korea were from China and it is a figure larger than that of any other country. According to the Korea Development Bank, if tension between China and Korea continues, there will be a sharp decrease in tourism revenue by up to $7.4 billion compared to this year.
Industry The entertainment industry is no exception to China’s regulatory measures. The key point of the restriction on the entertainment industry is to ban Korean entertainment exports. An example of this is that concerts given by Korean idol stars have been postponed indefinitely without any good reason. It has also been found that some major Chinese video websites have blocked Korean variety shows and dramas. Targeting the entertainment industry can be a good option for China since it is an industry in which Korea is now holding a competitive edge. By putting pressure on the Korean entertainment industry, China can use this situation as an opportunity to develop and nurture its own cultural content as well.
Retaliation Led by the Public
|A Warning Message of the PIB, a Group of Chinise Hackers, after Attaking Some Korean Websites / koreaherald.com|
Last March, a video saying that Red Hackers, hackers from china who are claiming to advocate patriotism, are officially declaring war against South Korea was uploaded on Youku, the biggest video website in China. Since then, cyber terrorism from China has begun in earnest. Many hacking groups such as the Panda Intelligence Bureau (PIB), 1937cN, and the China Eagle Union were found to participate in this terror activity as a group. One typical method of cyber terrorism is a defacement which indicates making unauthorized changes to the visual appearance of a webpage. Through website defacement, red hackers leave offensive messages with curses opposing the deployment of THADD on the main screen of websites such as ‘Resist the THAAD system’or ‘Korea Stinks.’ On March 2nd, the website of the Lotte duty free shop was attacked by the Red Hackers. Although the website was restored after three hours, the economic loss was enormous, reaching an approximate \500 million in total.
•Boycotts of Korean Products
|A Korean Car Vandalized by Some Unidentified Chinese Consumers Protesting Against THAAD Deployment / biz.chosun.com|
Many Korean companies are facing boycott by Chinese consumers. For example, there was a noticeable decline in sales at the Chinese branch of the Hyundai-Kia Motor Company compared to last year. Sales of Hyundai-Kia Motors in March dropped to 47.8% compared to last year’s sales. Some companies have even designed marketing strategies using Chinese’s growing hostility toward Korean products. For example, the Chinese branch of Volkswagen advertised that they would give additional discounts to customers who sell their Korean cars.
•Diverse Opinions Regarding the Influence of the THAAD Retaliation
It is anticipated that Chinese restrictive actions in Korea will cause great economic turmoil in Korean Society. According to a survey by the Korea International Trade Association (KITA), among the 587 companies who are trading with China, 56.2% of them responded that they are currently feeling affected by THAAD retaliation. 32.9% of the respondents answered that they would be negatively impacted by the THAAD retaliation within the next three months. On the other hand, some also suggest that the impact of Chinese sanctions will not be as serious as expected. 95% of total exports from Korea to China are comprised of capital goods and intermediary goods which are reprocessed in China. Then, they are exported to other countries as final products. Therefore, restricting trade with Korea can also cause economic losses to Chinese industries. Moreover, it will not be easy for China to ignore international reactions regarding their actions for putting pressure on Korea. On March 24th, a group of lawmakers from the US congress proposed a resolution denouncing China’s retaliation against the THAAD deployment and urged them to “immediately cease its diplomatic intimidation and economic coercion.” The Financial Times of the United Kingdom also described Chinese retaliation as a ‘self-defeating’ act and warned that there were numerous historical precedents that ‘governments have collapsed by the nationalist forces they tried to unleash on other countries.’
How should Korea overcome the crisis?
Although retaliation for the THAAD deployment was predictable and warned of by many experts, the government only tried to underestimate the possible aftermath that might follow. For instance, Prime Minister Hwang Kyo-An has said “The relationship between Korea and China has been highly correlated with each other, which makes it hard for China to take any sanctions. Therefore there is nothing to worry about.” As a result, the Korean government is now being criticized for its procrastination and the failure to come up with proper countermeasures in advance.
Current Countermeasure to THAAD Retaliation by the Government and its Limitation
The most widely used method of resolving a trade dispute is to file a complaint to the World Trade Organization (WTO). On March 17th, the Korean government announced that they are seriously considering lodging an appeal to the WTO regarding the Chinese economic sanctions in response to THAAD. Nevertheless, accusing China to the WTO should be regarded as a last resort and be used only after careful consideration. To win a WTO dispute, Korea would have to verify that the retaliation is given by the Chinese ‘government’ and that this act violates the international trade law suggested by the WTO. To make matters worse, there is a security exception in the WTO system, which means their sanctions would be justified if China can prove that the placement of THAAD threatens its national security. If Korea loses a WTO dispute, the conflict may become more extreme and cause irreversible damage in the relationship with China.
The most ideal solution to the THAAD retaliation will be diversifying trade markets. Traditionally, trade in Korea has been overly concentrated on some major countries. If Korea fails to reduce trade dependence on China, then Korea would be swayed by China every single time a political dispute occurs between the two countries. Moreover, foreign direct investment using a third country is another good option. It means producing in low-wage countries surrounding China and then exporting final products to China. By producing in third countries instead of China itself, the origin of the product will be labeled as the third country, so it would be possible to become free from the influence of any political conditions. Currently, among all exports to China, only 4.4% of them are produced in third countries with most of them are made on mainland China. Since many of those countries are still underdeveloped, Korean companies can supply basic industrial infrastructure and then enter their market, which will become a win-win strategy for both parties.
Even though THAAD could be introduced with good intentions, the government’s short-sighted countermeasures to the issue are making the situation worse. The power game between the two countries will only end up victimizing individuals who have nothing to do with this political issue. Hopefully, the government can map out a wise diplomatic strategy that will help Korean industries to get through ‘a modern Cold War’ caused by the THAAD system.
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