China's displeasure over the deployment of a U.S. missile defense system in South Korea has been felt by the country's businesses with the fallout taking a toll on their earnings statements. industry watchers said.
Since early this year, South Korean companies in China have faced boycotts and regulatory inspections as Beijing ratcheted up pressure on Seoul to ditch its plan to host the U.S. Terminal High Altitude Area Defense (THAAD).
The Chinese government appeared to be directly or indirectly involved in flexing its economic muscle while claiming in public that it is not engaged in retaliations against South Korean firms.
Observers here said that such denials are worrisome because China can skirt responsibility and allow it to maintain this stance with impunity going forward, that is bad news for local companies, watchers claimed.
AmorePacific Corp., the country's top cosmetics maker, reported this week that its second-quarter profit plunged 60 percent from a year earlier, due largely to a protracted slump in the domestic market amid a sharp decline in Chinese tourists.
Its net income came to 77.4 billion won (US$69.2 million) in the April-June period, a sharp decline from a profit of 193 billion won in the previous year. A decrease in inbound tourists from China, which followed Beijing's ban on sales of Korea-bound package trips beginning mid-March, was one key factor weighing on the profit.
The number of Chinese tourists in South Korea more than halved in June, marking a decline for four straight months amid an extended row over THAAD.
AmorePacific's operating income from domestic sales, which include the revenue from duty-free stores, nosedived 32.3 percent on-year in the first half of 2017 to 316 billion won, the company said. Its sales during the period also dropped 10.1 percent to 1.91 trillion won.
"Without a meaningful rebound in inbound Chinese tourists, AmorePacific's slump will continue although a slight recovery is possible," said Park Shin-ae, an analyst at KB Securities.
South Korea's top carmaker Hyundai Motor Co. and its affiliate Kia Motors Corp. also bore the brunt of China's apparent economic retaliation and negative consumer sentiment.
Hyundai Motor's second-quarter net profit plunged 48 percent on-year to 914 billion won, as lower sales in China deeply cut into its bottom line.
Operating profit fell 24 percent to 1.34 trillion won in the April-June quarter from 1.76 trillion won a year earlier. Sales declined 1.5 percent to 24.31 trillion won from 24.68 trillion won during the same period.
"Hyundai Motor's earnings figures were worse than expected, and what's more worrisome is that the automaker is facing a slew of sticky issues, such as a labor strike," said Ko Tae-bong, an analyst at Hi Investment & Securities.
Kia Motors also saw its second-quarter net profit halve on weaker demand for its vehicles in China and the United States.
Its net profit declined to 389.6 billion won from 825.8 billion won a year earlier.
Other China-exposed firms also reported worse-than-expected earnings. Lotte Shopping Co., the operator of Lotte Department Store and discount store outlet Lotte Mart Co., logged a net profit of 4.1 billion won in the second quarter of the year, a 95 percent plunge from a year earlier, due to harsh retaliation in China and reduced inbound Chinese travelers.
Its operating income also halved to 87.3 billion won over the cited period, and sales fell 4.3 percent on-year to reach 6.9 trillion won.
After signing off on a land swap deal with the Seoul government to provide a site for the THAAD system in late February, Lotte's China business has been clobbered by boycotts and regulatory scrutiny.
Its department store business was stung by a sharp decline in Chinese visitors to the country and its overseas retail business suffered a 38.5-percent dip in sales, with revenue in China crashing 95 percent.
Lotte Mart said earlier 74 of its stores in China had to suspend operations while it voluntarily stopped operation in 13 outlets, according to the retail conglomerate.
There have been hopes that the stand-off may end after South Korea has new leadership, but there are no clear signs of the dispute ending in the near future, probably putting further strain on Korean firms. (Yonhap)
Kim Jung firstname.lastname@example.org
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