Soft power comes in all shapes and forms but “Hey, sexy lady” must count as one of its more unlikely manifestations.
Boomed out five years ago in the irritatingly catchy Gangnam Style, probably the best-known song in South Korean pop history, the lyrical loop is part of the stunning success of the “Korean cultural wave” – known as hallyu – that has swept Asia.
Pop stars have played a key part in the push to promote South Korean culture overseas, which now extends from music and entertainment into fashion, cosmetics, fried chicken and other consumer goods.
Yet for months the stars have found themselves at the forefront of a major row as the Chinese have thwarted Seoul’s soft power with a show of economic might.
The basis of the dispute is the construction of a missile shield on South Korean soil that has enraged China’s defence chiefs. The byproduct is that Korea’s hallyu wave has been facing bans and boycotts within China as Beijing mounts a commercial counter-offensive against Seoul’s companies.
The entertainment industry was first to feel the impact, but firms from sectors including retail and tourism are starting to feel it too.
What’s the reason for the row?
The Chinese have been protesting about the Terminal High Altitude Area Defense (THAAD) missile system since it first became clear that it was going to be installed in South Korea last year.
While officials from Seoul and Washington have stressed that the US-built and US-operated system has no offensive capability and that it will focus solely on threats from North Korea, the Chinese are concerned that the shield will disrupt “the strategic equilibrium in the region”. In particular Beijing fears that its powerful radar could be used to collect tracking data and other military secrets from within China’s own territory.
Beijing stepped up its opposition when the decision to deploy the missiles was confirmed last July and the mood soured further late last month when Lotte Group, one of the Korean chaebol, signed a land swap deal delivering the golf course where THAAD will be installed.
Following the news that the first THAAD components have already reached South Korea this week, Chinese foreign ministry spokesman Geng Shuang reiterated immediately that China “will definitely take security measures to safeguard its security interests” and warned that “all the consequences entailed shall be borne by the US and the ROK.”
What steps has Beijing taken?
Initially the response targeted music and entertainment exports – K-pop and K-drama, in industry parlance.
Korean celebrities started to feel the pressure with bans on appearances in China (see WiC316), where many make more money from endorsements than in their home market. Actors like Lee Kwang-soo and Kim Ji-won “haven’t earned a penny” in China since the middle of last year, the head of their management agency told Yonhap, a South Korean news agency. Concerts have been cancelled and older material has also been censored, Yonhap says, with stars like Psy (of Gangnam Style fame) getting their faces blurred out of the footage.
China’s video streaming firms have also started to purge their platforms of soap operas and historical dramas, with companies like NetEase, one of the leading content providers (see WiC356), getting rid of its K-pop music charts too.
This kind of content normally accumulates billions of hits in China, although there hasn’t been any obvious sign of a consumer backlash. Indeed, Xinhua reported a poll from last summer in which 80% of respondents were supportive of the bans on South Korean stars. “It reflects Chinese placing love for their home country before popularity of entertainment stars,” the state news agency explained.
The ratcheting up of the pressure in the travel sector has been similar. Measures began in January with refusals to confirm charter flights by South Korean airlines and last week the campaign escalated, with indications that travel agencies were being instructed to drop Korean tours.
Tuniu, an online travel firm, was the first to react, making plain the link to the tension over THAAD by putting out a statement that it was opposed to the missile deployment. Searches for Korean package tours on its website stopped generating any results and it was the same on Ctrip, the market leader, despite South Korea’s ranking as one of the most popular destinations for Chinese visitors.
The restrictions will have a chastening effect if they are fully implemented. Eight million Chinese visited South Korea last year, making up a little less than half of its total visitors but accounting for more than two-thirds of the spending.
Which companies are most exposed to Chinese retaliation?
Foremost Lotte Group has been singled out because of its ownership of the land designated for the missile launch site, with Xinhua threatening that the shopping mall and hotel operator will lose “a very large slice out of their business pie” in ignoring Chinese concerns.
In the same week that the land deal was confirmed a cyber raid brought down the website for Lotte’s duty-free businesses. Sales at its duty-free empire in Korea (more than two-thirds of its income comes from Chinese tourists) have been falling fast and Lotte is also a target inside China, where its supermarkets have been falling foul of local regulators.
We reported previously how officials in Shenyang stopped construction at a massive Lotte shopping and entertainment complex, citing fire-safety concerns (see WiC354), and the company confirmed on Tuesday that at least 39 of its stores have been closed after inspections by local authorities.
Chinese brand Weilong, which produces ‘hot stick’ snacks, then scored a marketing coup by announcing that it would no longer supply its products to Lotte stores. This prompted thousands of messages of support from excited netizens and a rush of photos showing people smashing their Lotte customer cards into pieces. Other footage on social media showed scenes from Zhengzhou in Henan, where heavy equipment was used to crush bottles of soju (Korean liquor) and Lotte products. Chinese flags were waved and the national anthem played in the background.
Other companies fed from the fervour, announcing they were cutting ties with Lotte as well. “Brother Weilong has set the right example for us,” posted electronics brand Pisen. “As another national business, Pisen salutes you!”
The onslaught has moved online, where both of China’s largest e-commerce sites have disabled their Lotte storefronts. Tmall dropped Lotte in January and JD.com did the same last week after pressure from netizens. Jumei, China’s largest e-commerce website for cosmetics, has announced plans for a boycott of Lotte’s products.
“We have completely scrubbed the name of Lotte from our website,” Chen Ou, its founder (see WiC239), declared. “We would rather die than carry its goods in the future.”
In a showing of “rational patriotism”, some employers have even put up classified ads on social media platforms, offering to hire Chinese workers affected by the boycott on Lotte.
Is it a coordinated campaign?
Investors in the South Korean stock market think so and they took fright at news of the unofficial travel restrictions, with share prices for hotels and tourism-related companies selling off heavily last Friday and at the start of this week.
Amorepacific, the cosmetics giant, was another major loser. Analysts were reporting on Monday that its market cap had fallen by a fifth (about $2.6 billion) since Lotte agreed to supply land for the missile shield the week before.
The Chinese media was determined that the South Korean firms must feel the economic pain, however. “Chinese consumers should become the main force in teaching Seoul a lesson, punishing the nation through the power of the market,” the People’s Daily crowed, warning that brands like Samsung and Hyundai “will suffer sooner or later.”
Lotte executives met on Sunday to discuss their response, calling for “active help” from their government and asking that it be made clear that they provided the land for the missile launchers at the request of the state, says Yonhap.
The Chinese government is being coy about the orchestration of the campaign, however, refusing to link it explicitly to the clash over the new missile programme. There was initial confusion when the appearances of the Korean celebrities were blocked, as it wasn’t clear that the refusals were linked to the missile row. But Fang Kun, a Korean specialist at the Chinese foreign ministry, then broke cover telling reporters “that it is hard for Beijing to adopt a policy supportive of Korean pop culture unless the THAAD issue is resolved first”.
The situation seems similar with the new round of travel restrictions. The Korean press is reporting that Chinese travel agencies have been told to stop selling tour packages from the middle of March, although Geng Shuang, the spokesman for China’s foreign ministry, has denied that the Chinese government is behind the embargo.
But then he made it clear what the Koreans need to do for the situation to return to normal. “Instead of chasing shadows that don’t exist, we hope the South Korean side will heed the voice of the people and take concrete actions to avoid causing further damage to bilateral relations,” he advised.
How damaging is the dispute for the South Koreans?
Officials in Seoul have tried to downplay the disruption for months, fearing that a more confrontational response is counterproductive. But by last weekend the protests were getting louder, with Foreign Minister Yun Byung-se warning that the measures could breach China’s World Trade Organisation obligations and that they ran counter to the China-South Korea Free Trade Agreement signed in 2012. “It is against Chinese President Xi Jinping’s opposition toward trade protectionism,” he added, rather forlornly.
Seoul may have a problem challenging the Chinese directly because none of the restrictions have been tabled formally. “It appears to me that there have been such [retaliatory] measures, but Chinese authorities have officially denied it,” Yun told Korean broadcaster KBS, complaining that it wasn’t “appropriate” to curtail trade “on a civilian level”.
The Korean newspapers agree that evidence of official instructions is needed to make a case against the Chinese. And there was further evidence of the more subtle approach when the China National Tourism Administration advised Chinese travellers to “choose [their] destinations carefully” rather than telling them not to travel outright, the Korea Herald said.
Hankyoreh, another Korean newspaper, made the same point about the government meetings with the travel agencies. “We can even sense some slipperiness at work in the way it issued orders verbally so as not to leave a paper trail,” it claimed.
The Korean media was also frustrated that its government has looked unprepared for the commercial crunch. The Chinese response was predictable, it argues, because the Korean economy is heavily exposed, with China taking a quarter of its exports ($124 billion) last year.
For Chosun Ilbo, another of the local newspapers, a broader rethink is required: “If we do not decrease the dependence, China’s condescending tyrannies against South Korea will continue.”
The countervailing argument is that some of China’s other efforts to punish its trading partners haven’t been crippling over the longer term. Five years ago the squabble over the Japanese-controlled Senkaku islands (the Chinese call them the Diaoyu) saw Beijing pressure its citizens to stop travelling to Japan. But the impact was short-lived and visitor numbers to Japan have grown strongly since then, from 1.31 million people in 2013 to 6.37 million last year.
Patriotic Chinese are quick to pillory Japan in political terms. But as we reported in WiC309, this hasn’t discouraged many of them from spending heavily on bakugai tours (literally “buying explosions” in Japanese).
Taiwan is also being punished by an edict from Beijing after its president Tsai Ing-wen refused to acknowledge the ‘One China’ policy last year (see WiC326). The unofficial travel restrictions have seen arrivals from mainland China drop by almost a fifth. But the Taiwanese have more than coped with the reduction, reporting record-breaking numbers over the last year based on growth in visitors from elsewhere.
How far will the Chinese take this?
It is difficult to see how Seoul can back down on a decision about defending itself from being attacked; using a missile system stationed on sovereign soil. It is already frustrated that the Chinese haven’t done more to bring Kim Jong-un to heel (see WiC355), especially as the threat from Pyongyang is growing. Earlier this week Kim launched four more ballistic missiles, three of which fell into Japanese waters.
Bowing to Beijing could also create a rift with Washington at a time in which the Trump administration is threatening to reconsider its military commitments in the region.
For the Chinese, the decision not to formalise the sanctions allows more room for maneouvre at a later date. But firing up their consumers as the weapon of choice could turn out to be dangerous if sentiment turns too aggressive. In the case of the clash with Japan in 2012, the government was forced to rein in tensions after street protests turned violent and there were attacks on shops and factories associated with Japanese brands (see WiC165).
Anti-Japanese sentiment is much closer to the surface in China than bad feeling towards the Koreans, although local media has reported that cars made by Hyundai have already been vandalised in Jiangsu, prompting the public security bureau to call for “rational patriotism”.
Another risk is that the dispute starts to damage China’s manufacturing base. More than three quarters of its imports from Korea last year by value were shipments of intermediate goods. If the row worsens, the Koreans could retaliate by holding back items like semiconductors and high-end chemicals. That would cripple the Korean producers but it would hurt Chinese manufacturers too, putting intense pressure on global supply chains.
A prolonged confrontation might turn Korean investment away from China over the longer term in the same way that Japanese firms have tried to respond to the attacks on their factories five years ago with the “China Plus One” strategy, diversifying their production across other parts of Asia.
In the meantime Pyongyang’s provocations mean that the trouble over THAAD is likely to rumble on. Indeed, Hwang Kyo-ahn, South Korea’s acting president, responded to Kim Jong-un’s latest missile tests on Monday by saying that he would be “doubling down” on his country’s defence capabilities, including the installation of the new missile shield.
News of a fuller deployment might see Beijing push for a broader boycott. But the South Koreans seem steeled to proceed, in spite of domestic political turmoil (a court today confirmed the impeachment of Park Geun-hye with new presidential elections set for May).
Meanwhile North Korea has taken umbrage at THAAD too, with its ambassador to the UN, Ja Song-nam dramatically declaring late this week: “The situation on the Korean peninsula is once again inching to the brink of nuclear war.”
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