China, South Korea agree to mend ties after THAAD standoff

Seoul and Beijing on Tuesday agreed to move beyond a year-long stand-off over the deployment of a U.S. anti-missile system in South Korea, a dispute that has been devastating to South Korean businesses that rely on Chinese consumers.

The unexpected detente comes just days before U.S. President Donald Trump begins a trip to Asia, where the North Korean nuclear crisis will take centre stage, and helped propel South Korean stocks to a record high.

The installation of the U.S. Terminal High Altitude Area Defense (THAAD) system had angered China, with South Korea’s tourism, cosmetics and entertainment industries bearing the brunt of a Chinese backlash, although Beijing has never specifically linked that to the THAAD deployment.

Beijing worries the THAAD system’s powerful radar can penetrate into Chinese territory.

“Both sides shared the view that the strengthening of exchange and cooperation between Korea and China serves their common interests and agreed to expeditiously bring exchange and cooperation in all areas back on a normal development track,” South Korea’s foreign ministry said in a statement.

As part of the agreement, South Korean President Moon Jae-in will meet Chinese President Xi Jinping on the sidelines of the summit of Asia-Pacific Economic Cooperation (APEC) countries in Vietnam on Nov. 10-11.

RETAIL RELIEF

The thaw is a big relief for South Korean tourism and retail firms as well as K-pop stars and makers of films and soap operas, which had found themselves unofficially unwelcome in China over the past year.

In South Korea, a halving of inbound Chinese tourists in the first nine months of the year cost the economy $6.5 billion in lost revenue based on the average spending of Chinese visitors in 2016, data from the Korea Tourism Organization shows.

The spat knocked about 0.4 percentage points off this year’s expected economic growth, according to the Bank of Korea, which now forecasts an expansion of 3 percent.

The sprawling Lotte Group, which provided the land where the THAAD battery was installed and is a major operator of hotels and duty free stores, has been hardest hit. It faces a costly overhaul and is expected to sell its Chinese hypermarket stores for a fraction of what it invested.

A spokesman for holding company Lotte Corp expressed hope that South Korean firms’ activity in China would improve following the announcement.

An official at Seoul’s presidential Blue House, who declined to be named given the sensitivity of the matter, said improvements for South Korean companies would come slowly.

Shares in South Korean tourism and retail companies rallied nonetheless, with Asiana Airlines gaining 3.6 percent and Lotte Shopping up 7.14 percent. The benchmark Kospi index hit a record for a third straight day, gaining 0.9 percent.