China’s economic coercion hits a chip wall in S Korea
South Korea has been in the firing line of Chinese economic coercion. Like Australia, the East Asian nation is a key member of the US alliance in the Pacific, whose role as a like-minded member of the rules-based order was emphasized during President Yoon Suk Yeol’s recent trip to the United States.To get more
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As a neighbor of China and with an economy complementary to some of China’s core industrial sectors, South Korea has been one of the most prominent targets of Beijing’s economic coercion tactics. But this is not without precedent.In the aftermath of WWII, economist Albert Hirschman contended that “seemingly harmless” bilateral trade relations can create asymmetric interdependence. Asymmetry leads to reliance which can result in political domination, particularly by great powers.
A modern-day version of this is China’s attempts to extract political and strategic advantage from its trade relations. But while Hirschman believed that the international system may “contain the seeds of its own destruction”, contemporary facts suggest otherwise.
Between February 2010 and March 2022, one group of analysts identified 123 cases of China imposing — or threatening to impose — unilateral sanctions such as boycotts, administrative discrimination, defensive trade measures, trade limitations and travel restrictions on foreign entities.While Chinese coercion has taken its toll on the South Korean economy, its unintended consequences have prompted South Korea to reduce its exposure to China, even if this entails some real costs.
South Korean firms and policymakers have sought to strengthen economic independence, sovereignty and domestic resilience through reshoring and onshoring. This is evident from the experience of two sectors that had been hitherto highly exposed to China — retail and semiconductors.
The Lotte group and its chain of department stores it once operated in mainland China are the most direct example of a South Korean firm being subjected to Chinese coercion for non-economic reasons.Lotte is often referred to as “the biggest loser” of the Terminal High Altitude Area Defense (THAAD) affair, in which Beijing expressed outrage at Seoul’s decision to deploy a US-made anti-ballistic missile system in 2016. Lotte also sold the land needed for THAAD.
As retribution, most of its stores in China were subjected to regulatory suspensions, resulting in plummeting sales and losses of up to AU$1.3 billion (US$875.7 million). By 2018, the Lotte chain had exited China.
The Lotte case was an exercise of raw power by the Chinese government, but it also demonstrates the limits of coercion as a foreign policy tool. In punishing Lotte and causing its closure of stores, China’s measures eliminated a key source of leverage over South Korea.While there were real losses for the company, a South Korean academic and presidential advisor noted that “very few foreign retailers” have ever “run profitable operations” in China.
Tellingly, the South Korean government did not dissuade Lotte from leaving China, but instead supported its relocation to Southeast Asia. The incident also tarnished South Korean public sentiment towards China.
If China’s coercion achieved its goal of inflicting economic harm on South Korea in the retail sector, the tactic has been less successful in semiconductors. East Asia is the hub for the multiphase creation of semiconductors and South Korean chipmakers account for about 20% of global production, including some of the industry’s most cutting-edge, upstream segments.
China’s economic coercion hits a chip wall in S Korea
