Lotte’s forced departure from China : a show of China’s political maneuvers
South Korean conglomerate, the Lotte group, has sped up its retreat from the Chinese retail market by announcing plans to sell all its retail stores, Lotte Mart, in China. Lotte provided its golf course for South Korea's deployment of the Terminal High Altitude Area Defense system (THAAD) last year, which officially aims to work with the U.S. to defend and deter North Korea. Since then, about eighty percent of Lotte Mart stores in China have been gradually shuttered by administrative orders for “safety inspections”, and the remainder has been suffering a rapid loss of customers.
It is important to note that China has become increasingly focused on utilizing its economic leverage to achieve strategic diplomatic and geopolitical goals. The Chinese government attempted to pressure South Korea to reassess the benefit-cost of deploying THAAD through punishing a major South Korean conglomerate. Although China’s strategy didn’t manage to influence South Korea’s decision in this particular case, China did send out a warning signal that it wouldn’t idly stand by as nations surrounding it made decisions impacting its security.
Such an approach could work to ensure the strategic interests of China. However, it could also have very negative impacts on the nation. Foreign investors will have to reconsider the political risk of investing in China. Lotte started its investment in China’s retail market in 2007, and it managed to expand its retail system in the country to nearly 100 stores in 2016.
Investors who want to address FDI in China could act with more caution, given that Lotte, a major conglomerate, was just forced out of the Chinese retail market through governmental pressure. When the Chinese government is concerned about accelerated capital flight, it has to reflect on how its state-crafts impact its investment environment.
Lotte’s retreat could also set a more complicated relationship between China, South Korea and the U.S..South Korea could have a deepening concern about its policy independence, given China’s determination to employ its economic leverage for political purposes.
The retreat will inadvertently affect South Korea’s relationship with its THAAD partner, the U.S.. South Korea may opt to tighten its relationships with Washington., especially in terms of national and international security, rather than comply with Beijing in order to defend itself against North Korea. The American-South Korean relationship would also help the nation gain more leverage to deal with China, and subtly encourage China to pressure on Pyongyang.