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Korea's economic growth may slow on THAAD impact

South Korea's annual growth could be slashed by as much as 0.5 percentage point should China continue its economic offensive against the South's decision to install a US missile defense system on its soil, analysts said Wednesday.

Asia's fourth-largest economy is predicted to suffer some $7.3 billion in losses -- a 0.53 percent on-year drop of its annual GDP -- should it end up losing about half of its Chinese travelers on an annual basis, Credit Suisse said in its latest report.

Large Korean corporates influenced by the THAAD impact (Yonhap)
Large Korean corporates influenced by the THAAD impact (Yonhap)

Beijing has been ramping up restrictions on Korean companies and their goods in apparent acts of retaliation after Seoul and Washington decided to station a Terminal High Altitude Area Defense battery on the Korean Peninsula as a deterrent to North Korea's evolving nuclear and missile threats.

The completion of a land swap for the THAAD deployment between retail conglomerate Lotte Group and the military on Feb. 28 aggravated China, triggering Beijing to impose a ban on tour groups to South Korea and suspend operations at one in three hypermarkets run by Lotte there.

In 2016, 44 percent of some 8.1 million inbound Chinese travelers came through tour group packages and spent about $2,080 per individual, according to the Korea Tourism Organization.

"It is confined to a handful of businesses and industries at this stage. But the impact will be grave if the THAAD issue becomes big enough to affect other industries," said Ju Won, a chief analyst at Hyundai Research Institute.

In another report by Seoul-based NH Investment & Securities Co., South Korea's growth will likely slow by 0.25 percentage point, if its exports of consumer goods to China shrink by 20 percent on-year and the number of Chinese tourists falls by 20 percent from the previous year.

A separate report by a local think tank showed the worse scenario for the country's economy. IBK Economic Research Institute said losses from the THAAD impact could amount to as much as 17 trillion won ($14.7 billion), with the growth rate possibly slowing down by 1.07 percentage points.

"It is possible that private spending could shrink eventually if exports and the tourism and content sectors are hit by China's THAAD retaliation," Jang Woo-ae, an analyst at the IBK institute said.

On Tuesday, the South Korean and US militaries said the transfer of THAAD has begun, confirming the arrival of two launchers and other equipment in South Korea. The move spawned fresh concerns that local companies with business ties to China will further be affected. (Yonhap)

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