Why China's Bullying Of South Korea Will Have Unanticipated Costs For Both Parties

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■Why China's Bullying Of South Korea Will Have Unanticipated Costs For Both Parties

Douglas Bulloch ,  

Contributor

I write about the political economy of China and its major industries

Opinions expressed by Forbes Contributors are their own.

I taught Masters students in International Relations Theory and International Politics at the London School of Economics, before moving to China in 2011. Prior to that I worked on the commercial and financial side of Enterprise Oil Plc based in London which was taken over by Royal Dutch Shell in 2002. I have a PhD in International Relations from the LSE, an MA in International Relations, and a BA in Economics and Middle Eastern History from SOAS in London. I have been writing about the political economy of China since 2014 for CKGSB Knowledge, published in Beijing. I live in Hong Kong and take an interest in both international politics and the business and economic questions that put it in perspective.

The author is a Forbes contributor. The opinions expressed are those of the writer.

• China may be very bureaucratic, but its bureaucracy functions well as an instrument of control.
• Beyond the affected sectors, some 25% of South Korea's exports go to China, so there is much at stake.

In this Friday, March 17, 2017 photo, residents walk past a Lotte Mart where additional security measures are visible in Beijing, China. (AP Photo/Ng Han Guan)

South Korea tends to keep a low profile internationally, seemingly content to nurture their chaebols and leave high politics to other powers. Their close alliance with the U.S. and the constant threat of spiralling chaos from the North means their strategic focus is narrow and predictable. Lately, however, they have found themselves in the spotlight both for domestic reasons, and international.

North Korea's pursuit of missile technology over the years has drawn a series of increasingly firm responses from the U.S., which recently deployed preliminary elements of their THAAD missile defence system to South Korea. This deployment – which has been brought forward though was long planned – has been interpreted as a hostile move by China, who have answered with commercial pressure on South Korean economic interests in China.

Shakedown?

The difficulty South Korea faces is that although it is politically aligned with the U.S., it is economically hugely influenced by China, to the extent of being described as "dependent" on their giant neighbor. In effect this means South Korea is caught in the middle of a great power rivalry and dependent on factors outside of its control.

China is no stranger to the practice of economic pressure whenever it feels its core interests are at stake, as with the THAAD deployment. Consequently foreign investors in – and exporters to – China are routinely familiar with the possibility that their own governments might offend China in some way. If this happens, pressure then comes in multiple ways; permissions denied, delays engineered, inspections ordered and even products simply removed from shelves. China may be very bureaucratic, but its bureaucracy functions well as an instrument of control.

Ordinarily when such things happen, statements are made and ruffled feathers are smoothed, meaning things return to normal before too long. The pressure exerted on South Korea, however, has got to the point now where they have lodged a complaint with the WTO indicating that they see no end in sight and wish to establish at least a base line for diplomacy. China, for its part, has never explicitly linked this ongoing pressure to the THAAD deployment, speaking instead of a more diffuse "public opinion" that must be taken account of.

The next step for South Korea would be to try and discuss the matter with Chinese officials, but China are apparently stonewalling. Needless to say, the WTO process can take over a year to resolve, which is why states ordinarily prefer to settle matters without going down this route. And indeed, going to the WTO may itself antagonize the other party, making a quick agreement potentially less likely, even as it increases the stakes.

Then there is the question of how to resolve a dispute like this anyway? Open and obvious protectionism like tariffs can be identified and quantified, but a cloud of low level administrative decisions is both harder to quantify and difficult to litigate. Lotte, for example, the South Korean supermarket group simply found their premises across China subjected to sudden audits and "fire inspections" resulting in the closure of many stores. There was no official indication that this was a direct response to a transfer of land Lotte agreed to with the South Korean Government for the THAAD missile system. Except, of course, an op-ed in the Global Times – a state mouthpiece – that called for closing down Lotte's operations in China altogether, for exactly this reason.

Long Term Impact?

Such is the range of China's restrictions, affecting cosmetics, electric batteries for cars (though this could be simple protectionism), and TV soap operas, that a precise audit of the overall costs to South Korea is difficult. Credit Suisse, however, estimated that China's travel restrictions alone could cost South Korea anywhere between 0.5% (if only affecting Chinese tour groups) to 1.2% of GDP. Beyond the affected sectors, some 25% of South Korea's exports go to China, so there is much at stake.

Policies like these are also bound to have disruptive effects in China itself. Not only are Chinese consumers no longer able to source their favorite cosmetics, or watch their favourite TV shows (South Korean dramas are wildly popular in China) but basic economics indicates that the costs of protectionism always split two ways. Even this, though, is not the end of it for China.

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• China may be very bureaucratic, but its bureaucracy functions well as an instrument of control.
• Beyond the affected sectors, some 25% of South Korea's exports go to China, so there is much at stake.

In Asian regional politics, the default bad guy is usually Japan. South Korea and China both share deep historical scars that can flare up with the slightest provocation. But China's recent actions over South Korea are creating a new political dynamic that may cost China's reputation and "soft power" far more than it has anticipated. Polling in South Korea, for example, now puts China's reputation above that of Japan in the "most hated nation" stakes, which is quite an achievement in itself. Then when U.S. Secretary of Defence Mattis suggests that China adopts a "tribute nation kind of approach" in its relations with regional states, it is clear enough not only what his intentions are in saying this, but also that his comments will find widespread agreement.

Leaving China on the horns of a geopolitical dilemma, in which an attempt to exercise regional hegemony has merely exposed how far China has to go to claim it.

/ from  https://www.forbes.com/