From friend to foe? China’s tourism curb on South Korea will have consequences

SEOUL – a key theme for South Korea this year is geopolitical risk, and it is not just coming from North Korea but increasingly through its largest trade partner – China, says global asset manager Natixis.

“China may want to cast a stone that kills two birds: a) to ‘teach’ Korea a lesson on the economic consequence of its defiance of China’s will; and b) to bolster its defence of capital outflows through the current account,” Natixis says.

China has reduced the flow of tourists into South Korea. It is not pleased with deployment of the US missile defence system THAAD.

Chna's tourism curb is clearly not positive in the short-term,” Natixis says. “Still, we do not expect it to significantly add to already dampened growth prospect because tourism receipts remain small as a share of GDP. Tourism-related sectors are dwarfed by industrial sectors, which remain the key growth driver in Korea.

“And Korea’s technological competitiveness means that Chinese demand for components such as semiconductors will remain even as authorities step up pressures on cosmetics.”

“In the medium term, Nataxis believes, China’s tourism curb measures are likely to be short-lived unless China steps up with more economic measures beyond tourism.

“This may accelerate the trend of Korean firms diversifying from China’s risks. Higher labour costs, geopolitical risks, and a less favourable FDI policy in China are the key reasons behind tis.”  www.natixis.com (ATI).