In July last year, South Korea and the United States agreed to install the Terminal High Altitude Area Defense battery in the southeastern county of Seongju to better counter missile threats from North Korea. China has slammed the deployment of the system, which comes with a high-powered radar, insisting America will use the device to spy on its military development.

According to the sources, Lotte Group, which has high business exposure in the world's second-largest economy, will be hit hardest by any Chinese retaliation for the planned THAAD deployment.

In October last year, the Seoul government picked Lotte's golf club in Seongju as the site for the missile defense battery. The conglomerate would in exchange receive a plot of land just east of Seoul that currently belongs to the military. 

The board of directors of Lotte International, the owner company of the golf course, has yet to make a final decision on accepting the land swap deal. Early this month, the board convened a meeting but deferred a decision, citing the sensitivity of the issue.

With Lotte's impending decision, the Chinese state newspaper Global Times said in a commentary on Tuesday that Lotte should leave China if it can't reverse course and its business outlook, including duty-free shop revenue, will gradually take a turn for the worse.

Calling the proposed THAAD deployment a threat to regional security and stability, Beijing's state news agency Xinhua warned in a commentary on Sunday that "Lotte is playing with a fire that could inflame regional relations."

Lotte, South Korea's fifth-largest family-run conglomerate, made forays into China in 1994 and chalks up some 3 trillion won ($2.62 billion) in annual sales. It is currently pushing for the construction of a big-budget shopping complex in the Chinese city of Chengdu and a mammoth Lotte town in Shenyang. At the moment, 24 Lotte subsidiaries are doing business in China with a combined workforce of about 20,000.

Considering the size of its business operations in China, analysts said, Lotte should not dismiss the Chinese media's threats as a mere bluff.
A Lotte official echoed the view. "Lotte stands to lose big from a possible consumer boycott even if the Beijing government doesn't take the lead (in retaliation)." 

Lotte is not alone. Eland Group, a South Korean outlet mall operator, is also on edge as the conglomerate depends heavily on China for its revenue.

Eland entered the Chinese market by establishing a wholly owned subsidiary in Shanghai in 1994. Its fashion division alone operates more than 7,000 shops across China. Last year, the group posted sales of 2.7 trillion won in China, which mostly came from the fashion business. The figure was more than its domestic fashion sales of 2 trillion won.

"We are keeping close tabs on Chinese consumers' trends as the THAAD deployment is such a sensitive issue, despite Eland's favorable image in China," an Eland official said. "The bulk of Eland's China workforce of 30,000 consists of locals, and Eland has been active in social contributions so far."

Watchers also expressed concerns that South Korean duty-free shops would be hit hard by China's possible retaliation, including restrictions on tours to Seoul, as shoppers from the neighboring country take the bulk of their sales.

Last year, the main office of Lotte Duty Free Shop Co. in central Seoul raked up sales of 3.16 trillion won, about 80 percent of which came from Chinese tourists. Shilla Duty Free operated by Hotel Shilla Co. also saw Chinese shoppers account for more than 80 percent of its sales.

Industry watchers said the fallout has yet to be felt, but nobody knows how the situation will change if a final decision is made or a THAAD battery is actually installed.

"In January, sales from Chinese shoppers surged more than 20 percent from a year earlier with no signs of a decline in the number of Chinese tourists," a duty-free shop official said. "But we feel dizzy whenever we hear about Chinese media's reports on retaliation." (Yonhap)