South Korea's Lotte reports store closures in China amid political stand-off

SEOUL/SHANGHAI (Reuters) - Chinese authorities have closed nearly two dozen retail stores of South Korea’s Lotte Group following inspections, ramping up pressure on the conglomerate amid a diplomatic standoff that has cast a chill over business ties between the two nations.

A Lotte Mart is seen closed in Hangzhou, Zhejiang province, China, March 5, 2017. REUTERS/Stringer

Lotte said on Monday that 23 of its China supermarket stores had been shut, reaching from Dandong on China’s North Korean border to the wealthy east coast and southern Changzhou, marking a wide clamp-down on the group in its biggest overseas market.

A Lotte Mart spokesman could not provide further details, but workers at three stores said the closures - which they said were temporary - were fire-safety related. The three people asked not be identified due to the sensitivity of the issue.

The Anhui fire department said in a post on its Sina Weibo microblog account on Monday it had temporarily shut two Lotte Mart stores due to fire risks, part of a broader regional sweep over the last month that had led to the closure of 30 stores belonging to a range of companies including Lotte.

The Lotte closures are the latest in a series of incidents affecting South Korean companies in China after cyber attacks and a ban on sales of travel tours to South Korea. Lotte Mart had 115 stores in China as of January contributing to group sales there of over 3 trillion won ($2.6 billion) in 2015.

The incidents come after Lotte approved a land swap outside Seoul last week that will allow South Korea to install the U.S. Terminal High Altitude Area Defense (THAAD) system, in response to missile threat from North Korea.

South Korea’s military earlier on Monday said North Korea fired four ballistic missiles into the sea prompting acting president Hwang Kyo-ahn to call for THAAD’s swift installation.

But China’s government has objected to the deployment of THAAD, saying it has a radar capable of penetrating its territory, while state media has called for a boycott of South Korean goods and services.


On Chinese social media on Monday, photos and videos circulated of protests outside Lotte stores, while others showed Lotte outlets with their steel grates pulled shut.

Outside one store, a red banner with large white characters read: “South Korea’s Lotte has declared war on China. Lotte supports THAAD. Get the hell out of China”.

The protests come days after Lotte Duty Free on Thursday said a cyber attack using Chinese internet protocol (IP) addresses had crashed its website. It is currently back online.

Political risk experts say the chill facing South Korean firms demonstrates Beijing’s playbook for hitting back at the corporate interests of trade partners it disagrees with through state media and tightening regulations.

The Lotte Group in a statement on Sunday said it was seeking assistance from the South Korean government regarding the issues it was facing in China, where it employs around 20,000 people - a third of its overseas staff.

On Monday, shares in Lotte Shopping Co Ltd 023530.KS, of which Lotte Mart is a business division, fell as much as 4 percent compared with a near-flat benchmark share price index .KS11. The stock regained some ground in afternoon trading.

Lotte’s troubles expanded to other South Korean firms on Thursday as China’s tourism ministry instructed tour operators in Beijing to stop selling trips to South Korea from March 15. The order has since spread to other regions across the mainland, an official at Korea Tourism Organization said on Monday.

The moves have prompted backlash from South Korea, whose trade minister Joo Hyung-hwan said on Sunday he had “deep concerns over a series of actions in China”.

China’s foreign ministry said on Monday it welcomed South Korean companies to invest and operate in China, but added these firms “must operate in accordance with the law and compliance”.

Reporting by Joyce Lee and Adam Jourdan; Additional reporting by Hyunjoo Jin in SEOUL, Ben Blanchard in BEIJING and SHANGHAI newsroom; Editing by Michael Perry and Christopher Cushing