September 28, 2017 / 7:53 AM / a year ago

South Korea to offer tax help, loans to firms hit by China reprisals

SEOUL (Reuters) - South Korea said it will offer tax and loan concessions to companies whose businesses have suffered amid a dispute with China over Seoul’s deployment of a powerful missile defense system.

The government plans to allow South Korean duty-free firms and retailers operating in China to defer all or part of their corporate income and value-added taxes for up to nine months, the finance ministry said on Thursday.

The ministry will also offer cheap loans to auto parts makers hit by declining sales of South Korean cars in China.

South Korea allowed the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system on its soil this year as North Korea stepped up missile tests. The move has drawn fierce criticism from China, which says the system’s powerful radar can probe deep into its territory.

In retaliation, Beijing has imposed boycotts on South Korean goods sold in China, raising pressure on new President Moon Jae-to help affected firms, analysts said.

Beijing also has banned group tours to South Korea, hurting its retail and service sectors.

China’s commerce ministry declined to comment when asked about South Korea’s planned measures.

However, Seoul has limited options to counter Beijing’s tactics, said Stephen Lee, an economist at Meritz Securities.

“There isn’t much Seoul can do as these issues have been originating from China. There’s little the government can do in terms of making up for the loss incurred (by South Korean businesses,)” Lee said.

“Seoul can continue to announce micro-measures to buffer any shocks, but it’s too difficult to resolve the problem by removing the THAAD now,” Lee added.

The finance ministry said it plans to boost domestic tourism to compensate for declining Chinese tourists.

Chinese tourists used to account for about half of all visitors to South Korea, but their numbers halved in the first seven months of 2017 compared with a year ago.

That translates to $5.1 billion in lost business for South Korea, data from the Korea Tourism Organization showed.

Partly due to the THAAD backlash, Hyundai Motor Co.’s (005380.KS) retail sales in China, the world’s biggest auto market, slumped 29 percent in the first half of 2017.

Seoul has said it plans to boost funds at policy banks by up to 500 billion won ($437.14 million) to help car part makers and other suppliers heavily reliant on sales to Hyundai Motor and Kia Motors.

Reporting by Cynthia Kim; Additional reporting by Dahee Kim and Beijing Newsroom; Editing by Shri Navaratnam and Kim Coghill

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