April 3, 2017 / 2:21 AM / 4 months ago

South Korea's Lotte Group says missile row no reason to pull out of China

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Hwang Kag-gyu, head of Lotte Corporate Innovation Office, speaks during a news conference in Seoul, South Korea, April 3, 2017.Kim Hong-Ji

SEOUL (Reuters) - South Korea's Lotte Group will continue to invest in its China business despite diplomatic tensions over the deployment of a U.S. missile defense system, a Lotte executive said on Monday, denying rumors it wants to scale back there.

Chinese authorities closed dozens of Lotte retail stores following inspections, ramping up pressure on Korea's fifth-largest family-run conglomerate after it agreed to provide land for the U.S. Terminal High Altitude Area Defense (THAAD) missile system outside Seoul.

South Korea and its ally the United States say the system is designed to thwart nuclear-armed North Korea's missile threat, but Beijing says its radar can also reach far into China. Chinese state media have called for a boycott of Lotte businesses in response to the THAAD deployment.

"It's been 20 years since Lotte entered the China market ... we believe the China business is still in an investment period," high-ranking executive Hwang Kag-gyu told reporters.

South Korean media including Yonhap have raised the possibility of Lotte scaling back its China business in the wake of the backlash against the company there.

Lotte has not outlined a strategy to cope with the difficulties besides "waiting" for it to blow over.

Chinese signs reading "(We) understand you. So (we) wait," were put up in Lotte's flagship department store in Seoul last month.

"As a market, China isn't yet fully developed, especially in the middle and western regions. In order to grow globally, China is needed," a Lotte official who declined to be identified said.

"The THAAD issue is not something one company can solve."

Out of 99 Lotte hypermarkets in China, 75 had been closed by Chinese authorities as of April 2, a Lotte Mart spokesman said. Lotte Mart reported 1.13 trillion won ($1.01 billion) in China sales last year.

China is Lotte's biggest overseas market and generated about 3 trillion won in 2016 revenue. It is one of four strategic markets along with Vietnam, Russia and Indonesia that Lotte has been focusing on, as retail growth in its home market slows.

Hwang said the planned initial public offering of Hotel Lotte would depend on its key duty-free business recovering from the "THAAD effect". What had been a $4.5 billion IPO was shelved last year.

"All we can do is watch," he said.

South Korean airlines and tourism operators have also experienced discriminatory tactics from China, hitting the country's duty free market.

Reporting by Joyce Lee; Editing by Stephen Coates

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