![The photo, taken on Feb. 10, shows a Covid-19 testing center at Incheon International Airport with a Chinese flag. The temporary restriction on short-term visa issuance for Chinese arrivals was lifted on Feb. 11. Additionally, mandatory PCR testing for Chinese arrivals has been lifted since March 1. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2023/06/14/4f07abbe-fa9c-477e-a72b-cb53f45be5cb.jpg)
With the relations between China and South Korea hitting new lows almost on a daily basis, consumers in each country are avoiding one another’s products, services and tours.
Inbound tourism from China has experienced a slower recovery compared to other nationalities visiting Korea, according to data released by the Bank of Korea.
Approximately 890,000 tourists from overseas visited the country in mid-April, 54 percent of the figure in April 2019, prior to the global Covid-19 pandemic. Among the nationalities, U.S. tourists displayed the highest recovery at 106 percent, followed by Thais at 78 percent and Vietnamese at 69 percent.
Chinese tourists, however, who previously accounted for the largest share of visitors to Korea, experienced a recovery of just 21 percent.
This is primarily due to China’s continued exclusion of Korea from its approved list of group tour destinations. Another factor attributing to the slower recovery of Chinese tourist numbers may be the relatively slower pace of China’s economic revival, according to the central bank.
Although there is no available data on the number of Korean tourists visiting China, Koreans seem relatively disinterested in visiting China.
Based on data analysis by KB Kookmin Card, 81 percent of airline ticket purchases from January to May 15 were for Asian destinations. Among these destinations, Japan accounted for 52 percent, suggesting a notable departure from previously widespread anti-Japanese sentiment, at least as far as travel was concerned.
On the other hand, China accounted for only three percent of the airline ticket purchases.
The reduced interest in traveling to China can be attributed to several factors, including tensions related to Korea’s hosting of the U.S. Thaad missile defense system, China’s oppression of pro-democracy protests in Hong Kong, the perception of China as the origin of the Covid-19 pandemic, and China’s restrictive policies, according to ConsumerInsight, a consumer research company.
“These factors have led to a shift in sentiment from a previous ‘No Japan’ movement to a new sentiment that can be described as ‘No China,'” the company added.
The duty-free industry, which heavily relies on Chinese tourists, had anticipated a rebound in business from China’s reopening, yet it is still struggling due to China’s ban on group tour arrivals to Korea. The absence of Chinese tourists, who are known for their high spending on luxury goods, has harmed revenue numbers in the Korean duty-free industry.
In the first quarter, Lotte Duty Free, Shilla Duty Free, and Shinsegae Duty Free all experienced significant declines in sales compared to the previous year. Lotte Duty Free’s sales plummeted by 39.5 percent on-year to 754.2 billion won ($590.37 million). Shilla Duty Free and Shinsegae Duty Free saw sales drop 38 percent on-year to 608.5 billion won and 33.8 percent on-year to 511.2 billion won, respectively.
Although the number of domestic travelers and tourists from Southeast Asia, the United States, and Europe have started to rebound as countries transition away from Covid-19 restrictions, Chinese customers — especially Chinese bundle dealers who buy tax-free goods in Korea to sell them back in China, known as daigong — play a pivotal role, accounting for 99 percent of local duty-free sales.
“Actually, what we prefer are Chinese group tourists known as ‘flag groups’ — organized tourists with tour guides holding flags,” said a duty-free industry insider under the condition of anonymity. “We prefer selling products that they will use locally or give as gifts, rather than products intended for resale, as it represents a more sustainable source of revenue from our perspective.
To align their business models with current market conditions and adjust their profit margins accordingly, this year duty-free shops began cutting the high commission fees paid to daigong merchants, previously in the 40 to 49 percent range, to the 20 to 30 percent range.
“Duty-free shops are suffering negative growth as a result of decreased sales linked to the decline in major Chinese daigong merchants,” Suh Hyun-jung, an analyst at Hana Financial Investment, said.
Korean beauty businesses in the Chinese market are facing narrower opportunities for growth due to the “guochao movement,” a new consumer trend in China encouraging the consumption of domestic goods, along with the increasing presence of global luxury brands.
In the first quarter, both LG Household & Health Care and Amorepacific witnessed significant sales declines in the Chinese market compared to the same period last year. LG Household & Health Care experienced an 18.6 percent on-year decrease, while Amorepacific’s Chinese subsidiary recorded a decline of approximately 40 percent in sales.
“The difficult situation is continuing such as the emotional challenges from the 2017 Thaad issue and physical hurdles caused by the Covid-19 pandemic,” an industry insider who requested anonymity said. “Specifically, there are unresolved issues, including the continued restrictions on Chinese group tourists entering Korea, adding to the challenging atmosphere.”
Amorepacific has decided to withdraw all of its independent shops from the Chinese market in the first half of this year. Instead, the company aims to focus on selling in department stores or multi-brand shops or through Chinese e-commerce platforms like JD.com and Tmall.
In response to the sluggish Chinese consumer market, cosmetics companies are actively expanding into new markets like North America and Europe, yet the Chinese market cannot be easily ignored.
Amorepacific, for instance, has recently launched its popular brands like Laneige and Sulwhasoo on Amazon, and they are also setting up temporary pop-up stores to attract customers. Similarly, LG Household & Health Care has acquired U.S. beauty and personal care product maker New Avon and secured the business rights for Physiogel in both Asia and North America.
Although the other markets may offer greater stability in terms of variables and risks compared to China, the Chinese market still accounts for a larger share of sales by cosmetic manufacturers.
Amorepacific reportedly derives about 80 percent of its total overseas sales from China. Similarly, LG Household & Health Care’s revenue from China mirrors Amorepacific’s.
Park Hyun-jin, an analyst at Shinhan Securities, also pointed to Sino-Korean relations as one of the key factors in the beauty industry, and said that for beauty companies, a market without China is like “a red bean bun without the red bean.”
“Besides the ongoing diplomatic conflict, China is a region with a lot of complexities and uncertainties,” a spokesperson from Amorepacific said. “However, considering the immense significance of the Chinese market, we have no plans to scale back our business there, as it is simply not feasible to do so.”
![Chinese Ambassador to South Korea Xing Haiming, left, talks with Lee Jae-myung, leader of the Democratic Party, before their dinner meeting at the envoy's residence in Seoul on June 8. The envoy said in the meeting that those who "bet on China's loss" in its rivalry with the United States "will definitely regret it," sparking a political controversy. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2023/06/14/a578c1a2-c95c-4662-bcc4-4f4edf5ba76a.jpg)
Korea-China tensions flared once again when the Chinese Ambassador to Korea, Xing Haiming, stated that “those who now bet on China’s defeat will surely regret it later,” sparking a major political controversy in Korea. It resulted in a second round of retaliatory actions between Korea and China since the current administration took office, with the first being President Yoon Suk Yeol’s mention of the Taiwan issue during a news interview in April.
Several recent developments have added to the concerns, including suspicions that Naver, the largest Korean online platform, is being blocked in key Chinese regions, and Korean celebrities suffering cancellations of their appearances on local entertainment programs.
“There was optimism during the reopening phase and when Xi Jinping recently visited an LG Display factory, indicating a possible improvement in relations with China,” a duty-free industry insider said. “But the situation has taken a complete U-turn, leaving us disappointed as our expectations have been shattered by the uncertainty of what lies ahead.”
BY JI-EUN SEO [seo.jieun1@joongang.co.kr]