As expectations grow that China may lift the ban on Korean cultural products (限韓令) as early as this May, the domestic distribution industry is buzzing. The Chinese government has set economic growth as its top priority this year and recently announced plans to ease regulations on foreign corporations. The likelihood of the ban, which has persisted for eight years since the deployment of the Terminal High Altitude Area Defense (THAAD), being lifted has increased.
According to relevant industries on the 26th, the General Office of the State Council of China announced the '2025 Foreign Investment Stability Action Plan' on the 19th, unveiling plans to ease regulations to prevent a decrease in foreign investment. This has been interpreted by international relations experts as a part of the economic stimulus measures to overcome China’s low growth.
◇ Will APEC summit serve as a decisive thaw?
The Asia-Pacific Economic Cooperation (APEC) summit, which will be held in Gyeongju, South Korea, in November this year, is expected to serve as a crucial opportunity for lifting the cultural product ban. China will hold the chairmanship of APEC until next year. From China's perspective, the need to strengthen cooperation with Asian member countries has grown due to the inauguration of the second Trump administration in the United States.
Prior to the ban, domestic corporations that were highly dependent on the Chinese market endured a challenging eight years following the announcement of the ban.
Amorepacific Corporation was regarded as a prominent beneficiary in China before the ban began in earnest in 2017. However, right after the implementation of the ban, its operating profit suffered a blow, decreasing by about 30%. Subsequently, Amorepacific Corporation reduced its number of stores in China by over 30%. The company also shifted its strategy to 'global rebalancing,' lowering its reliance on China and venturing into various markets. As a result, last year, Amorepacific Corporation's sales in the Americas (524.6 billion won) slightly surpassed its sales in China (510 billion won). The corporation is also planning a full-scale entry into Europe.
An official from Amorepacific Corporation said, 'If the cultural product ban is lifted and Chinese consumers frequently visit Korea, it will positively impact the overall beauty business,' but also noted, 'We need to monitor the situation over time.'
Leading beauty corporations are establishing differentiated strategies for re-entering the Chinese market. Amorepacific Corporation has expanded its research and development (R&D) center in Shanghai to develop products tailored to Chinese skin characteristics. The company has also diversified its sales channels in collaboration with local platforms.
LG H&H is also strengthening its localization strategy. The company is enhancing collaborations with TikTok creators and is targeting Generation Z with its premium brands.
◇ Tourist numbers cut in half, recovery signal expected
With the expansion of exchanges between the two countries, the number of Korean tourists visiting China is also expected to increase. Since the implementation of the visa-free policy for Koreans by China in November last year, demand for domestic travelers to China has already risen.
Chinese tourists, which exceeded 8 million in 2016, dropped to about 4.2 million after the THAAD incident in 2017. Since last year, the number has been recording around 4.6 million, showing signs of recovery. Following the lifting of the cultural product ban, the growth rate of Chinese tourists visiting Korea is likely to increase further.
According to dedicated travel agencies in China, since the implementation of the cultural product ban, Chinese travel agencies have struggled to recruit groups for tours to Korea.
The duty-free industry is preparing for sales recovery through promotions such as developing duty-free shopping package products to attract Chinese group tourists, expanding Chinese payment systems, and hosting shopping events.
The duty-free industry has faced a double whammy from the THAAD incident and COVID-19. Last year, the total operating losses of the four major domestic duty-free companies, including Shinsegae, SHINSEGAE, Hyundai, and Lotte, approached 300 billion won. In particular, as of the first quarter of 2024, the proportion of sales from Chinese tourists for SHINSEGAE Duty Free and Lotte Duty Free dropped significantly to 18% and 22%, respectively, compared to 2016.
Department stores are also expecting to benefit from the increase in Chinese tourists. Major department stores are considering enhancing Chinese language services and reallocating shopping guides exclusively for Chinese tourists.
However, considering that spending per Chinese tourist dropped sharply from $1,800 in 2016 to $950 in 2024, they are focusing on stocking mid- to low-priced products.
◇ Food industry: strengthening localization and production
The food industry is working on strengthening direct trading systems with Chinese shopping platforms, expanding collaborations with K-pop stars, and establishing local joint ventures.
Samyang Foods suffered less impact, maintaining 50% of its total exports to China even after the cultural product ban in 2017. An official from Samyang Foods predicted, 'If the cultural product ban is lifted, Korean content will become widely disseminated in China, increasing interest in Korean culture and food.'
CJ CheilJedang operates five food production facilities in China. Excluding South Korea, it accounts for 31.2% of the total 16 production facilities operating in Asia. CJ CheilJedang is strengthening localized production by expanding its production line dedicated to Bibigo dumplings in China.
Nongshim saw a 13.5% decrease in local sales in China immediately after the cultural product ban in 2017. Ultimately, that year, Nongshim recorded a 2.6 billion won deficit in China. However, the company regrouped and signed a distribution contract with the major Chinese distributor 'Youbei' last year. This contract secured a distribution network of 400,000 in China for Nongshim.
The Chinese economy is currently contracted due to domestic stagnation and weakened consumer sentiment. Even if the cultural product ban is lifted, recovering the consumption levels of the past may be challenging. It is necessary to consider that consumer patterns and preferences in China have changed over the eight years.
A cosmetics industry official noted, 'Considering that domestic brands have rapidly grown in the Chinese market, Korean corporations need to approach it with a completely different strategy than eight years ago.' An official from the Industrial Research Institute stated, 'The lifting of the cultural product ban could provide opportunities for domestic corporations again, but since the Chinese government can close the market policy-wise again at any time, excessive dependence should be avoided.' This means that the lifting of the ban will not happen all at once, but may occur step by step over time, requiring stair-step preparations.
Some distribution companies maintained a cautious stance, citing that the possibility of lifting the cultural product ban has been raised multiple times over the past eight years but has not materialized. While the lifting of the ban is a positive development, it does not mean that they will suddenly revise existing management strategies that have reduced reliance on China.
An official from the Industrial Research Institute stated, 'In the future, the paradigm must shift from 'growth through China' to 'growth with China,' and if APEC summit expands cooperation between China and Korea, it could lay the foundation for forming an East Asian economic block.'