THAAD deployment adds worry to sagging S.Korean economy

SEOUL - Decision between Seoul and Washington to deploy Terminal High Altitude Area Defense (THAAD) in South Korean soil adds worry to the already sagging economy as the deployment is expected to reduce trade with China, South Korea's largest trading partner.

Last month, South Korea and the United States agreed to house one THAAD battery in its southeastern county of Seongju by the end of next year despite strong oppositions from neighboring countries.

The THAAD's X-band radar can snoop on Chinese and Russian territories, breaking a strategic balance in the region and damaging security interests of China and Russia.

Seoul's move to join the US Pivot to Asia strategy to contain China and Russia will not only have negative military, diplomatic effect on the region as arms race is expected, but also negatively affect trade between China and South Korea, which is already faced with downside risks at home and abroad.

South Korean exports, which account for about half of the export-driven economy, declined 10.2 percent in July from a year earlier. It was the longest monthly fall in history for 19 months in a row.

The country's exports to China, the world's second-largest economy, slumped 9.3 percent over the year in July. China takes up about a quarter of South Korea's total overseas shipments.

Outlook for South Korea's exports recovery gets abysmal as the local currency continued to appreciate to the US dollar. The won/dollar exchange rate settled at 1,095.4 won per dollar in Seoul trading on Wednesday, falling below the 1,100-won level for the first time in 13 months. It was a sharp drop in the rate, which peaked at 1,245 won in February.

Caused by sluggish exports, the employment among manufacturers, the country's main export engine, reduced 65,000 in July from a year earlier, Statistics Korea data showed on Wednesday. It marked the first decline in 49 months since June 2012.

The ongoing restructuring in the shipbuilding and shipping industries led the jobless rate in the southeastern region, where major shipyards and ports are sited, to rise further.

The unemployment rate in South Gyeongsang province rose 1 percentage point from a year earlier to 3.6 percent in July. It was a stark contrast to a 0.2 percentage-point fall in overall jobless rate last month.

The region's unemployment is expected to keep rising as three major shipbuilders promised to cut workforce by 30 percent by the end of 2018 as part of the government-led restructuring process.

Growing joblessness may result in President Park Geun-hye's political risk as the region is a traditional political home turf for President Park as well as the ruling Saenuri Party.

Park's approval rating turned downward in North Gyeongsang province, where the US missile defense battery is sited. The region is also a political home ground for President Park.

Adding to the already faltering private consumption, the number of Chinese tourists to South Korea is forecast to fall following Seoul's decision to install the US missile shield. Ten major China-dependent South Korean firms had lost 11.2 trillion won (10 billion US dollars) in stock value from July 7 through last Friday.

Sales forecast became dismal for domestic firms, which heavily depend on Chinese tourists and consumers for revenue, as well as entertainment companies that had enjoyed the popularity of so-called Hallyu, or Korean Wave, in China.

Seoul's finance ministry said in its monthly economic report on Tuesday that private consumption recovery may slow down on uncertainties at home and abroad. Massive household debts are expected to weigh down on consumer spending further.

Household debts by banks continue to grow at a fast pace, with a monthly increase of 6.3 trillion won (5.7 billion US dollars) in July. Bank of Korea (BOK)'s cut in its benchmark interest rate to a new record low of 1.25 percent in June drives the household debts to keep breaking previous records.