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China Shuts Hershey Joint Venture Plant in Latest Missile Spat Response

March 8, 2017
The suspension order marks the first time that a U.S. company has also been pulled into the fray of a simmering political dispute between China and South Korea.

Lotte Shanghai Foods, a joint venture between Hershey Co. (IW 500/134) and Lotte Group, has been ordered by Chinese authorities to stop production, escalating China’s economic retaliation for the deployment of a U.S. missile defense system in South Korea.

The suspension order, confirmed by Lotte, marks the first time that a U.S. company has also been pulled into the fray of a simmering political dispute between China and South Korea. The factory suspension is the latest move by China against South Korean companies.

Lotte and its affiliates have incurred the brunt of the recent Chinese actions after the South Korean conglomerate agreed to offer a golf course that the U.S. will use to deploy the Terminal High Altitude Area Defense missile system to counter North Korea’s provocations, including the test firing of four ballistic missiles March 6.

A Lotte representative, who asked not to be identified citing company policy, said Chinese authorities ordered the production stoppage due to alleged safety violations. The month-long halt could cost the joint venture about 4 billion won (US$3.5 million) in lost sales, according to the company official. The factory makes chocolates and cocoa products. Hershey representatives could not be reached outside of office hours in the U.S.

China’s backlash has also extended to other industries, with South Korean government officials saying Chinese authorities have verbally ordered local travel agencies to stop selling tour packages to South Korea starting March 15, and Chinese customs are rejecting certain cosmetic shipments. China’s major internet-streaming companies have pulled popular Korean programs.

China opposes the deployment, saying it undermines its own security. In recent weeks, Lotte’s Chinese website has been hacked and Chinese authorities, citing alleged fire safety violations, have suspended 55 Lotte Mart stores, or more than half of the shops Lotte operates in China.

South Korea is closely monitoring the current situation with China and will work to minimize damages on Korean citizens and companies by expanding economic and diplomatic efforts, Finance Minister Yoo Il-ho said Wednesday after a meeting with government ministers.

Shares of Lotte Confectionery, the unit that runs the Shanghai chocolate-making joint venture, fell 4.2% Wednesday in Seoul, compared with the benchmark Kospi Index’s 0.1% gain. Lotte Shopping Co., which operates department stores in Asia, fell 0.7%, extending its decline to 9% since the government disclosed the land deal Feb. 27.

By Heejin Kim and Sohee Kim

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