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South Korean companies still face China obstacles, despite positive talks

Lotte, Hyundai Motor play wait-and-see, while Orion plans aggressive product launches

A Lotte Mart is seen closed in Jiaxing, Zhejiang province, China on Sep. 8.   © Reuters

SEOUL -- South Korean companies say that they still face obstacles doing business in China, despite the fact the two countries agreed last month to resolve their conflict over the deployment of a U.S. missile defense system in Seongju.

Retail conglomerate Lotte said that Chinese authorities have not lifted their suspension of almost 80% of its 112 Lotte Mart outlets in the country. Lotte Mart is a discount chain of Lotte Shopping.

China has targeted Lotte's business since March after the company offered its golf course for a U.S. military camp operating the Terminal High Altitude Area Defense missile system opposed by Beijing. The group also said that it had not gained approval from the authorities for the construction of a shopping mall in Shenyang, northeast China. There had been local media reports recently on a possible resumption of the Shenyang project.

"We can't feel sentiments improving yet," said a director at Lotte who did not want to be identified. "It seems that we should have more patience until we get approvals for our business."

Hyundai Motor also said that it was too early to tell if there was any difference in the Chinese market. South Korea's largest automaker saw its sales in China tumble 30.1% to 549,000 units for the first three quarters this year from a year ago, as Chinese consumers turned their noses up on South Korean products. As a result of weak sales in China, Hyundai faces losing its position as the third largest automaker in the largest market in the world this year.

Its revenue in the January-September period rose 4% to 71.9 trillion won ($65.3 billion) year-on-year as increasing sales in India, Brazil and Russia offset its poor performance in China and the U.S. But its operating profit fell 8.9% to 3.8 trillion won in the same period, hit by higher costs in human resources.

The country's two leading battery makers -- LG Chem and Samsung SDI -- are also still waiting for the Chinese government's subsidies for their electric vehicle batteries that are key to their businesses. Beijing dropped the two companies from its list of companies to benefit from subsidies this year, a move that had impacted their businesses.

Orion's Choco Pie, a key product in the Chinese market

Other South Korean companies have little choice but to seek ways to survive in this climate as opting out of such a huge market would only be detrimental in the long run. For instance, confectionery company Orion, a subsidiary of Orion Holdings, is intending to push its operating profit margin back up to the pre-THAAD dispute level of 15%, by restructuring labor, enhancing logistics and delivery systems, and using marketing more effectively, according to Nomura analyst Cara Song who participated in Orion's conference call on Tuesday.

On top of that, the company is planning to introduce 20 new products in China next year, far higher than the typical five to six new launches in the previous years.

"Based on management comments, we believe Orion is likely to engage in fairly aggressive new product launches in China," said Nomura's Song. "We remain upbeat on its new product initiatives." She maintains a buy rating, with a target price of 150,000 won, which is 24% higher than the closing price of 121,000 won on Thursday.

Though few, some companies are already seeking to gain from improving relations between the two countries. CJ Logistics, an affiliate of CJ Group, launched a research lab in Shanghai under its Chinese affiliate CJ Rokin on Thursday.

The new center will develop logistics technologies in cooperation with the company's research center in Seoul. The company said this represented a new type of investment in China, transferring its technology to the country rather than making a simple capital investment.

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