Sunday, August 30, 2015

Anti-Japan Backlash at Lotte

 Family feuds are relatively common among Korea’s giant, family-owned business conglomerates known as chaebol. Usually they involve the offspring of the patriarch fighting over who should succeed the founder.

One famous feud in the early 2000s for control of Hyundai ended only when the aging founder, Chung Ju-yong, died in 2001, and the conglomerate was split three ways.

The current family feud to succeed Shin Kyuk-ho, 92, as head of the Lotte Corp. pitting the two younger sons of Shin, both in their 60s, played out this summer in the familiar pattern – with one important difference.

Lotte is not really a Korean Company; it is Japanese.

So it is not surprising that the family came to a climax week at the offices of the Lotte Holding’s headquarters in Tokyo, this being the umbrella group of the $97 billion Lotte empire.

The struggle of brothers started when Shin’s older son Shin Dong-joo flew unexpectedly to Tokyo bent on dismissing the younger son, Shin Dong-bin (who is known in Japan as Akio Shigamitsu), and his closest aides.

The younger son fended off the attack at a board meeting, confirmed himself as CEO and Chairman and pushed the founding father upstairs to becoming the Honorary Chairman.

Lotte’s founder (known in Japan as Takeo Shigamitsu) was born in Korea during the Japanese colonial rule (1910-1945) but moved to Japan before the war’s end. After the surrender, he got his start in business by selling chewing gum on the streets of Tokyo.

In 1948 he founded the Lotte Confectionary Company to retail, gum, chocolates and other candy. The young Shigamitsu named his company Lotte from the character of Charlotte in the German novel Sorrows of Werther, which the founder admired.

He married a Japanese, and his two sons were born in Japan. Although they were raised as Japanese, they were actually Korean citizens under Japan’s strict immigration laws.

After Japan and South Korea normalized relations in 1965, Lotte began selling and investing in Korea. It now earns more from its Korean enterprises than those in Japan by a factor of more then ten.

In Seoul today the largest supermarkets and department stores are Lotte stores. Koreans buy their groceries, liquor and snacks by swiping a Lotte credit card. Many live in Lotte-built high-rise buildings and watch Lotte movies

Lotte owns professional baseball teams in Chiba, near Tokyo, and Busan in South Korea. In Japan and Korea, baseball teams, sporting the company name, are major public relations tools.

Aside from supermarkets and department stores, Lotte is building the Lotte Tower, which, when all 123 stories are completed by the end of next year, will be Korea’s highest super skyscraper and the sixth-tallest building in the world.

But these are difficult times for Lotte aside from the family squabble. It is a chaebol at time when chaebols are unpopular in Korea. It is a quasi Japanese company at a time when relations between the two countries are seriously strained.

Dismantling the chaebols  and breathing new life into the economy excessively dependent on the Hyundais and Samsungs has been a campaign issue in every recent presidential election including the 2012 contest won by Park Geun-hye.

However her credentials as a reformer of the chaebol is undermined by the fact that it was her father, the former dictator Park Chung-he, who literally invented them and made them the foundation for Korea’ remarkable economic engine.

Sensing that Lotte is vulnerable, some consumer activists are supporting a boycott of Lotte products to publicize how small businesses have been hurt by the large retail chains.

For all their trials, the scions of the other major Korean conglomerates have not had to defend their origins in a neighboring country or their considerable ties to Japan at time when relations are under serious strain.

Relations have been roiled by the continuing controversy over the “comfort women”, Koreans conscripted into Imperial Army brothels, and use of Korean forced labor during the war, among other irritants.

Lotte got in trouble with Koreans when it chose world-class Japanese figure skater Mao Asada as a major sponsor for Lotte products in both countries. It would have been wiser to have hired Korea’s much loved Olympic gold medal skater Kim Yuna, at least in Korea.

It was an example of how culturally tone deaf the Lotte management can be. As the feud spilled into the public domain, the competing brothers found themselves on television answering questions from Korean journalists in Japanese or heavily accented Korean.

Public opinion in Korea turned strongly against the conglomerate after the televised appearances of the battling brothers. “The negative image of the conglomerate is fast-spreading,” asserted the English-language Korea Herald.

Lotte’s management has taken some steps to assuage Korean public opinion, including erecting a gigantic South Korean flag on top of the Lotte super skyscraper in downtown Seoul.

It is also taking a closer look at its stock market shareholder structure, with the idea of reducing the number of Japanese shareholders.  Presently, the bulk of the shares are kept in the family.

All Quiet in the East China Sea?

As the world’s attention has been focused on China’s provocative land reclamation projects in the South China Sea and their implications for potential conflict, the situation in the East China Sea has been relatively quiet so far this year.

The last major provocation was in November, 2013, when China announced the formation of an Air Defense Identification Zone (ADIZ) over a part of the sea, including the disputed Senkaku islands.

The uninhabited Senkaku islands have been a major point of contention between Japan, which claims them as undisputed national territory, and China, which also claims them as the Daioyu islands.

Neither side, of course, has backed away from their territorial claims. Ships belonging to the Chinese Coast Guard enter Japanese territorial waters around the Senkaku on an average of once every two weeks.

They patrol the waters for several hours, warning any vessels they come across to  leave “Chinese territorial waters”, and then they depart.

These incursions may not be dramatic, but China is gradually eating away at the legitimacy of the Japanese claims, in a sense establishing a kind of Japan-China condominium over the sensitive islands.

The Chinese after all, are simply doing exactly what Tokyo is doing to demonstrate its claim to sovereignty by sending its coast guard vessels into Senkaku waters to warn any intruders that they are trespassing on Japanese territory.

In 2012 the Japanese government purchased the islands from their private owner, in effect “nationalizing” them, an action that infuriated Beijing. However, neither side has actually landed citizens or erected monuments on the islands.

Indeed, it was to head off such actions by right-wingers, sure to provoke Beijing even further, that the former Democratic Party of Japan government approved the purchase and took the abuse from Beijing over it.

It would be nice to think that the issue has settled down, but that may prove to be a comfortable delusion. Both China and Japan are taking actions to beef up their claims to the Senkaku, actions that may lead to further provocations down the line.

The administration of Prime Minister Shinzo Abe has been increasing the Japanese defense budget and is seeking to pass legislation that would allow for better military cooperation with allies and loosening geographical limits to its military operations.

Tokyo is also asserting itself more and more in the South China Sea conflict by providing patrol vessels to “frontline” nations, Vietnam and the Philippines, and by considering beginning its own aerial patrols over the disputed Spratly islands.

For its part, Beijing is building two of the world’s largest Coast Guard cutters at the Jiangnan Shipyard in Shanghai and enlarging a coast guard base in Wenzhou, with docking facilities for at least six vessels including the 10,000-ton super cutters.

The new cutters are roughly the same size as the U.S. Navy’s Ticonderoga-class cruisers, which displace about 9,000 tons. In contrast, the largest ship in the U.S. Coast Guard is about 4,500 tons.

Unlike other Chinese coast guard vessels, these new ones will be armed. They are likely to sport a 76 mm naval cannon and anti aircraft guns. Compared with actual naval vessels this armament is not so formidable, but they could intimidate other vessels by their sheer size.

It is not known where these new ships will be deployed, though it stands to reason that one will be based in the South China Sea and the other in the East China Sea, probably home-ported at Wenzhou.

In addition to the Wenzhou base, the Chinese have been building a new helicopter base on the Nanji islands off the coast of China. It is not now an air base for jet fighters; rather it reportedly has room for six helicopter pads and radars extending surveillance over the East Sea.

The Nanji base is about 300 km from the Senkaku, closer than Japan/US main base on Okinawa, although Japan is building a large radar facility on the island of Yonaguni, which is the southern-most point in Japan. China does have an airstrip at Luqiao, which is 380 km from the Senkaku.

The events unfolding in the South China Sea could have a direct impact on the northern waters around Japan in several ways.

Earlier this month Washington sent the USS Fort Worth into Spratly waters to investigate what Beijing was up to. They Americans followed this with airborne patrols by P-8 surveillance plane from Kadena Air base on Okinawa.

At the moment, there is a debate in Washington whether to send planes or ships into what China claims are military alert zones around these artificial islands to demonstrate that it does not recognize them as legitimate sovereign Chinese territory.

Should Washington decide to do this, it would almost certainly provoke a strong reaction from China that could rebound to the East China Sea. Beijing, for example, could retaliate in kind by sending military aircraft directly over the Senkaku, something it has so far refrained from doing.

It could strengthen its claim to “administering” the Senkaku by formally incorporating them into a mainland country, in much the same way that the Senkaku are “administered” from Ishikagi island, which hosts the largest town in the lower Ryukyu islands.

It could hassle civilian aircraft flying through its claimed air defense zone, now traversed by about 50 different civilian airlines. So far it hasn’t done anything to disrupt civilian passage, although it recently blocked passage for an aircraft from Air Laos because it did not file the proper paperwork.

Finally, if it really wanted to provoke, it could send regular naval frigates or destroyers into Japanese waters surrounding the Senkaku. While the world’s attention is now on the South China Sea, the more northern body of water demands attention too.

Todd Crowell is the author of The Coming War Between China and Japan by Amazon Singles.