Lotte Shanghai Foods has been ordered to stop production by Chinese authorities after it escalated the country's economic retaliation for the deployment of a U.S. missile-defense system in South Korea.
Lotte is a joint venture between Lotte Group, a multinational conglomerate providing modernization of food industry and improved standard of living, and Hershey Co., one of the largest chocolate manufacturers in North America.
The suspension order of the Hershey-Lotte plant marks the first time that a U.S.-based company was involved in a political dispute between China and South Korea.
After the South Korean conglomerate agreed to provide a golf course that will be used to deploy the Terminal High Altitude Area Defense (THAAD) missile system to counter North Korea’s provocation, Lotte has incurred the brunt of the recent Chinese actions.
According to a Lotte representative, Chinese authorities ordered the production stoppage due to alleged safety violations, which can cost the joint venture lost sales amounting to $3.5 million.
Hershey's official statement says: "Hershey suspended production at the facility to perform maintenance activities. This action is being taken in connection with a routine inspection and we are working closely with the government on these matters."
The company established the joint venture with Lotte in 2007. Its shutdown is its latest trouble, as it owns 50 percent controlling stake in the joint venture.
Hershey’s international unit posted a loss in the past two years after the distribution and payment collection problems on its expansion in China.
The THAAD row controversy also had an effect on other industries. South Korean government officials said that Chinese authorities have verbally ordered local travel agencies to stop selling tour packages to South Korea starting March 15.
Besides this, Chinese customs are also rejecting certain cosmetic shipments from South Korea.
China's major Internet streaming companies have also pulled popular Korean programs due to the missile-defense system spat.
Yoo Il-ho, South Korea's Finance Minister, said: "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."