South Korea vice fin min sees Chinese tourists return as ties improve

By Cynthia Kim, Shinhyung and Lee

SEOUL (Reuters) - South Korean vice finance minister Ko Hyoung-kwon said on Friday he expects improving diplomatic ties with Beijing to support the country's economic growth next year as Chinese tourists return to its shores.

Ko's comments come a day after Chinese President Xi Jinping and his South Korean counterpart Moon Jae-in pledged at a summit in Beijing to move past a spat over Seoul's deployment of a U.S. missile shield.

"One of many factors that makes next year more optimistic than this year is better Korea-China relations," Ko told Reuters in an interview in Seoul. He added there would be a resurgence in the visits by Chinese tourists, particularly if President Xi attends the 2018 Winter Olympics in February.

Seoul has requested Xi visit South Korea for the event. The government hopes the games will serve as a turning point for peace on the Korean Peninsula.

For nearly a year, China-South Korea relations have been tense with Beijing angry about the deployment of the U.S.-made Terminal High Altitude Area Defence (THAAD) anti-missile system in Korea. China claims THAAD's powerful radar can penetrate deep into its territory.

Ko expects an economic boon from improved relations with China in 2018 would help sustain momentum, which is currently supported by a memory chip boom and facility investments.

He said the economy is likely to expand 3.2 percent this year, but declined to give an estimate for next year.

For much of this year, South Korea's tourism, cosmetics and entertainment industries have taken the brunt of a Chinese political backlash against Seoul. In October, the two nations agreed to normalise relations.

The number of inbound Chinese tourists, which used to account for about half of all visitors, fell by about 50 percent in the 10 months through October versus same period in 2016, costing South Korea more than $8 billion based on the average spending of Chinese visitors in 2015.

China is South Korea's largest trading partner, buying about a quarter of its exports.

'WILD HORSE'

On the nation's frenzy over cryptocurrency trading, Ko made it clear that the market needs to be regulated.

"The (cryptocurrency) market is like a wild horse that needs to be domesticated," Ko said.

Asked if the government would impose a tax on trading of virtual currencies or capital gains, Ko declined to give details, but said any plans to regulate the market would need elaborate planning to avoid unintended consequences.

The government on Wednesday said it is mulling taxes on the cryptocurrency market after bitcoin notched almost 20-fold surge in value this year.

"To tax them, there needs to be many preconditions, for example licensing the exchanges. But the market could also soar with such a permit," he said, noting that such a regime could be seen as an implicit approval that virtual currencies were an accepted part of the financial system.

"It's like a wild horse that likes to be whipped."

(Reporting by Cynthia Kim; Editing by Sam Holmes)