SEOUL/MACAU (Reuters) - South Korea’s first casino resort has been unlucky with the timing of its grand opening this week as a diplomatic spat scares off gamblers from neighboring China who usually account for about half of Korea’s foreigner gaming revenue.

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The country’s largest casino operator, Paradise Co Ltd, and Japanese slot machine maker Sega Sammy Holdings Inc will open Paradise City on Thursday, 5 minutes’ drive from Seoul’s Incheon International Airport, just 329 km (204 miles) across the Yellow Sea from China.

But blunting the benefits of proximity is a ban on Chinese travel agents selling tours to South Korea to protest a planned anti-North Korea missile defense outside Seoul. To offset any revenue drop, Paradise and Sega Sammy said they will target consumers in Japan and Southeast Asia.

“It’s a pity that, because of the missile issue, there might be fewer Chinese mass customers at first than expected,” said analyst Yoo Seung-man at HMC Investment & Securities, referring to non-VIPs. “But it’s Northeast Asia’s first such resort so it could draw customers that wouldn’t otherwise visit South Korea.”

TRAVEL BAN

South Korean casinos have benefited from Chinese policies for over two years, as a campaign against shows of wealth by public officials triggered an exodus of high rollers from Macau, China’s only legal casino hub.

But after South Korea secured land for its missile system in February, Chinese government officials gave travel agents a “7 point” verbal directive to cease tours to the country, showed a South Korean document seen by Reuters. Publicly, state media called for a boycott of all things South Korean.

Chinese visitors to South Korea subsequently fell 39 percent in March from a year earlier, after an 8 percent rise in January and February, South Korean data showed.

Paradise said many big-spending Chinese hold multiple citizenships so can easily visit the country regardless of the diplomatic situation. But its March revenue still fell 11 percent from a year prior to 39.3 billion won ($34.54 million).

“There are concerns about the Chinese market,” Paradise said in a statement. “But we don’t expect the missile issue to continue in the long term.”

Meanwhile in Macau, overall gaming revenue rose 18 percent in March, exceeding analyst forecasts. Casino executives and junket operators attributed the surge to the diplomatic row.

CHINESE RELIANCE

To lessen any blow at such a critical time, Paradise and Sega Sammy said they would also market Paradise City’s hotels, convention halls and other non-gaming amenities to South Koreans who cannot enter the casino - as most casinos in the country are foreigner-only.

A Paradise spokeswoman said the resort will also offer exclusive space for junkets to boost junket income, which it expects to make up 5 to 10 percent of initial casino revenue.

“Casinos’ reliance on Chinese visitors is still on the high side,” said analyst Kwon Yoon-gu at Dongbu Securities. “So (Paradise’s share price) can’t but be sensitive.”