Korean firms leaving China amid growing uncertainties

Korean firms leaving China amid growing uncertainties

US request for ‘friend-shoring’ expected to accelerate exodus

By Park Jae-hyuk

Formerly regarded as an “opportunity country” due to low labor costs and rapid economic growth, China is now somewhat infamous among companies in other countries due to unstable political and economic conditions.

Other South Korean companies are joining the recent trend of global companies leaving China and moving their workforce and manufacturing from the most populous countries in the world.

Choi Tae-won, chairman of the Korea Chamber of Commerce and Industry (KCCI), emphasized the importance of maintaining friendly economic relations with China at this month’s forum on Jeju Island, but SK Group said he. Under the leadership of, he also reduced his activities in China.

“China is a huge market, whether you like it or not,” Chai told reporters. “It’s too early to decide to quit doing business in China.”

However, the chairman acknowledged the difficulty of doing business there.

In August of last year, SK China, the holding company of the group’s business, sold all of its shares in the car rental business in the Chinese market to Toyota for 300 million yuan ($ 44 million). The group also sold the SK Tower Building in Beijing last June.

The SK Group cited plans to invest in more promising Chinese start-ups as the main reason for the sale, but a series of restructuring measures, along with many other Koreans, are groups to reduce their dependence on China. What is done by a company that is widely interpreted as part of its efforts.

According to a recent survey conducted by the Korea International Trade Association (KITA), the majority of Korean companies operating in China expected the Chinese government to continue strict quarantine measures against COVID, so the business We are considering shrinking, withdrawing, or relocating.

This year is -19. According to a survey, 88.1% of respondents said China’s blockade had a negative impact on their business, causing a recession in transportation, distribution, marketing, and supply chains.

“Shanghai has restricted personal customer service even after the blockade was lifted,” said a report from the KITA office in Shanghai. “Transportation is still inconvenient, so it will take time for non-manufacturing companies to normalize their operations.”

Political risks

However, the quarantine measures appear to have had only limited impact compared to the political risks posed by the US-China conflict.

According to South Korean industry, 4,444 Korean companies operating in China for more than 10 years cited Chinese government regulations, discrimination in favor of local companies, and intensifying trade disputes between the United States and China as the main reasons for the deterioration of the investment environment. ing. Association.

For example, Lotte Group has faced serious economic retaliation from Beijing for five years over the conglomerate’s 2016 decision to provide the U.S. Forces Korea with a site to host Terminal High Altitude Area Defense (THAAD) missile defense. Later, the withdrawal from China was almost completed.

Amorepacific has also closed hundreds of stores in recent years following a boycott by Chinese consumers.
Hyundai Motor Group sold its Beijing plant last year two years after the plant shut down due to sluggish sales due to the THAAD crisis.

LG Corp. LG Electronics liquidated two factories in Tianjin and Kunshan and Hi-Plaza store in Shenyang, while selling the twin tower building in Beijing for 8 billion yuan in 2020.

Against this background, the United States urged South Korean semiconductor and battery makers to leave China to strengthen cooperation between allies.

After US President Joe Biden visited Samsung Electronics Factory in Pyeongtaek, Gyeonggi-do in May, US Treasury Secretary Janet Yellen will visit LG Chem’s research and development facility in Seoul this month to build supply. I called for “friends’ payment”. Chain without excluding unfriendly countries.

U.S. Treasury Secretary Janet Yellen delivers a speech at LG Science Park in Seoul, July 19. Courtesy of LG Chem

When Yellen visited South Korea, he described China and Russia as “unreliable” and “authoritarian,” and criticized them as a threat to the global market economy.

In response, China’s state media warned that Samsung Electronics and SK Hynix would suffer if South Korea decided to join the US-led “Chip 4” alliance with Japan and Taiwan.

However, Chinese companies cannot manufacture high-quality semiconductors, so US experts excluded it.
Samsung Electronics has actually reduced China’s workforce amid geopolitical tensions.

According to the company’s sustainability report, the number of employees employed by its Chinese subsidiary decreased by 51.9% from 37,070 in 2016 to 17,820 in 2021.

In contrast, South Korea’s workforce increased from 93,000 to 111,126 over the same period. The number of employees in the United States is only about 25,000. An official at Samsung Electronics said, “The number of employees at the Chinese subsidiary has naturally decreased due to the reduction of the production line at the Chinese subsidiary.”

Need for diversification

The Yoon Suk-yul administration was expected to listen to the US call to show solidarity with its allies amid the ongoing global supply chain crisis.

The president’s economic secretary, Choi Sang-mok, told reporters to attend the NATO summit during Yun’s visit to Spain last month. “Alternative markets and diversification are needed.”

China’s economic slowdown has also made China unattractive to business people. Second-quarter growth fell below 1%, recording 0.4% year-over-year growth.

Economic experts are urging the South Korean government and businesses to develop a market diversification strategy as soon as possible if they want to reduce their dependence on China.

“We cannot deny that Korean industry is heavily dependent on China,” said Joo Won, an economist at the Institute for Contemporary Studies. “Korean companies need to take diversification measures, given that they may adversely affect the sale of intermediate products to China.”

 

Credit/Source : KoreaTimes

About kissasian

Leave a Reply