SEOUL, KOREA - More and more Korean companies are pulling out of China. Tens of thousands of Korean firms have flocked to China to take advantage of low labor cost and tax benefit, but they are packing up in droves as the business conditions are deteriorating. Qingdao in eastern Shandong Province sees so many Korean businesses move out of the city for the past few years.
According to the Korea Trade-Investment Promotion Agency and Korea EximBank on November 16, the number of newly registered Korean firms in China in 2006 was 2,294. But it has since declined to 1,301 in 2008, 901 in 2010, 817 in 2013, and only 368 in the first half of this year.
In Shandong Province, there are currently 4,800 Korean firms doing business, including 2,200 in Qingdao alone. But there were once more than 10,000 Korean companies in the province, which are dropping by 500 a year.
Park Yong-min, head of Qingdao KOTRA office, said, "Beginning in the 2008 global financial crisis, Korean manufacturers in China especially in the areas of textile, apparel, shoes, and jewelry processing saw their price competitiveness rapidly decline and moved out to locations such as Vietnam and Myanmar.
The most important reason for the exodus is worsening profitability. The minimum wage increase rate for this year set by China's local governments is 16.9 percent on average. The minimum wage level will keep increasing by 13 percent for the time being.
In addition, the shift in the Chinese government's policy toward foreign companies was another factor. The Chinese government abolished in 2010 a variety of incentives for foreign firms such as those in the areas of taxation, employment, and site selection. It then eliminated the exemption privilege for employee social insurance extended to foreign companies doing business in China.
Article provided by The Korea Economic Daily
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