To Reduce China Risks
The Korea Institute for Industrial Economics & Trade recently conducted a survey with 218 South Korean companies in China. According to that survey, the companies’ business survey index (BSI) for the first quarter of this year is 22 and 20 in terms of market conditions and sales, respectively. The figures fell 64 points and 73 points from the previous quarter, reaching the lowest levels since the records began in 2015.
In the survey that covered the seven industries including electrical and electronics, automobile, chemical, and wholesale and retail, the local sales BSI dropped 75 points to 22 and the facility investment BSI fell 33 to 68 in the range of 0 to 200. In addition, the business environment BSI dropped 49 to an all-time low of 22 and the sales BSI of the manufacturing sector plunged by 76 to 19.
More than 31 percent of the respondents answered that the local demand remains sluggish and 19.3 percent mentioned export-related difficulties. Also, 9.2 percent, 7.3 percent and 6.9 percent mentioned a rise in labor cost, intensifying competition and local government regulations as their difficulties in China, respectively. No less than 90 percent of the respondents answered that COVID-19 is adversely affecting their business.
Under the circumstances, experts point out that the South Korean government needs to bring them back to their home country in order to reduce their China risks and be prepared for the global supply network adjustment to follow the pandemic. “The coronavirus has highlighted global supply risks and put the brakes on companies’ overseas expansion,” said the Korea Economic Research Institute, adding, “Unemployment issues to be triggered by the pandemic can be addressed well if the government systematically and proactively supports companies wishing to return.”
The United States, Japan and Europe are already engaged in such efforts to reduce their dependence on China in the manufacturing sector. Especially, Japan is planning to spend US$2.2 billion for Japanese enterprises relocating from China to Japan, Southeast Asia, etc.