Escape from China
An increasing number of Korean companies are withdrawing their business from China. According to the Korea Trade-Investment Promotion Agency (KOTRA) and the Export-Import Bank of Korea, the number of Korean companies that set up local subsidiaries in China decreased from 2,294 to 1,301 between 2006 and 2008 and then to 901 in 2010, 817 in 2013 and 368 in the first half of this year.
Such a decline is particularly conspicuous in Qingdao, Shandong Province, where Korean company investment was higher than in any other region in the country. At present, 4,800 Korean companies are doing business in the province, including approximately 2,200 in Qingdao, but the number used to be as high as over 10,000 in the past.
“The number is decreasing by 500 or so on yearly average these days,” the KOTRA explained, adding, “Those engaged in textile manufacturing, sewing, shoe manufacturing, and jewelry processing have left the market since the global financial crisis in 2008, heading for Vietnam, Myanmar, etc.”
The trend is not limited to Korean enterprises. The number of Japanese companies in the Shandong Province dropped from 2,000 or so to about 1,000 between 2005 and now, too. Google, Best Buy, and Media Markt left the market as well along with 130 American, 30 British, and 28 Italian business groups.
This can be attributed to the labor cost increase and the subsequent drop in profitability there. Chinese local governments fixed the minimum wage increase for this year at 16.9 percent, and are going to raise the minimum wage by an average of 13 percent a year down the road.
Another reason is the change in the government’s policy for non-Chinese corporations. The Chinese government removed its tax, employment, and real estate incentives for them four years ago, along with the social security exemption for the workers in 2011. Besides, the government is providing more subsidies and preferential advantages for Chinese enterprises while refusing to open the government procurement system.