ASEAN

More South Korean firms leave China, the world's most populous nation

SEOUL: More South Korean firms are leaving China in tandem with the recent global trend, and relocating their workforces and manufacturing facilities away from the world's most populous country.

Although China was once regarded as a land of opportunity for its low labour costs and rapid economic growth, the Asian giant is now embroiled with various issues with the West.

With its market seen as unstable, firms have been moving away and among the biggest beneficiaries are some Southeast Asian nations such as Vietnam.

According to a Korea Times report, the Korea Chamber of Commerce and Industry (KCCI) Chairman Chey Tae-won had emphasised on the importance of maintaining amicable economic relations with China, although the conglomerate SK Group under his leadership has also downsized its operations there.

"Whether you like it or not, China is a significantly large market. It is too early to decide to stop doing business in China,' he said, adding that there were difficulties in doing business there.

Last August, SK China, the holding entity of the group's operation there, sold its entire stake in its car rental business in the Chinese market to Toyota for 300 million yuan (US$44 million).

The group also sold the SK Tower building in Beijing in June last year.

SK Group said the sell-offs were due to its plan to invest more in promising Chinese startups, but the series of restructuring measures are widely seen as part of the group's efforts to cut its reliance on China, just as many other South Korean firms are doing.

A recent survey conducted by the Korea International Trade Association (KITA) showed that a majority of South Korean firms doing business in China were considering downsizing, retreating or relocating their operations there.

This comes as most of them anticipate that the Chinese government would continue its strict quarantine measures against Covid-19 throughout this year.

According to the survey, more than 88 per cent of respondents said China's lockdown measures have impacted them negatively and caused setbacks in transportation, sales, marketing and supply chains.

"Even after lifting the lockdown, Shanghai has restricted face-to-face customer services," KITA's Shanghai office said in a report.

"Because transportation is still inconvenient, it will take time for non-manufacturing companies to normalize their operations."

South Korean companies also said that the Chinese government's regulations, discrimination in favor of local firms and intensifying trade feud between the United States and China, were seen as the major reasons for the worsening investment environment there.

The Lotte Group has almost finished pulling out of China, after facing five years of severe economic retaliation from Beijing, due to the conglomerate's decision in 2016 to offer a site for the US Forces Korea to deploy a Terminal High Altitude Area Defense (THAAD) missile defense system.

Beauty and cosmetics firm Amorepacific has also closed hundreds of outlets over the past few years, following a boycott from Chinese consumers.

Hyundai Motor Group had sold its plant in Beijing last year, two years after the factory's operation had been suspended, due to sluggish sales amid the THAAD row.

LG Corp. sold its Twin Tower building in Beijing for 8 billion yuan in 2020, while LG Electronics liquidated two factories in Tianjin and Kunshan, as well as a Hi Plaza store in Shenyang.

The US has also asked South Korean semiconductor and battery manufacturers to leave China, in order to strengthen cooperation among its allies.

US Treasury Secretary Janet Yellen had called for "friend-shoring," a strategy of building supply chains that excluded unfriendly nations. In response, Chinese state media warned that Samsung Electronics and SK hynix will suffer if South Korea decides to join the US-led "Chip 4" alliance along with Japan and Taiwan.

According to the Korea Times report, US experts ruled out this possibility, as Chinese firms were incapable of producing high-quality semiconductors.

Samsung Electronics has also downsized its workforce in China, with its employees there dropping almost 52 per cent to 17,820 in 2021 from 37,070 in 2016.

In contrast, the number of employees in South Korea rose to 111,126 from 93,000 during the same period.

China's economic slowdown has also made the country less attractive for businesspeople, with its growth rate falling below 1 per cent during the second quarter of the year.

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