Investment pains in China spreading exodus fear

The mid-January survey of 350 listed members of the Korea Chamber of Commerce and Industry's China branch found that 25 per cent of them have seriously considered leaving the country, while another 3.1 per cent said they are now preparing for liquidation.

The poll was conducted to gauge the current business conditions for Korean firms in Asia's fastest-growing economy amid tightened regulations, especially with stricter labour laws which call for an increase in wages and workers' benefits. Recent official data illustrate the growing trend of Korean companies giving up in China.

Further highlighting the uncertainty among investors, as many as 85.8 per cent of the respondents said they expect worsening business conditions in China. Merely 3.9 per cent projected an improvement.

The growing hardship has prompted the Korean government to take aggressive steps. The Ministry of Commerce, Industry and Energy on Tuesday (Feb 19) said that the government and business groups have agreed to cooperate in drawing up measures to help Korean companies strengthen their competitiveness, as well as to provide resources for weaker ones to adapt to or safely exit the country.

The government's plan was prompted by Beijing's tightened labor, environmental, and foreign investment incentive policies.

Underscoring the growing pessimism regarding China's investment climate, KORCHAM noted, a similar survey conducted in March 2007 showed that 17.8 per cent of respondents expected an improvement, while 33.1 per cent predicted a decline.

Labour management was cited as the most troubling issue by 43.1 per cent of those polled. This was followed by frequent changes in laws and regulations, cited by 21.4 per cent, then business development difficulties, with 13.3 per cent, and challenges to raising capital, cited by 10.5 per cent.

The main reasons for flight-by-night cases were complicated liquidation procedures, cited by 56.7 per cent, issues concerning the reduction of and exemption from taxes pertaining to land-leasing fees, cited by 18.7 per cent, and the lack of cooperation by local governments, cited by 14.7 percent. Flight-by-night refers to the way in which some businesspeople exit China without going through proper steps of shutting down their business - leaving former employees in the lurch.

As an alternative to China, 15.4 per cent said they would transfer to North Korea if peace is established on the Peninsula, and if issues relating to immigration, telecommunications, and customs regulations are resolved. Another 17.8 per cent said they would set up a new business there, as opposed to just switching markets.

Still, the survey found that 33.3 per cent of the respondents plan to increase their investment, despite the tougher business environment, while 36 per cent said they plan to maintain their operations as they are.

KORCHAM said the growing number of Korean companies seriously considering leaving China signals the need for policy measures that would help them close their operations in a legitimate and efficient manner.

With the majority of the respondents hoping to maintain their businesses, KORCHAM highlighted the need for adopting mid- to long-term management-support programmes jointly operated by the government and relevant institutions.

- By Yoo Soh-jung

The Korea Herald

Publication Date: 21-02-2008