South Korean Shoe Manufacturers And Other Enterprises In Qingdao Illegally Evacuated

"Now China's economic environment is different from what it used to be. Korean enterprises must adapt to this change.

Some Korean enterprises are facing a crisis, which will lead to a more prominent move forward.

During his visit to China at the end of 5, Lee Myung-bak, in Qingdao, Shandong, encouraged the Korean expatriates and entrepreneurs who were troubled by the "midnight fleeing" phenomenon.

Lee Myung-bak also asked Jiang Yikang, Secretary of the CPC Shandong Provincial Committee, said: "there are still a lot of Korean SMEs facing difficulties and hope that Shandong will continue to give support and attention."

Lee Myung-bak's forward-looking attitude not only responds to China's request for regulating the illegal withdrawal of Korean capital, but also guides the upgrading of Korean capital from labor-intensive to capital or technology intensive in China.

As authoritative people say, Korean capital was initially prepared for inadequate conditions in Shandong. Now the business environment is changing rapidly, and those who are not suited will inevitably be forced to shift. The big business groups such as Samsung, Hyundai, SK and LG enter the important areas of China's energy, finance and so on.

Recent news has also confirmed this trend.

SK energy entered the Sinopec Wuhan ethylene project at the end of 5. This is the first time that SK energy has been involved in large-scale refinery and petrochemical businesses in China.

In June, first of all, the second largest bank of Korea, the first bank in Shenzhen, opened in Futian District, Seoul, and operated by the Beijing insurance office. The Bank of Korea also had a joint stock purchase with Jilin bank. At the end of the month, there were 3 Korean animation enterprises settled in Yantai.

It can be seen that compared with the manufacturing industry, the prospect of investment in business services, circulation industry and cultural industry in China is more promising by Korean companies.

In other words, the withdrawal of Korean capital should be withdrawn, and the stay will have more room to expand.

Qingdao: the Korean capital has been evacuated from the "disaster hit area". It was founded in Shandong, one of the most recent Chinese provinces in Korea, with the 1/3 of 4.6 Korean companies in China.

The number of Korean investment projects in Shandong increased from 12 in 1990 to 2885 in 2004, while the investment in the same period increased from US $10 million to US $3 billion 590 million.

Up to now, Shandong has approved more than 20 thousand investment projects in Korea, with a total investment of US $23 billion 400 million, accounting for 40% of Shandong's utilization of foreign capital, accounting for 50% of total Korean investment in China.

Among the top 20 Korean conglomerates, 15 are invested in Shandong, including Korea electric power, Samsung, LG, Hyundai, SK, GS, Han Jin, Lotte, POSCO, Kumho, Xi Jie, Dou Shan, Xiao Xing, Daewoo and so on.

The Korean enterprises invested in Shandong are concentrated in coastal cities such as Qingdao, Weihai and Yantai, with the emphasis on the processing and manufacturing industries such as electronics, textiles, toys and shoemaking. Most of them are labor-intensive enterprises, and the sole proprietorship is mainly owned by the sole proprietorship, with an average size of US $1 million 450 thousand (2002 figures), which is lower than the average level of foreign invested enterprises in Shandong province by US $1 million 692 thousand, which is far below the national average of 1 million 952 thousand US dollars.

Qingdao is the "worst hit area" for the withdrawal of Korean capital.

According to statistics, between 2000 and 2007, 8344 Korean enterprises invested in Qingdao, of which 206 were illegally evacuated.

In 2003, for the first time, 21 Korean enterprises were evacuated, then increased year by year, 43 in 2006, and 87 in 2007.

The withdrawal of the Korean capital involved 26 thousand employees, 160 million yuan in arrears, and nearly 700 million yuan in arrears of bank loans.

The most disgraceful evacuations belong to the South Korean managers who were "lost in the world": in October 2007, the owner of Qingdao Guang Guang shoe industry Co., Ltd. said that he would go out to borrow money and pay wages, and then disappeared.

In September of the same year, the South Korean management staff of Qingdao fox tableware Limited company disappeared after arrears of 126 employees for two months.

At the end of 2006, South Korea's management staff of two Korean leather enterprises in Qingdao lost their loans and wages.

As early as in January 2008, the Ministry of industry resources of South Korea sent an investigation team to Qingdao, Shanghai and Guangzhou to conduct a field investigation on the illegal withdrawal of Korean capital.

At the same time, all China and South Korea's official consultations have been put into operation, trying to slow down the pace of Korean capital withdrawal and reduce its negative impact.

For instance, the Qingdao municipal government has set up relevant research groups, and plans to set up an online clearing center to help Korean enterprises in China to complete the evacuation procedures in a light and simple manner.

It is reported that during the visit to South Korea after the end of the Olympic Games, Hu Jintao will discuss with Lee Myung-bak the new issue of "high-level strategic dialogue between the Han and China in the economic field" and other issues.

In South Korea, China has already had a honeymoon period. Korea's investment in China began in 1985, and has been in the exploratory stage in 1980s. After the establishment of diplomatic relations between China and South Korea in 1992, the proportion of Korean investment in China's actual utilization of foreign capital has been on the rise, reaching 10.31% of the peak value in 2004. Thereafter, it has been declining, and this proportion has dropped to 3.64% in 2008 1~5.

The honeymoon period in South Korea should be in the early 1990s.

Since April 1, 1996, China has abolished the tax exemption preferential policies for foreign investment in China, thereby increasing the burden on Korean enterprises.

According to a survey conducted in 2003, up to 38.5% of the raw materials used by Korean enterprises were imported from Korea. This is still the data after many years of tax exemption preferential policies being abolished. It is conceivable that in the early 1990s, Korean enterprises earned two profits from their imports of raw materials and sales in China.

It is no coincidence that after the new import policy of China was introduced in 1996, the phenomenon of Korean enterprises' divestment began to take place, and it has lasted for almost 10 years.

According to the statistics of the import and Export Bank of Korea, South Korea withdrew 11 million 450 thousand dollars from China in 1998, 104 million dollars in 1999, 60 million 740 thousand dollars in 2000, and 112 million 500 thousand dollars in the first 5 months of 2001. Since 2002, the divestment is still continuing, with the largest number of withdrawals in Shandong, Liaoning and Jilin.

With the improvement of Chinese enterprises' operation and technical ability, the remaining competitive advantages of Korean enterprises have begun to fade, resulting in a continuous decline in the market share of Korean products.

The report of Samsung Economic Research Institute compares the competitiveness of products between China and Korea, and finds that only 32% (1132) of Korean products have the advantage.

According to the report of the Korea International Trade Research Institute and the Yonhap news agency, the proportion of Korean products in the Chinese import market gradually dropped from 11.6% in 2005 to 10.9% in 2007.

Among them, the market share of auto parts dropped from 24.6% in 2005 to 12.2% in 2007. During the same period, the market share of footwear products also decreased from 21.8% to 14%; the market share of tires dropped from 10.6% to 3.4%; the market share of audio products dropped from 14.1% to 8.6%; the market share of steel and iron products decreased from 16.2% to 13.8%.

The International Trade Research Institute said: "the overall competitiveness of Chinese products is rising, and the sales volume of domestic vehicle companies is low and the proportion of local purchasing parts is increasing, resulting in a decline in the share of Korean products in all of China's import market."

The Chinese Academy of Social Sciences Korean expert, park key, said that 95% of the Chinese and Korean enterprises are small and medium enterprises with low technology content, labor intensive, high pollution and high energy consumption, such as textiles, leather, furniture, etc., which have long been a sunset industry in Korea.

According to a survey conducted by the Export Import Bank of Korea, 51.8% of Chinese enterprises in Korea have losses, and the loss rate of textile, clothing and food industry exceeds 70%.

Take the textile industry as an example, in 2002, South Korea began to show a deficit of 200 million US dollars to China and expanded to 1 billion US dollars in 2005.

In 2004, the Korean trade and investment rejuvenation commune (KOTRA) conducted a questionnaire survey of 402 Korean funded SMEs and 127 Korean funded enterprises. The main reasons for the divestment were: the decline of product competitiveness and the shortage of funds caused by credit sale.

In 2008, it was considered a turning point in the investment and operation environment in China.

The labor contract law and the enterprise income tax law, which came into force in January 1, 2008, forced foreign capital enterprises to revise their labor contracts and increase the tax rate.

In 2007, KOTRA conducted a survey of Korean enterprises in China, and 80% of the 535 enterprises held an "unhappy attitude" towards 2008. They believed that China's business environment was "deteriorating" and complained that there were three main categories: the two digit wage increase every year, the compulsory implementation of workers' Union Insurance and the implementation of the new labor contract law, which began in 2008.

The main reason for the withdrawal of Korean capital is the rising cost of labor and the adjustment of tax rates for foreign-funded enterprises.

In 2002~2006, wages for Chinese workers increased by an average of 19.5% over the same period, which was higher than the 10.3% GDP growth rate in the same period.

Yonhap said that the monthly salary of Chinese workers has reached 200 to 250 dollars, while Vietnamese workers earn only 60 to 70 dollars per month.

At the same time, the Vietnamese government has also introduced many preferential policies such as exemption from corporate tax from overseas enterprises, which is more attractive to foreign enterprises.

China's original enterprise income tax law stipulates that the tax rate of domestic enterprises is 33%, the rate of foreign-funded enterprises enjoying preferential policies is 15% to 33%, and the revised enterprise income tax law sets the tax rate at 25% level, which is equivalent to tax increase for some foreign enterprises.

The increase of land use cost is an important reason for the withdrawal of Korean capital.

The Provisional Regulations on urban land use tax were revised in December 2006. For the first time, foreign investment enterprises and foreign enterprises should also pay the urban land use tax according to the regulations.

Before that, foreign companies did not have to pay the tax burden.

China's increasingly stringent environmental standards have also increased the production costs of enterprises.

Labor intensive SMEs are most sensitive to cost changes, and withdrawal is only a matter of time.

It is not just Korean capital that withdraws.

In 2007, 244 foreign invested enterprises in Guangdong province were evacuated.

In the Pearl River Delta, 8 of Hong Kong funded and Taiwan funded enterprises have 37.3% plans to move out.

Shanghai, Jiangsu and other places were not affected by the tide of divestment. It was because during the "fifteen" period, the threshold of introducing foreign capital was raised, and foreign capital which was heavily polluted, small in scale and low in technology content was shut out.

The Kunshan municipal government has formulated a "three no policy": labor intensive industries with more than 8000 labor demand, high export tax rebate and high polluting industries.

Many Korean enterprises intend to move their factories to the more inland areas of Shandong, or the central provinces such as Anhui, Jiangxi and Henan.

A number of South Korean enterprises have moved to Southeast Asian countries such as Vietnam, Laos and Kampuchea, which are much cheaper in labor, as well as India and North Korea's Kaesong industrial park.

However, as the head of a Korean enterprise said, "even if factories are moved to Vietnam, they will repeat similar problems in a few years."

The foreign investment that should not be imported will come to an end. It depends on the local government's consideration.