South Korean companies are being pelted by a hailstorm of rising labor costs, tariffs, product bans and lawsuits from China. (File photo/Xinhua)
A number of Korean accessories makers in Shandong province packed up and left China after labor costs, high taxes and the rising yuan have eroded their margins and competitiveness substantially.
Over 95% of Korean businesses in Qingdao are exporters and assemblers of jewelry and accessories. Their competitiveness has been significantly weakened by rising wages and raw material prices. They also face strong competitors from India, Vietnam and Cambodia.
Some Korean firms who have returned home have reinvested and opened a second factory in one of the country's industrial parks, according to the Shanghai-based First Financial Daily.
The performance of their Chinese counterparts has been poor as well. Manufacturers of metal accessories in Qingdao and their counterparts who produce plastic and shell accessories in Yiwu, Zhejiang province, have saw their orders reduced by 30%-50% year-on-year over the past two months. Their orders went down by 2%-3% on average whenever the yuan appreciated one basis point against the US dollar.
Many of them has sold their machines or are facing merger, according to Mei Jianmong, the founder of China Jewelry Net, a website focusing on accessories manufacturing industries.
The monthly salary of workers in Yiwu has risen from 600 yuan (US$94) in 2000 to 3,000 yuan (US$472) this year. Rising labor costs and rents for factories, as well as a lack of skilled workers, were the major factors that forced the Korean businesses to leave China, said Ren Jianbiao, the director of the EMBA program at Jiao Tong University in Shanghai, the newspaper said.
A Korean manufacturer said the costs of its factory in Suzhou, Jiangsu province, have increased by 20%-30% per year, which was mainly attributed to rising wages. Although Chinese workers' wages only amount to 40% of their Korean counterparts, Korean employees have a higher productivity, broader skill set, greater brand loyalty and more experience, the chairman of the manufacturer said.
Taxation has also become a problem for Korean businesses in China. They would be able to enjoy a full refund of the 10% value-added tax from their exports in South Korea but the tax in China is set at 17%, of which the Chinese government only returns 60%-70%, said the chairman. After the South Korea-US Free Trade Agreement took effect in March this year, Korean companies also are able to enjoy a tariff waiver, which could help jewelry companies to reduce at least 20% of costs, according to the Korea Trade-Investment Promotion Agency.
China has also imposed many restrictions on Korean businesses. Manufacturers import most of their materials and parts from South Korea and then assemble and process them in China before exporting them to other countries. The Chinese government not only imposed high tariffs but sometimes even bans Korean products from export.
One company's distributors was also forced to stop the sale of a product to avoid a legal dispute after several Chinese companies complained that the product infringed on their patents, according to First Financial Daily.
Ren Jianbiao 梅建孟