Wednesday, 27 August 2008


Rising costs forcing some South Korean
factory owners to flee China
Sunday, March 23, 2008

QINGDAO, China: Scores of South Korean-owned factories are closing surreptitiously in eastern China as their owners flee rising costs, leaving behind embittered workers like Li Hua.

Li and more than 200 colleagues have been fighting for a year to get the six weeks' wages they were owed when the owner of the toy factory where they worked fled during the 2007 Lunar New Year holidays.

"I went to work on the first day after Spring Festival, only to be told that the Korean boss had run away and the factory had been closed," Li, a 30-year-old mother of a little boy, recalled.

Her case is not a rarity in Qingdao, a major seaport and industrial city in eastern China that sits across the Yellow Sea from South Korea. A two-hour flight from Seoul and home to about 100,000 South Koreans, the city is a hub for South Korean factories benefiting from cheap labor.

But lately, a growing number of South Korean factories have abruptly closed down and the South Korean owners have disappeared as a slew of policies, including rising labor costs and an end to tax breaks, bite into their profit margins.

Many of the factories produce toys, garments and ornaments for export to the United States, Europe and back home to South Korea.

Qingdao mirrors, on a smaller scale, what is happening in the Pearl River Delta near Hong Kong. There, thousands of factories, mostly run by Taiwan and Hong Kong companies, are moving inland or abroad or are simply closing as rising costs undermine the assumption that China is the world's cheapest manufacturing location.

In Qingdao, Sung Jeung Han, manager of the Korean Society and Enterprise Association said 20 percent to 30 percent of the 6,000 South Korean firms in that eastern port city were losing money.

"The wage rise, yuan appreciation and higher input prices are the main reasons," he said by telephone.

The minimum wage in Qingdao has risen 43 percent in the past three years to 760 yuan, or $107, per month.

Other government initiatives to share China's growing wealth more widely and to minimize social tension are also deterring employers who are required to provide more mandated benefits for their workers and are paying higher pollution fees.

Employers are grumbling in particular about a new labor contract law, which went into effect at the beginning of this year, that makes it harder to lay off staff members.

Dang Guoying, a rural economist at the Chinese Academy of Social Science, said the law did put pressure on companies.

"But eventually it will bring a lot of benefits despite the temporary negative impact," he said.

The Korean news media quoted the Export-Import Bank of Korea as saying that 206 Korean business owners had melted away from Qingdao without going through the proper procedures to shut down a business, like giving workers their back pay, in the eight years up to 2007.

Concerned about its reputation, the South Korean government has sent investigators and held talks with Chinese officials.

"Abandoning a business unlawfully is not good for the development of Sino-Korean relations," Kang Hyung Shik, the South Korean consul in Qingdao, said. "We will work to avoid things like this happening."

The consulate has set up a team to assist South Korean investors to go through liquidation formalities and has asked Beijing to simplify the procedure.

Both Lou and Kang said red tape was one of the reasons for the rising number of stealthy departures.

The Korea Herald quoted Hong Ji In, head of the Commerce Ministry's trade cooperation bureau, as saying that South Korea would penalize firms that leave China against the rules and allow Chinese workers to take their former employers to court in Korea.

For its part, Beijing sent Commerce Ministry officials to Qingdao last month to ask exporters about the impact of higher wage and input costs, the rising yuan and tax rebate cuts.

"There's a small number of firms leaving for various reasons," Commerce Minister Chen Deming said in Beijing on March 10. "We're negotiating with the South Korean government to ensure that companies that are in great difficulties pull out legally."

Most of the Korean companies are still seeking ways to stay in Qingdao by either revamping their product lines or raising their prices, Sung said.

The world may be moving on, but for Li, the ex-toy factory worker, the most important thing is to get her unpaid wages. "It's better to get a penny than nothing," Li said.

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