COVID lockdowns, rising expenses in China pushing away Korean firms

Due to China's sudden lockdowns and gradual rise in expenses, multinational firms are being increasingly pressured to move production away from mainland China to destinations such as Taiwan, Malaysia and Indonesia, said the Korea International Trade Association.

With its cheap and abundant manpower, China has long enjoyed its role as the so-called world's factory, however, this seems to be changing with time.

Earlier China used to offer lower production costs to lure global brands and retain domestic manufacturers for decades but now a gradual rise in expenses has been weakening China's role as a go-to source of production for companies over the past five years, reported Korean media outlet.

Multinational firms moving away from China include some of South Korea's largest businesses, including Samsung, LG, and Hyundai Motor. These firms have relocated factories from mainland China to Southeast Asian countries such as Vietnam and Indonesia in recent years.

The relocation trend began years ago and was further fuelled by desires to avoid tariffs stemming from a trade war between China and the US. In addition, the pandemic has made matters worse for China.

Supply-chain disruptions for critically important goods such as computer chips have forced some economies to bring production home. Moving away from China helps them safeguard the supply of essential resources in the face of geopolitical tensions and uncertainties.

"Korean companies need to seek a strategic response, such as the relocation of production bases, given that the reorganization of global supply chains is not a temporary phenomenon but a shift that is taking place in the mid-to-long-term, along with trade protectionism, the U.S.-China conflict, and the strengthening of supply chains of individual countries," said the Korea International Trade Association report.

Park Sang-min, the vice-chairman of the Korea Chamber of Commerce in Shanghai, said that since large Korean businesses have production facilities outside Shanghai, they have been less affected. But small and medium-sized enterprises are struggling with "great difficulty".

"The companies that remain in China are those that need to utilize China's market," he said. "But measures such as sudden lockdowns worry the companies because they create a destabilizing business environment. There could be firms that are considering relocating because of this factor," he added.

"It seems that the prospects for Korean businesses in China are not bright, given the prolonged Covid-19 situation, global supply-chain issues, and the Russia-Ukraine situation," said an official with a Beijing-based business group, who spoke on condition of anonymity, reported the Korean media outlet.

"But given that this year marks the 30th anniversary of the establishment of diplomatic relations with China, businesses want this to be a turning point," the official added.

( With inputs from ANI )

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