China making things harder for Korean companies there

When a speaker manufacturer asked the Korean government to help it move to Qingdao, China, in 1989, Korean officials had a hard time understanding why the company wanted to move to a country with whom Seoul had no official relations yet.

Over the past 23 years, Qingdao Top Tone Electric Co., Ltd., the first Korean company to move to China, has grown into a sound mid-size company. Its capital has increased from 450,000 U.S. dollars to 3.8 million dollars, and annual sales have jumped ten-fold from 3 million dollars in 1990 to 30 million dollars last year.

Top Tone is one of the successful Korean businesses in China and greatly benefited from the establishment of bilateral diplomatic ties.

“In the early stage of our business in China, we sold most of our products to Korea and Japan, but now Haier, China`s biggest electronics company, is one of our customers. China is still a land of opportunity for us,” CEO Lim Young-cheol said in Qingdao Aug. 9.

More Korean companies operate in Shandong Province than anywhere else in China. Utilizing the province’s geological location, Korean corporations ranging from those dealing with raw to intermediate materials to finished products have advanced into Shandong and established an industrial network there.

Over the past two decades, however, the province`s investment environment has drastically changed. When Top Tone first applied for a permit to establish itself in Qingdao Province, it took just a week to have all red tapes done. At the time, “one-stop service” by the Chinese government for foreign investors even hit the headlines.

Now, however, it is difficult to get permission to build a plant at the general site where Top Tone’s plant is located. Most of those who get approval are high-tech companies.

Wages in China have greatly increased as well. Top Tone’s average monthly salary was 90 yuan (14 dollars) when it entered the Chinese market, a figure that was not considered low because the entry-level salary of a Chinese civil servant was about 10 dollars per month. Naturally, the company received many requests to hire certain people.

Now, however, a salary of 315 dollars per month is not enough to hire workers. Many small and mid-size Korean companies operating in Qingdao are suffering from a serious labor shortage. Further raising wages worsens business performance but they have no choice but to do so to attract employees.

Disputes over the period of land use have also increased. A manufacturer of basketballs in Qingdao was asked to raise fees for use of land despite the original contract being valid for 50 years. The company had to accept the landowner’s request.

Against this backdrop, the number of Korean companies based in the province plummeted to about 5,500 last year from about 10,000 in 2005. Chinese landowners are forcing Korean companies to choose between paying higher rent and leaving their plots, and this explains the many vacant factory sites in Qingdao.

koh@donga.com