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By Kwak Yeon-soo
A growing number of companies from Korea and other countries are pulling their production out of China due to worsening business conditions sparked by the prolonged tension between the United States and China coupled with rising operating costs there.
They are moving to the ASEAN market as the 10-nation economic bloc with its young population and cheap labor costs has been emerging as the world's new manufacturing hub replacing the Chinese market.
In its recent 2019-20 survey on 526 German firms operating in China, the German Chamber of Commerce in China found that 23 percent of respondents have either already decided to withdraw their production base from China or are considering it.
Of them, a third or 104 companies answered that they have planned to pull out of the country entirely. The survey showed that a majority of German firms remained downbeat over the business outlook in China citing the rise in labor costs and the ongoing U.S.-China trade feud.
Korea's corporate giants, including Samsung Electronics, Hyundai Motor and Kia Motors, are also keen to relocate all or part of their business out of China, in a bid to reduce their overdependence on the mainland.
"The ongoing U.S.-China trade dispute is disrupting the global value chain," Choi Byung-il, a professor at Ewha Womans University, said in a report.
"If major firms' production is cut back or leaves China, their suppliers are also likely to close down."
Hit by soft smartphone sales, Samsung shut down its last China mobile phone plant located in Huizhou in June after closing its major factory in Tianjin last year.
Hyundai temporarily suspended operations at a manufacturing plant in Beijing in May, and its affiliate Kia ended car production at its factory in Jiangsu Province in June this year.
LG Electronics moved all production of U.S.-bound refrigerators from Zhejiang Province to Korea.
Its move followed other manufacturers exiting China due to rising labor costs and the economic slowdown.
Korea's leading supermarket chain operators, such as Lotte Mart and E-mart, also left the Chinese market following years of mounting losses.
Companies from other manufacturing powerhouses, including Germany and Japan, are also looking for an exit from China.
As alternatives, companies have expanded production in recent years in lower-cost countries, like Vietnam, Indonesia and India.
Samsung opened the world's largest smartphone manufacturing facility in New Delhi last year.
In November, Hyundai signed a preliminary deal to build a new factory in Indonesia, which would be its first car plant in Southeast Asia.
Choi pointed out that Korean firms are not the only ones pulling out of China.
"Foreign manufacturers are also leaving China, as they are concerned about China's economic future and the transition of the value chain," he said.
Operating costs in China have been rising as the country seeks to reshape its supply chain from an export-led model to a consumption-driven one.
A number of tech companies from the U.S., Germany and Japan are keen to cut back on production in China, citing the slowdown of the Chinese economy and the ongoing U.S.-China trade dispute as major reasons. Some even expressed worries about the security of equipment made in China.
"Business expectations have dropped to the lowest level in years due to heated competition, rising labor costs and other complex legal and tax regulations," Kim Guang-hui, an attorney at Dacheng Dentons, said in a report.
As part of the solution, the Korea International Trade Association suggested companies to seek new growth engines, such as electric vehicles and rechargeable batteries, and boost ties with the member states of ASEAN and the CIS as potential alternatives.
