Korean Companies Entering China "Next Year's Performance Expected to Be More Positive Than This Year"

Despite Various Internal and External Risks, Performance Expected to Improve in 2022
Only 3.8% Intend to Relocate or Withdraw Business... "Joint Response System Needed"

[Asia Economy Reporter Lee Hye-young] Despite various internal and external risks, Korean companies operating in China have shown a more positive outlook for their business prospects in 2022 compared to this year.

According to the "Recent Business Environment Outlook and Implications for Korean Companies Operating in China," a survey and analysis conducted by the Korea International Trade Association's International Trade and Commerce Research Institute on 208 Korean companies operating in China on the 14th, these companies expect better business performance next year than this year.

The sales and operating profit outlook indices rose from 90 and 83 in 2021 to 107 and 103 in 2022, respectively, indicating that more companies anticipated improved business results in 2022. By industry, chemical and electronics sectors expected better performance in 2021, while textile and apparel and other manufacturing sectors anticipated improvement in 2022.

An outlook index exceeding 100 means that the number of companies expecting future business performance to improve compared to the present is greater.

Among the factors contributing to improved business performance in 2022, 'procurement cost reduction (4.7 percentage points)' and 'other expense reduction (3.9 percentage points)' showed the largest increase in response rates compared to this year.

With recent rising pressures on producer prices, the ability to control costs and pass increased costs onto prices is expected to determine the direction of business performance in China.

Meanwhile, the main factors for deteriorating business performance in China next year were identified as 'sales decline in the local market' and 'difficulty in passing increased costs onto prices.' Additionally, the biggest threat restricting business in China over the next 1-2 years was cited as 'improvement in competitiveness of local companies.'

It is analyzed that without efforts to invest in research and development and expand production of high value-added products, market withdrawal and relocation will accelerate due to competition from global and local Chinese companies. Other internal and external risks such as COVID-19, the US-China trade dispute, and power usage restrictions are also increasing companies' concerns.

Korean companies expect the economy to recover from the impact of COVID-19 in the second half of 2022, but even if the economy normalizes, demand is not expected to return to pre-COVID levels. The US-China trade dispute is expected to continue for at least two more years, maintaining the current level or escalating further. Power usage restrictions and rising maritime freight rates are expected to persist at least until March next year, maintaining a stable or intensifying trend.

Jeong Gwi-il, a research fellow at the Korea International Trade Association, said, "Despite the worsening business environment in China, the intention of Korean companies to relocate or withdraw their business is low at 3.8%, due to significant investments in manufacturing facilities and sales channels, relationships with customers and partners, and employee skill levels," adding, "It is important to establish a cooperative response system among Korean companies to prepare for the expansion of political risks in China."

This content was produced with the assistance of AI translation services.