"Discrimination in China: 8 out of 10 Korean Companies"

Survey of Korean Companies Entering China Reveals Perception of Different 'Regulations and Support' Compared to Local Firms
Government Risk Cited Most Often as Reason for Deteriorating Investment Environment

[Asia Economy Reporter Lee Hye-young] A survey found that 8 out of 10 Korean companies operating in China perceive the local investment environment to have worsened compared to the past, with discrimination in procedures such as permits.

On the 22nd, the Federation of Korean Industries (FKI) announced that it conducted a survey on the "Changes in the business environment in China over the past 10 years" targeting 512 Korean companies that have been operating in China for more than 10 years, and received such responses from 131 companies.

When comparing the investment environment in China this year to 10 years ago, 85.5% of companies responded that it has "worsened" (significantly worsened 22.1% · worsened 63.4%), which is about 12.4 times higher than those who said it has "improved" (6.9%).

Companies cited "government risk" (38.1%) as the main reason for the deterioration of the investment environment in China. This was followed by "discrimination between domestic and foreign companies" (20.5%), "intensification of the US-China trade dispute" (18.2%), "strengthening of environmental regulations" (15.2%), and "rising production costs in China" (8.0%).

Also, more than 8 out of 10 Korean companies operating in China answered that there is discrimination against foreign companies, with 12.2% perceiving it as "very discriminatory." Specifically, discrimination in "permit procedures" (49.6%) was mentioned the most. This was followed by "various business regulations such as fire and safety inspections" (21.5%), "environmental regulations" (14.0%), and "tax and financial support discrimination" (12.1%).

The challenging business environment in China is also reflected in sales changes. One out of three surveyed companies responded that their annual sales have decreased compared to 10 years ago, citing "intensified local competition" (45.4%) as the main cause. "Weak local demand" (27.3%) and "Chinese government regulations" (22.7%) were also analyzed to have significantly contributed to the sales decline.

Companies operating in China generally expressed a "negative" view (70.2%, slightly negative 54.2% · strongly negative 16.0%) regarding the recent regulatory tightening by the Chinese government aimed at realizing common prosperity. The Chinese government has recently strengthened regulations in various economic sectors such as big tech, cryptocurrency, private education, and gaming for reasons including the realization of common prosperity. Additionally, 80.9% of companies expect related policies to be further strengthened under the common prosperity framework over the next five years.

When asked which region they would prefer to relocate their China business to, if considering relocation, "the New Southern Region including Southeast Asia and India" (67.2%) was the most preferred. Only 13.0% responded that they would reshore to Korea, which is only one-fifth of the preference for the New Southern Region.

Considering the significantly lower intention to reshore to Korea compared to the New Southern Region, the FKI explained that efforts to strengthen incentives for domestic return of overseas companies seem necessary. According to the FKI, since the enactment of the "Overseas Return Support Act" (U-turn Act) in 2014 until 2020, a total of 88 companies have returned, among which only one large company, Hyundai Mobis, relocated from China to Ulsan.

Companies identified "strengthening shuttle economic diplomacy between Korean and Chinese leaders," such as President Xi Jinping's visit to Korea, as the most urgent task to revitalize business with China (41.2%). This was followed by "prompt conclusion of the Korea-China Free Trade Agreement (FTA) service and investment agreement" (24.4%) and "gradual implementation of eco-friendly policies by the Chinese government considering market conditions" (21.4%).

Kim Bong-man, Director of International Cooperation at the FKI, said, "The business environment for companies operating in China has significantly deteriorated compared to 10 years ago," adding, "Businesspeople hope for strengthened shuttle economic diplomacy between Korean and Chinese leaders to revitalize business with China. As next year marks the 30th anniversary of Korea-China diplomatic relations, we hope that exchanges between the two heads of state will actively address the difficulties faced by companies operating locally."

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