8 out of 10 Korean Companies Entering China Report "Support and Regulatory Discrimination" (Comprehensive)

Federation of Korean Industries Surveys Companies with Over 10 Years in China
Investment Environment Deteriorates, Approval Barriers Remain High

[Asia Economy Reporter Lee Hye-young] Among Korean companies operating in China, 8 out of 10 feel that the local investment environment has worsened compared to the past and that they face discrimination in licensing procedures compared to Chinese companies. As the Chinese government has recently intensified regulations to realize common prosperity, putting pressure on companies, there are calls for various diplomatic solutions, including the Korea-China summit.

The Federation of Korean Industries (FKI) announced on the 22nd that it conducted a survey and analysis on the "Changes in the Business Environment in China over the Last 10 Years" targeting 512 Korean companies that have been operating in China for more than 10 years, revealing that the local investment environment and regulations have deteriorated compared to the past.

When comparing the investment environment this year with that of 2011 among companies operating in China, 85.5% 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 regression in 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%), and strengthened environmental regulations (15.2%).

There were also many concerns that the Chinese government's policy direction would ultimately lead to stricter regulations on foreign companies. Regarding the impact of various recent regulations aimed at realizing common prosperity in China, 70.2% of companies expressed negative views (somewhat negative 54.2% · strongly negative 16.0%). The common prosperity initiative, declared by President Xi Jinping, involves the Party controlling the wealth of private companies and high-income groups, and under this policy direction, the Chinese government has recently strengthened regulations across various economic activities.

Discrimination against foreign companies in China remains prevalent. More than 8 out of 10 Korean companies (81.7%) responded that there is discrimination against foreign companies, with 12.2% perceiving it as "very discriminatory." In particular, the highest response indicating discrimination was in "licensing procedures" (49.6%). Other significant barriers included various business regulations such as fire and safety inspections (21.5%), environmental regulations (14.0%), and discrimination in tax and financial support (12.1%).

The challenging business environment in China is also reflected in changes in sales. One out of three surveyed companies (33.6%) reported a decrease in annual sales 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 as having a significant impact on sales.

When asked which region they would consider relocating their China business to, "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 just one-fifth of the preference for the New Southern Region. The FKI explained that efforts to strengthen incentives for the domestic return of Korean companies operating overseas seem necessary.

To revitalize business with China, companies identified the most urgent task as "strengthening shuttle economic diplomacy between Korean and Chinese leaders," including President Xi Jinping's visit to Korea (41.2%). This was followed by the prompt conclusion of the Korea-China Free Trade Agreement (FTA) service and investment agreements (24.4%), and the gradual implementation of environmentally 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, "As businesspeople hope for strengthened shuttle economic diplomacy between Korean and Chinese leaders to revitalize business with China, we hope that the exchange between the two heads of state on the occasion of the 30th anniversary of Korea-China diplomatic relations next year will actively address the difficulties faced by companies operating locally."

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