"Intense 'Korea-Japan Match' Expected in Decoupling from China... Tax Benefits Ahead of Japan"

Report from Korea Chamber of Commerce on the 22nd
Highlighting Korea-Japan Strengths in Finished Products and New Markets
Taiwan's Popularity Declines Due to 'China Risk'

[Asia Economy Reporter Choi Seoyoon] As more companies consider withdrawing their operations from China, once known as the 'world's factory,' due to conflicts with the United States, an analysis has emerged predicting fierce competition between South Korea and Japan to attract materials, parts, and equipment companies. Both countries are highly attractive investment destinations because they excel in producing finished products and developing new markets. It is advised that South Korea offer more rapid and groundbreaking support measures, such as tax incentives, compared to Japan.

The Korea Chamber of Commerce and Industry (KCCI) commissioned a team led by Professor Oh Joonseok of Sookmyung Women's University to produce the 'Global Materials, Parts, and Equipment (SoBuJang) Domestic Investment Attraction Strategy Report,' released on the 22nd, which revealed that global companies are considering withdrawing from China.

According to a survey conducted in April by the EU Chamber of Commerce in China on European companies operating there, 23% of companies are considering relocating ongoing or planned investments in China to other countries. This is the highest figure in the past decade.

A survey conducted by the American Chamber of Commerce in Shanghai targeting U.S. companies in China during July and August showed that about one-third of respondents had already redirected investments planned for China to other countries, double the figure from last year.

The report anticipates that the 'de-China' trend among global SoBuJang companies will present an opportunity for South Korea. It expects competition with Japan during the investment attraction process and assesses that South Korea holds an advantage over Taiwan and ASEAN (Association of Southeast Asian Nations).

It is true that there is a trend of shifting from China to ASEAN. However, SoBuJang requires a high-tech market ecosystem nearby to maintain supply chains. In this regard, South Korea and Japan are seen as having strong competitiveness. The reality that many SoBuJang companies intend to relocate only part of their production processes and return to China once supply uncertainties are resolved should also be considered during investment attraction.

The report explains that South Korea and Japan are attractive markets for SoBuJang companies because they excel at producing 'finished products' closer to the end consumer rather than raw materials. ASEAN remains at the 'early' stages of the supply chain, such as parts production and assembly processes following raw material extraction. Taiwan could be an alternative, but risks related to cross-strait issues make it unstable.

The report insists that faster and more innovative investment attraction support policies than Japan's are essential. Professor Oh stated, "Previously, foreign companies relocating production facilities and R&D centers mainly adopted loss minimization strategies as exit strategies. Now, foreign companies aiming to 'de-China' prioritize the fastest possible relocation." He added, "Many have already enjoyed benefits from China's investment attraction policies, and with COVID-19 lockdowns and competition with the U.S. increasing supply chain uncertainties, corporate fatigue has peaked."

While both South Korea and Japan actively nurture their domestic SoBuJang companies, the report analyzes that they have been neglectful in attracting global companies. It recommends that South Korea rapidly expand 'one-stop' support services for foreign companies regarding visas, taxation, environmental regulations, and site inquiries, surpassing Japan. Furthermore, it advises providing foreign companies possessing core strategic SoBuJang technologies, equipment, and stable supply chain items with exceptional benefits equivalent to those given to domestic companies, such as tax credits and regulatory relaxations, when they relocate production and research facilities to South Korea. The report also suggests considering increasing incentives based on the length of investment periods to strengthen the domestic SoBuJang ecosystem in the mid to long term.

It also calls for easing conditions for issuing and staying on specialized visas for overseas experts (E7), including relaxing wage regulations, easing visa issuance requirements, and shortening processing times to retain highly skilled talent. Kim Muntae, head of the Industrial Policy Team at KCCI, said, "The global supply chain restructuring presents both risks and opportunities. The de-China trend among global SoBuJang companies should serve as a growth momentum to strengthen South Korea's SoBuJang competitiveness, and the government and industry must do their utmost to achieve this."

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