11/14/2006, 00.00
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China: new economic policies cause Korean firms to leave

by Theresa Kim Hwa-young

A report by the Korea Trade-Investment Promotion Agency said around 6,000 small South Korean companies had left because of restrictive decisions taken by Beijing. Their preferred destination for relocation is Vietnam.

Shenzhen (AsiaNews) – The number of South Korean firms quitting China is on the rise. The latest to do so is Volta Tach Co., a South Korean firm that produces batteries for mobile phones in Shenzhen, China. It plans to leave the country to establish a new factory in Binh Duong, Vietnam. The decision was prompted by new Chinese economic policies that increase trade restrictions and reduce tax benefits for exported products.

These policies make it unprofitable and risky for smaller companies to continue manufacturing in China.

Volta Tech currently pays 170,000 won in taxes for manufacturing every one million won worth of goods, receiving a refund of all but 40,000 won after presenting proof of product export. However, this benefit will cease at the end of the year.

Wi Un-bok, in charge of overseas marketing, said: "Our business uses many non-ferrous metals such as lead and thus produces serious concerns [for Beijing] regarding environment pollution. Due to the facts that the Chinese government intends to reduce benefits and the cost of labour is rising, it pays us to move our base of production to Vietnam."

According to a report presented on 12 November by the Korea Trade-Investment Promotion Agency, Volta Tach is not alone: around 6,000 firms have already taken the same decision.

The agency said: "The Chinese government reduced tax benefits on 1,130 items in September and then added 804 products to a list of trade restrictions. Such measures are aimed at lowering the competitive edge of products manufactured by foreign companies in China, but they are too restrictive."

Experts say Beijing is also worried about a growing shortage of energy and manpower, as well as environmental pollution, and so it is seeking to promote domestic industries, which alone can counter the influx of foreign industries that kill the domestic market.

The report said the only alternatives open to Korean firms were either to leave China and return home or else to shift to other nations offering more attractive guarantees.

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