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China, ROK confer over rash investment exodus
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South Korea and China are going to have talks over a string of illegal Korean investment withdrawals that took place just after China tightened policies for overseas investors, the Republic of Korea (ROK) government revealed on February 14.

Tae Yeol Cho, an official from the ROK Ministry of Foreign Affairs and Trade, was quoted by Yonhap News Agency saying that the two countries were currently discussing the issue using all possible channels to simplify procedures for Korean investors who urgently need to pull out their money located in China.

According to Cho, a subsidy package totaling US$70,000 has been distributed to South-Korean-enterprises intensive zones to aid investors tackling legal issues in China before leaving. The Korean government is also considering expanding legal aid via more discussions if necessary.

A number of Korean investors left China without legal permits after the country tightened its controls over land and labor force management, according to The news website cited a report from the official Ministry of Commerce website.

By the end of January, investors from 103 Korean enterprises in Jiaozhou, Shandong Province, had moved out of China, abandoning their manufacturing facilities, the International Herald Leader reported on January 28. Labor costs for South Korea's small and medium-sized enterprises in China may increase by 50 percent since the country enacted the Labor Contract Law on January 1 and also adopted a series of policies to curtail pollution, the newspaper cited from South Korean media sources. Fearing complicated clearing procedures and various requirements regarding tax repayments, some top Korean executives left China abruptly without any explanations, the Korean media reported.

According to the South Korea based Joongang Daily, about 20 percent of the 20,000 Korean enterprises in China have experienced continuous losses in recent years. The newspaper foresaw that roughly 4,000 companies would cease investments in China.

Yet Chinese experts disagreed on calling the exodus what the South Korean media termed as a "massive withdrawal". "The overseas reports are somewhat exaggerating the issue. In fact, only a few Korean enterprises, relying on cheap labor and old preferential policies, have retreated from the China market," said Zhang Yansheng, Director of the Institute of Foreign Economies affiliated to the National Development and Reform Commission. "The Korean investors are probably touting for benefits through the local media in order to affect the policy-making departments in China," said Zhang.

Still, experts believe China should take strategic measures during its economic transition to avoid hasty retreats like these Korean enterprises. "Measures compatible with gradual adjustments in the country's economy should be adopted for overseas enterprises in order to lessen their reactions," said Zhang.

Meanwhile, Song Hong, head of the international trade research office in the Institute of World Economics and Politics of Chinese Academy of Social Sciences, said that the withdrawal of Korean enterprises is just one symptom of a gradually changed market caused by China's altered policies towards overseas investments since 2005. "Overseas enterprises are now starting to evaluate business risks when targeting the Chinese market as they see opportunities shrinking," Song said.

( by Wu Jin, February 18, 2008)

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