[30 Years of Korea-China Diplomatic Relations]④ Aftereffects of THAAD... Chinese Market Entry Companies Halved in 5 Years

262 New Chinese Subsidiaries by Domestic Firms Last Year... 51.3% Decrease in 5 Years
Lowest Since 1998 Asian Financial Crisis... Sharp Decline After THAAD Incident
Samsung's China Subsidiary Halves Staff... Lotte Nears Business Withdrawal
SMEs Also Accelerate 'China Exit'... Shifting Production Bases to Indonesia, Vietnam, etc.

US Forces Korea "Training to Mount 'Inert' Rounds on THAAD Launcher at Pyeongtaek Base"
(Seoul=Yonhap News) US Forces Korea conducted training in April 2019 at the Pyeongtaek US military base (Camp Humphreys) to mount 'inert' rounds on the THAAD (Terminal High Altitude Area Defense) launcher. April 24, 2019 [US Forces Korea 35th Air Defense Artillery Brigade Facebook]
photo@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Jun-hyung] The number of new corporations established by domestic companies in China has been halved over the past five years. Following the decision to deploy THAAD (Terminal High Altitude Area Defense) and the subsequent 'Hanhanryeong' (Korean Wave ban) within China, along with the impact of the US-China hegemonic competition, geopolitical risks surrounding China have increased, leading to a full-scale 'de-China' movement among domestic companies. Experts point out that China is no longer a safe production base and structural solutions must be sought.

According to the Export-Import Bank of Korea on the 22nd, the number of new corporations established by domestic companies in China decreased by 51.3% over the past five years, from 538 in 2017 to 262 last year. Compared to 2016 (695), when the THAAD incident occurred, the decline was even greater at 62.3%.

This figure is the lowest since the 1998 financial crisis. The number of new corporations established by domestic companies in China steadily increased from 174 in 1992, when the Korea-China diplomatic agreement was signed, to 646 in 1997, before plummeting to 279 in 1998 immediately after the International Monetary Fund (IMF) financial crisis. However, supported by the domestic economic recovery, the number surpassed 2,000 in 2004 and peaked at 2,392 in 2006. New corporations in China continued to increase annually by 700 to 800 until the THAAD incident in the 2010s.

However, the atmosphere changed dramatically immediately after the THAAD incident. The number of new corporations in China showed a clear downward trend starting in 2016 and eventually dropped to 246 in 2020. This was due to some domestic companies beginning to de-China in response to the THAAD incident and the contraction of overseas investment caused by the spread of COVID-19. In fact, the number of employees at Samsung Electronics' China subsidiary, a major investor in China, decreased by about 52%, from 37,070 in 2016 to 17,820 last year. Lotte Group, which was hit hard by the THAAD incident, began withdrawing from its China business in 2016 and has closed about 150 local department stores and large supermarkets to date.

Not only large corporations but also small and medium-sized enterprises (SMEs) and mid-sized companies are accelerating their de-China efforts. Company A, a manufacturer of industrial terminals, recently started moving parts made in its Chinese factory to Vietnam for final product assembly. Until last year, Company A produced all its products in China, but it is also considering relocating key production bases to Vietnam, Indonesia, and other countries. The CEO of Company A said, "We are gradually reducing the proportion of production in China, which was originally 100%," adding, "In the long term, we will have no choice but to relocate the Chinese factory to other regions."

Experts also foresee that the 'China risk' will gradually increase. Professor Heo Yoon of Sogang University Graduate School of International Studies said, "The US-led sanctions bloc against China is negatively affecting companies operating in China," and added, "It may be a misjudgment to continue to positively evaluate the future of the Chinese market and expand investment as before." Professor Heo emphasized, "It is time to be alert to China risks arising from international circumstances," and added, "A Plan B to prepare for Chinese sanctions must also be established."