TOKYO: Japanese and South Korean companies have pulled out of China in large numbers just as the three countries begin formal talks on a trilateral free trade agreement which may be concluded later this year.
The number of Japanese companies moving their manufacturing bases out of China has been on the rise and contract manufacturing in China has fallen from 70% of all their manufacturing operations in 2010 to 25% in 2014. Nearly all of the manufacturing operations of Japanese companies have moved to Southeast Asian countries. Auto factories have moved to Thailand and Malaysia, engineering and electronics plants have gone to Thailand, the Philippines and Malaysia, and textile makers have relocated to Cambodia, Myanmar and Indonesia.
South Korean companies, several thousand of which have invested in China, are following in the footsteps of their Japanese counterparts, leading to declining numbers of South Korean companies setting up new businesses there. According to statistics from the Korea Trade-Investment Promotion Agency and the Export-Import Bank of Korea, the number of South Korean companies establishing new businesses in China dropped from 2,294 in 2006 to 901 in 2010 to 350 in 2014. China previously experienced an exodus of South Korean textile, shoe and jewelry makers to Southeast Asia following the 2008 global financial crisis. The large number of foreign companies pulling out of China is the result of the rising labor costs. The minimum wage went up 16.9% in 2014, and is set to grow 13% a year in the near future.
A report by the Japan External Trade Organization showed that the minimum monthly wage of a worker in China rose from US$328 in 2010 to over US$500 this year, well above wages in several other Asian countries, including the Philippines (US$349), Cambodia (US$145) and Pakistan (US$77). Observers have pointed out that the ability of foreign companies to invest overseas has been hurt by weaker economies at home following the global financial crisis, and their days of profiting from China’s rapid growth have ended.
