Complex land laws require study

QINGDAO ― Kwak Kyung-wook, president of Serim China, a soft polyurethane foam manufacturer and exporter in Qingdao, has been shuttling between this Chinese port city and Pusan National University over the past several years to write a doctoral thesis on Chinese land legislation. The Busan-born executive at the Chinese division of Korea-based Serim TCC said the thesis is meant to serve as reference for Korean manufacturers intending to launch business in the manufacturing powerhouse widely recognized as “the world’s factory.” ”China’s land ownership structure is not as simple as in Korea or other countries. Unless you have good knowledge of it, you will get into serious trouble,” Mr. Kwak said, noting that almost 70 percent of Korean manufacturers in Qingdao are suffering difficulties regarding land rules. China has a complex web of land regulators ― local adminstrators ranging from ward to city and provincial governments, according to Mr. Kwak. “Let’s say you have signed a contract with the ward office to rent a specific site for a factory. But the project could completely blow up if the city government disapproves it, citing its own construction plan on that site. Bringing the ward office into account will be meaningless. The ward office will only respond that the city government is to blame for the change. The two sides will just keep passing the buck,” he said. Scrupulous research into legal documents is also crucial for Korean entrepreneurs, according to Lee Jae-ryong, president of the Chengyang branch of Qingdao International Bank. The bank, acquired by Korea’s Hana Bank in 2003 as part of Hana’s Northeast Asia expansion, has been in charge of providing loans for Korean business there. ”Each and every article on the Chinese legal contracts counts,” Mr. Lee said, “Overall business circumstances are seemingly very favorable during the discussion stage, but the reality you face after actually advancing into the market will be absolutely different.” According to industry data, 6,000 Korean firms are operating in the port city in eastern Shandong province. They account for almost 50 percent of all foreign direct investment there. However, Mr. Kwak estimates one in five of Korean businesses are near bankruptcy and half of them are in the hole. And that trend is not confined to Qingdao. A recent survey by the Korea Federation of Small Business showed that only four of 10 small firms in China are in the black. As of late 2005, small firms made up 46 percent of Korean investments in China; larger firms comprised 45 percent, according to the Export-Import Bank of Korea. In Qingdao, the portion of small companies is more than 90 percent. Their foray into the port city, home to international brands such as Haier Electronics Group and Tsingtao Beer, dates to 1989. No longer able to cope with escalating labor costs in the domestic Korean market, labor-intensive firms in sewing, textiles, shoes, leather, accessories and toys started rushing in. An attractive factor for investors was cheap labor, which was less than one-tenth of Korean labor costs. That benefit, however, is now rapidly fading as the Chinese government is moving to safeguard the interests of industrial workers, raising salaries and mandating medical insurance. The Qingdao government, for instance, raised minimum monthly wages by 10 percent to 610 yuan (about $77) this month. Despite the pay hikes, local workers are becoming scarce. With that scenario, numerous manufacturers in China, Koreans included, are now forced to relocate to cheaper regions in Southeast Asia such as Malaysia and Vietnam. Aside from the quality of products, price is a key factor for Korean firms facing fierce competition between hundreds of domestic rivals in the city. Serim, a sponge maker, thus opted to send home three of its nine office workers dispatched from Korea to save costs last month. “Hiring Korean employees here takes about 20 million won ($21,072) in extra fees per person. Companies are supposed to pay for their residence, flight and family education,” Serim president Mr. Kwak said. The company has been striving to train Chinese workers to do jobs now held by Koreans, but that is not easy. “Job hopping among experienced Chinese workers here is more serious than in Korea. They are always ready to leave for better pay,” the Serim chief said, noting rivalry among job scouts. Nowadays, leakage of highly-skilled technicians to overseas markets is another obstacle for foreign firms in China. For example, one employee at Serim recently quit after receiving a job offer from Australia. Chinese government statistics show that 155,000 high-tech job holders have moved to Australia over the last five years. Regardless of the challenges, great opportunies remain in the world’s most populous nation, where nearly half of the economy has been privatized in the last three decades. “China is a significant market that is hard to resist,” said Lee Young-man, who heads the China branch of Cuckoo Homesys Co. About 300,000 Koreans reside in China, and the border is getting blurred. “Competition is competition,” Mr. Lee said. “Korean businesses need to take a more positive attitude toward China. Accept the country as it is. Try to learn everything about China. That will help guarantee your success there.” by Seo Ji-eun