Running a business in China isn’t simple

BEIJING ― A small Korean company that runs a sewing factory for toys in Yantai, China, recently received a surprising notice from the local tax office: “We just took 200 million won ($212,652) from the account that your company uses when we give you tax refunds on product exports. Please come and get your receipt.”
The company was dumbfounded that the Chinese tax office extracted money from their account without any notice. Last year, the company had 1 billion won in deficits and was on the verge of closing, so it didn’t know what to do.
Qingdao city has the highest density of Korean companies in China. It is here that Korean companies are experiencing the most difficulty. Since some firms that have gone bankrupt are leaving the country without undergoing regular procedures, the ones that are left are losing their credibility. Chinese banks are cutting down on the amount of money they will loan even to companies with good credit.
Some small- and medium-sized business firms that were not financially stable are paying a price after making rapid business expansion into Eastern China. Thinking of China as a land overflowing with gold, some Korean companies that went to China to seek inexpensive labor are losing ground because Chinese companies are increasingly competitive.
The Korean Embassy in China recently released a report based on studies of Gwangdong, Guangzhou, Dongguan, Shandong, Qingdao, and Yantai ― major areas where Korean firms are located. According to the embassy report, small companies that are not competitive are experiencing business difficulties amid worsening investment conditions. The study was based on field investigation conducted by specialists from the Korea Chamber of Commerce in China, the Korea International Trade Association, the Korea Organization of Trade Association and other trade groups.
The investigators noted that many small company owners had already given up operating their plants and were getting ready to pull out.
In Dongguan city, there used to be 40 Korean sewing companies for toys and clothes, but now there are only 15. Most firms fled during the night. The reason they left in such a hurry was because the Chinese government had very complicated procedures for business withdrawal, which would have left them with no money, and in some cases, they could even wind up in jail.
“When companies are liquidating, the Chinese government starts imposing taxes on all the tax refunds and benefits that the company received in the past,” said Kim Dong-seon, a commercial councilor at the embassy.
Many Korean companies that did not set up factories in areas specifically designated for foreign industries are being evacuated by the central government’s strict policy to block rash land development.
Mr. Kim advised firms not to make investments without investigating local situations. The embassy is seeking an emergency remedy for firms in difficulty.

By Chang Se-jeong JoongAng Ilbo [wohn@joongang.co.kr]