[VIEWPOINT]‘Hollowing out’ in Gyeonggi

When businessmen from Gyeonggi province meet these days, their biggest topic is definitely China. Regardless of the type of industry, it is not easy to talk about anything except China, exports and imports.
But their greatest concern is whether to move their production bases to China. Many businesses want to move their plants to China because they can no longer do business in Korea. In reality, among 29,000 registered plants in Gyeonggi province, 1,443 businesses had moved to China by 2002. In the first half of last year alone, it is estimated, as many as 2,162 businesses left Gyeonggi province. When unregistered plants and other businesses that move to China without the assistance of the Export-Import Bank of Korea are included in the estimate, three to five businesses per day move there from Gyeonggi.
As if reflecting these statistics, flyers and placards to lease or sell plants are posted everywhere ― plant walls, electric poles and roadside trees ― in the major industrial complex areas in Gyeonggi province. Nearby real estate offices usually have 10 to 20 plants to sell. Beginning this year, they said, they are handling an average of three to four sales consultations per day.
As many commentators have mentioned, the transfer of businesses from Gyeonggi province to China is largely caused by our production structure of high cost and low efficiency. According to a comparison of investment environments at the Ansan industrial complex in Gyeonggi province and the Chingdao industrial complex in China by the Federation of Korean Industries last year, the wages at Ansan were 10 times higher than that of Chingdao, and industrial land prices were as much as 40 times more expensive. In addition, other unfavorable domestic business factors, such as labor-management problems and anti-business sentiment, make business activities shrink and facilitate moves to China. In the metropolitan area, restrictions on building new plants or expanding plants act as a spur to move abroad. The transfer of plants is expected to accelerate. According to a survey of 500 companies conducted by Gyeonggi province at the end of last year, almost a half said they would move to China within one to two years if it were possible. The phenomenon of de-industrialization that we are concerned about may be coming true.
This phenomenon of “industrial hollowing-out” has appeared not only in our country but also in other developed countries, including the United States, Japan, and Europe. In the case of the U. S. manufacturing industry, overseas production has already reached 27 percent of all production. But when companies in other developed countries move their production base abroad, they leave design, marketing, high-tech materials development and the supply of essential parts at home. In this way, they can continue to control overseas production bases and sustain high value-added industries. Taiwan coped with this situation with a development model called the “Smile Curve,” in which the country makes a high-tech base for design, patents, and marketing at home, but transfers low value-added industries, such as assembly, to China.
But the problem here is that the deindustrialization is going too fast and it has no philosophy behind it. As in other developed countries, our businesses urgently need to establish a model of industrial division of roles with China, in which they keep high value-added industry at home and transfer only low value-added activity such as assembly and subcontracting to China. For this purpose, they absolutely need assistance from the central and provincial governments. Also, the provincial government should not indiscriminately allow them to change the use of their empty plant sites to residential or quasi-industrial areas. That may accelerate the concentration of population on the metropolitan area. Instead, the government should encourage high-tech businesses ― which can beat China and create jobs ― to take their place. To encourage domestic high-tech businesses, it should not discriminate against them, but give the same tax benefits that are provided to foreign investors.

* The writer is chairman of Gyeonggi Federation of Economic Organizations. Translation by the JoongAng Daily staff.

by Moon Byung-dae