[Viewpoint] In China, a giant stirs

Which top executives of Samsung Electronics and LG Electronics are most afraid of the New Year’s holiday? It’s an appropriate question because approximately 15 percent of employees engaged in semiconductor and LCD production who go home during the holiday do not return to work. “When I call them, they said that they would rather work in a department store or take on a part-time job at a convenience store than engage in arduous factory work,” a concerned person explained. Spending vast sums of money and time on training new employees is repeated year after year.

By comparison, nearly all factory laborers in China return to work after the holiday season, although their annual salary is equivalent to one-fifteenth that of Korean employees. Korean companies look at the issue reported in the Chinese newspapers from an unconventional point of view. The second highest ranking official in China, Wu Bangguo, visited the Hynix factory in Wuxi, Jiangsu Province, on Jan. 16, 2010. “I will spare no efforts to offer assistance to joint investment projects for follow-up on production of semiconductors launched with China,” he said. Five out of nine members of the Standing Committee, including Premier Wen Jiabao, have already visited the factory. We can be truly proud of its achievement.

However, Korean firms seem to be horrified, because they understand the underlying meaning of the keen interest expressed by high-ranking officials that China has begun making full-fledged efforts to acquire a predominant position in the semiconductor industry. The bitter experience related to LCD has hit at the heart of Korean firms. Those officials frequently visited Korean LCD factories five or six years ago. They soon revealed their ambitions. China intensified pressure on Korean firms by offering special benefits for LCD products manufactured in China and setting higher tariffs on imports of finished products. No Korean manufacturers could ignore China, the world’s largest LCD TV market. The Chinese Communist Party also possesses excellent business ability. Nearly ten provinces fiercely competed to attract Korean LCD factories. The central government got involved and granted permission to two provinces requesting the lowest subsidies. Technology has been placed in the same situation. “We were facing a tough situation. We had to promise not to give our LCD technology to the Korean government, while promising to transfer more advanced technology to the Chinese side,” said a concerned party.

China has continued to expand its presence in the global market. As some banks tighten mortgage loan qualifications by raising the bank reserve ratio to cool a heated market demand, stock markets fell sharply around the world. “China will not become a member of a G-2 with the United States,” said a Chinese newspaper. “It is a conspiracy of the Western world to flatter and kill China.”

However, this is not persuasive in light of the Chinese reality we see right in front of our eyes. China is highly skilled at mobilizing various means designed to control the economy. It controls the amount of money in circulation by raising the bank reserve requirement ratio.

The Chinese government discovered that it is far more effective to control the supply of money in circulation rather than interest rates and that if interest rates increase, international pressure on Beijing to revaluate its currency is likely to become stronger.

We have no means of holding China in check. The U.S. pressure on the revaluation of yuan is stalled, and Web giant Google failed win over the Chinese government. “Different countries had different rules on censorship, said Microsoft Chairman Bill Gates. “You have got to obey the laws of the countries you are in.” Gates criticized Google’s threat to pull out of China. Three years ago, U.S. toy giant Mattel issued an extraordinary apology to China over the recall of Chinese-made Barbie dolls, saying most of the items were defective because of Mattel’s design. No one will be able to put the brakes on the oppressive industrial policy of China for the time being.

In fact, the establishment of diplomatic ties between Korea and China in 1992 has provided benefits for the Korean economy. However, signs of change in national status are being felt everywhere. Chinese inspection teams, who once stared wide-eyed at novelties in the semiconductor or automobile factories, these days ask Korean firms to show them something new. This is a symbol of confidence that they can narrow the technology gap. However, it is not an easy task to develop state-of-the-art technology. Since the 9/11 terrorist attacks, the leading think tanks in the United States that provide research on core technologies, such as alternative energy, bioindustry and basic materials, do not hire Korean researchers, due to security problems. This is the reason why CEOs of Samsung Electronics never smile despite their greatest accomplishments in history.

The last two decades, during which we did not need to recognize the gravity of the Chinese presence in our region, remain a special time for us. But things are changing. Many factories will move to China, followed by their subsidiary firms, while many Korean laborers will lose their jobs. The emergence of China as a world power is a huge task that Korean companies cannot cope with alone.

*The writer is an editorial writer of the JoongAng Ilbo.

by Lee Chul-ho