[Viewpoint] Why we should stay in China

Last week, I visited the Tianjin branch of Shin Heung Precision Co., Ltd. located in Binhai New Area, China. The plant produces various molding components for televisions and cars.

The company’s CEO, Kang Byung-woo, is very tense these days, as he has been hearing that many Chinese workers are engaged in labor strikes. He is paying closer attention to his more than 1,500 Chinese workers.

Kang takes care of everything, from employee satisfaction with working conditions to timely payment for overtime work. Despite his efforts, he complains that the monthly turnover rate for Chinese workers exceeds 10 percent.

The majority of companies in China that receive foreign investment face the same problem. Labor disputes triggered in Guangdong are spreading rapidly to major industrial cities in China. In addition, workers’ monthly wages, based on the minimum wage, are rising around 20 percent every year. Many foreign companies investing in China are reportedly considering moving their factories to other countries.

Is China no longer an attractive destination for manufacturing?

Are executives considering moving their factories out of China to prepare for the worst case scenario?

I raised these questions to CEOs at 15 midsized South Korean companies operating in four Chinese cities: Tianjin, Qingdao, Suzhou and Dongguan.

They replied that they should tolerate, endure and make more active responses to such moves. Though some of them have considered moving their factories to either Vietnam or India, they acknowledge that factories in China are better equipped in terms of production facilities.

The main reason why they can’t leave China is integration between production and the target market. When China was just the “world’s factory,” the majority of foreign investors intended to assemble and to manufacture goods there and export them to the United States, the European Union, South Korea and elsewhere. Production and the market were separate at the time.

But now in addition to being the “world’s factory,” China is also the “world’s market.” The trend of manufacturing goods in China and then selling them there is on the rise. The country is now both the world’s largest carmaker and market.

Televisions, air conditioners and mobile phones are other areas of interest. We must face the reality that we can no longer discuss global strategy while ignoring the Chinese market. That’s why foreign investors like South Korean companies operating in China can’t leave despite the continual rise in their local workers’ pay and the increasing likelihood that Chinese workers may strike.

It really does seem that the majority of Western enterprises investing in China are now under China’s hand.

Shin Heung Precision is no exception. All the products manufactured in the company’s Tianjin factory are supplied to Samsung Electronics’ Tianjin branch to produce televisions and mobile handsets. The completed goods are then sold in the Chinese market.

Samsung can’t give up on China, the world’s largest market. Likewise, every company should compete in China to do business.

There is a clear countermeasure to a series of Chinese labor disputes. South Korean companies operating in China should make efforts to improve productivity as they have done in South Korea in the past. Workers’ wages will rise according to Chinese policy directions. These same businesses should take more pre-emptive measures to counter such directions. In other words, they should adopt a new set of labor management strategies such as a new system of wages, welfare and improved work environments for their local workers that are in accordance with current Chinese government policy.

“Why would we bother leaving China? The more the Chinese market grows, the more important local production will get,” Kang said as I was leaving his factory.

“As long as we legally pursue our business in China, business opportunities here will be infinite. Current instability among Chinese laborers will create positive momentum to distinguish the good foreign invested enterprises from the bad,” he said, before hustling off to meet with his Chinese staff.

*Translation by the JoongAng Daily staff.
The writer is deputy director of the China Institute of the JoongAng Ilbo.

By Han Woo-duk