South Korean Corporations Withdraw from China Amid Economic and Regulatory Challenges
Major South Korean companies are retracting their operations from China due to diminishing profits, increased regulatory pressures, and retaliatory actions by the Chinese government, leading to a significant decline in South Korean direct investment.
Recent reports by Business Korea indicate a significant trend of major South Korean enterprises exiting the Chinese market. This move is attributed to falling profits within the Chinese market, tightened restrictions by the U.S. against China, and frequent suppressive and retaliatory measures by the Chinese government, escalating risks for foreign corporations operating in China. For instance, Lotte Chemical, a South Korean conglomerate specializing in cement and cleaning materials, recently decided to sell its entire stake in a joint venture with China.
China, once a major importer of South Korea's petrochemical products, has seen a shift as South Korean petrochemical companies expanded their plants in China in recent years. However, due to China's economic downturn and decreased demand for petrochemical products, Chinese companies have resorted to drastic price cuts, adversely affecting the competitive capability of South Korean petrochemical businesses in China.
Additionally, the South Korean battery industry is restructuring its operations in China. LG Energy Solution sold its Jiangxi VL Battery joint venture last year, and Samsung SDI liquidated its battery manufacturing firms in Wuxi and Cheongju.
A survey by CEO Score, a South Korean business data research organization, revealed that since 2016, South Korean companies have sold or liquidated 46 subsidiaries in China, with the automobile sector experiencing the largest withdrawal. Hyundai Motor, which previously operated over five plants in China, has reduced its presence to three facilities. Following this, Hyundai Steel, a major automotive steel supplier, also restructured its plants and subsidiaries in China.
The South Korean Ministry of Strategy and Finance announced that South Korea's direct investment in China plummeted to $1.87 billion in 2023, marking a 78.1% decrease from the previous year and the largest drop in over three decades. This significant decline highlights the deteriorating economic relationship between South Korea and China, particularly in the manufacturing sector.
