Thursday, 3 April 2008

FDI reversals - high costs leading to fleeing Koreans

After years of spectacular growth in FDI in China the tide might be turning in the face of rapidly increasing costs.

The International Herald Tribune highlight this problem in a recent article. The word of the day is "flee" which gives the impression of a less than orderly exit from the China.

There are two issues here:

1. If China is no longer the cheapest location to produce goods where is? Costs are rising everywhere.

2. The "fleeing" of thousands of factory owners in the face of increased costs merely represents reality kicking in. Rising costs and a US recession mean that easy money can no longer be made and it is merely the least efficient firms going out of business.

What all of this does mean is that prices of consumer goods may well rise in the UK and elsewhere (on top of all the other energy and food related price increases).

Just when the West wants to be cutting interest rates to help with the credit crunch we get inflationary pressures suggesting that the opposite is required.

Interesting times.

Rising costs forcing some South Korean factory owners to flee China [IHT]

Scores of South Korean-owned factories are closing surreptitiously in eastern China as their owners flee rising costs, leaving behind embittered workers like Li Hua.

Li and more than 200 colleagues have been fighting for a year to get the six weeks' wages they were owed when the owner of the toy factory where they worked fled during the 2007 Lunar New Year holidays.


Her case is not a rarity in Qingdao, a major seaport and industrial city in eastern China that sits across the Yellow Sea from South Korea. A two-hour flight from Seoul and home to about 100,000 South Koreans, the city is a hub for South Korean factories benefiting from cheap labor.

But lately, a growing number of South Korean factories have abruptly closed down and the South Korean owners have disappeared as a slew of policies, including rising labor costs and an end to tax breaks, bite into their profit margins.


Qingdao mirrors, on a smaller scale, what is happening in the Pearl River Delta near Hong Kong. There, thousands of factories, mostly run by Taiwan and Hong Kong companies, are moving inland or abroad or are simply closing as rising costs undermine the assumption that China is the world's cheapest manufacturing location.

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