South Korean investors quit China over rising costs

By Langi Chiang

QINGDAO, China (Reuters) - 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.

"I went to work on the first day after Spring Festival, only to be told that the Korean boss had run away and the factory had been closed," Li, a 30-year-old mother of a little boy, recalled.

Her case is not a rarity in Qingdao, a major seaport and industrial city in eastern China which 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.

Many of the factories produce toys, garments and ornaments for export to the United States, Europe and back home to South Korea.

Qingdao mirrors, on a smaller scale, what is happening in the Pearl River Delta near Hong Kong.

Thousands of factories, mostly Taiwanese or Hong Kong firms, are moving inland or abroad or are simply closing as rising costs undermine the assumption that China is the world's cheapest manufacturing location.

Sung Jeung-han, manager of the Korean Society and Enterprise Association in Qingdao, said 20 to 30 percent of the 6,000 South Korean firms in the eastern port city were losing money.

"The wage rise, yuan appreciation and higher input prices are the main reasons," he told Reuters by telephone.

The minimum wage in Qingdao has risen 43 percent in the past three years to 760 yuan ($107) per month.

Other government initiatives to share China's growing wealth more widely and to minimize social tension are also deterring employers who are required to provide more mandated benefits for their workers and are paying higher pollution fees.

Employers are grumbling in particular about a new labor contract law, which went into effect at the beginning of this year, that makes it harder to lay off staff.

Dang Guoying, a rural economist at the Chinese Academy of Social Science, said the law did put pressure on companies.

"But eventually it will bring a lot of benefits despite the temporary negative impact," he said.