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.
The toy factory and its workers are among the many that have been affected by changes sweeping China’s manufacturing industry: rising labor costs, changes in tax rates and rebates, a stronger currency and policies that favor capital and technology-intensive industries over the low-tech, labor-intensive sectors.
In many cases, factories simply shut down, stranding workers without pay. In Qinqdao alone, a couple of hundred South Korean enterprises, mostly smaller factories, have shut down abruptly in recent years.
Most of the foreign investors in these factories don’t go through the formalities of declaring bankruptcy: They simply slip away in the night, abandoning their equipment. Or as the Shandong Department of Foreign Trade and Economic Cooperation (SDFTEC) puts it, these investors left through “abnormal” procedures.
According to the Korea Business Development Center in Qingdao (KBDC), these “fleeing” enterprises mostly produced textiles, leather goods and ceramics and other labor-intensive items.
The manager of the KBDC in Qingdao, Lee Byong Jik, said from 2000 to 2007, there were 206 South Korean enterprises that left Qingdao through “abnormal procedures.” The number is similar to that given by SDFTEC, which said that last year alone, investors at 80 enterprises from South Korea simply walked away.
SDFTEC said among the 206 fugitive enterprises, 30 percent had produced ceramics and 15 percent and 13 percent had produced textiles and leather goods, respectively. Many were small, with investments of only US$300,000 to US$500,000, and 55 percent had fewer than 50 workers.
The 206 enterprises were behind on bank loans of 700 million yuan. They owed 160 million yuan in wages to about 26,000 workers, SDFTEC said.
For small and medium-sized, labor-intensive enterprises, the cost of labor is a key factor in their survival. But China’s labor costs have been rising in recent years, despite its seemingly inexhaustible labor supply.
That pool of cheap workers was an almost unbeatable advantage when the country opened its doors to the outside world in the late1970s. Chinese commodities were very cost-competitive and factories could depend on big profit margins.
However, Chinese workers’ living standards lagged the country’s rapid economic growth and huge domestic economic disparities developed. The Chinese Government has turned its attention to workers’ demands for higher pay.
A labor contract law was brought into effect this year. Employers must contribute to workers’ social security accounts and set wage standards for workers on probation and overtime.
Separately, China has revamped its tax policies for foreign investors. In 2007, the enterprise income tax law was adopted, ending two decades of preferential tax treatment for foreign investors. The law established a uniform income tax rate for domestic and foreign companies of 25 percent. Previously, the effective income tax rate for Chinese companies was 25 percent, while that for foreign enterprises was 15 percent.
Also, in a bid to slow down its rapid export growth, which has caused trade friction, China adjusted its tax rebate policies last July, ending or cutting the rebate rates for some export products.(SD-Agencies)
