In recent years, South Korean companies have been withdrawing from the Chinese mainland market or significantly reducing their investment scale due to fierce competition from local rivals and weakening demand, as revealed by South Korean media.
According to the Korea Times, South Korea’s direct investment in China plummeted by 78% in 2023 compared to 2022, falling to $1.87 billion, making China the seventh largest destination for South Korean investment. For the previous 31 years, China had consistently been among the top five preferred destinations for South Korean companies’ investments.
A report from the Korea Institute for International Economic Policy (KIEP) pointed out that rising labor costs and reduced incentives for foreign investors were key factors prompting South Korean companies to redirect their investments to other regions.
Tech giant Samsung Electronics, which had been the world’s top-selling mobile phone brand for 12 consecutive years, suffered setbacks in the Chinese market.
While Samsung once held a leading position in the Chinese smartphone market, its market share has plummeted to near zero. In 2019, Samsung shut down its last smartphone factory in Huizhou, Guangdong Province, China, shifting production lines to Vietnam and India.
In September this year, LG Display sold its liquid crystal display (LCD) panel factory in Guangzhou, China, to Chinese competitor TCL Group’s China Star Optoelectronics Technology for around 2 trillion Korean won ($1.43 billion). This move essentially signaled the complete withdrawal of South Korean companies from the Chinese television liquid crystal display screen market.
In 2020, Samsung Display also took similar action by selling its LCD factory in Suzhou, China, to China Star Optoelectronics.
Hyundai Motor, which once had five factories in China, now only has two remaining. In 2021, the first Hyundai Motor factory in Beijing Shunyi was sold to Nio, and earlier this year, the factory in Chongqing was also sold. The factory in Cangzhou, Hebei, has ceased operations and is being planned for sale.
Ten years ago, Hyundai Motor and its affiliate Kia had a combined market share of around 10% in China, which has now dropped to about 1%.
Moreover, the process of selling the Chongqing factory was very difficult, experiencing three failed auctions before being sold at a 50% discount. Hyundai Motor had invested about 7.7 billion Chinese yuan in this factory, ultimately selling it for 1.62 billion yuan. The factory was established in 2015 and was sold at a low price by 2024, having only operated for nine years.
The political climate also plays a significant role in investment decisions for foreign companies doing business in China.
Chung Yeon-seung, a professor at Dankook University’s School of Business, stated, “China is a country with strong political logic, and it’s not enough to rely solely on economic logic to trust China as a business partner. It’s essential to maintain a conservative attitude and be prepared with contingency plans when engaging with this market.”
The experience of Lotte Group serves as a clear example. At its peak, Lotte Mart operated 112 stores in China but suffered significant consequences due to South Korea deploying the U.S. Terminal High Altitude Area Defense (THAAD) system in 2017, leading to a diplomatic dispute with China.
Lotte Mart withdrew from the Chinese market in 2018. Lotte Department Store also closed its last branch in Chengdu in June this year, marking the end of its operations in China.
Lotte Group is currently seeking to sell its “Lotte World” retail complex project in Chengdu. This project was put on hold after the THAAD incident. Once the expected sale is completed, Lotte, which has been operating in China for 30 years, will fully withdraw from the Chinese market.
(Reference: Korea Times)