China is no longer an attractive place to build plants for Korean manufacturers.
The increase in people's purchasing power in China provides tremendous opportunities for Korean retail and services companies, but that's not the case for the manufacturing industry.
One major concern for Korean machinery, electronics, clothing and accessories firms that operate factories in China is the soaring labor costs.
According to the Ministry of Trade, Industry and Energy, Wednesday, 10 Korean manufacturers recently decided to shut their plants in China and return to their home country.
"Salaries for Chinese workers have more than quadrupled since we established a plant in Nanjing a decade ago," said Ha Jeong-hyo, an official of display panel maker Pinetek, one of the 10 companies. "It's still cheaper to operate a plant in China than in Korea, but Korea provides a lot more advantages, such as a skilled workforce and wider access to overseas markets. That's why we've decided to return."
The firm plans to set up a plant in Goyang, Gyeonggi Province, and recruit some 200 staff.
China used to be a magnet for global manufacturing firms, which sought to utilize its cheap labor to provide low-priced items to global markets. Officials here however say some of them are seeking to pull out of China because production costs there have skyrocketed. They also complain about high taxes, increased state regulations and an unfavorable sentiment toward foreign firms. The tech giant Apple recently announced a plan to spend $100 million to move a production line of Mac computers from China to the United States this year.
Ministry official Song Yo-han said multinational firms used to cut costs through "offshoring," but "reshoring" is now becoming a trend.
"An increasing number of global firms have closed their plants in developing countries and moved them back to their home countries. That's because manufacturing products abroad is not as profitable as before and free trade agreements (FTAs) between countries have reduced tariffs on exports," Song said.
Among the 10 Korean firms that have closed their China plants are Gomundang Printing, Dongbang, a construction materials provider, and Cheongdo, a mobile phone parts maker.
The ministry forecast the return of the companies will create more than 1,000 jobs here.
Last year, 18 Korean jewelry makers also moved their production lines from China to Korea due to similar problems.
"In the early 2000s, it cost some 150,000 won ($175) a month to hire a Chinese manual worker. But that amount has surged to over 600,000 won," a Cheongdo official said.
The government plans to reduce corporate and income taxes for a certain period for Korean firms that move oversea plants to Korea. According to a recent survey by the Korea Trade-Investment Promotion Agency, a firm can save up to 1.75 billion won a year by relocating its production lines from China to Korea.
The manufacturers can benefit from Korea's FTAs with the United States and the European Union, the agency said.