Korea Inc’s China troubles rattle local workers, suppliers

Firms see sales hit by boycotts, cut output

BEIJING/SHANGHAI, April 11, (RTRS): South Korean companies in China have been clobbered by Beijing’s angry response to Seoul’s decision to deploy a US anti-missile system, but the boycotts and regulatory pressure on firms like Hyundai and Lotte are rebounding on their Chinese workers and suppliers.

South Korean businesses are a major employer in China, with firms such as Hyundai Motor Co, smartphone manufacturer Samsung Electronics Co, and retail giant Lotte Group directly creating some 700,000 jobs in China, according to a Korea trade promotion agency, and there are many more down the supply chain.

Hyundai, which says its Chinese affiliates and suppliers alone create a total of 90,000 jobs, has responded to falling sales by cutting production.

In Beijing’s industrial suburb of Shunyi, where Hyundai has its biggest overseas manufacturing base, its suppliers, workers and local retailers who depend on them are feeling the pinch.

“We haven’t worked weekends since a month ago and don’t know when it will get back to normal,” said a supplier of hub caps to Hyundai.

“We can do nothing but wait while losing money.”

Hyundai’s Beijing plants, which used to run 24 hours, seven days a week, are now running just 8am to 5pm on a four-day week, its workers say, and concerns of further output cuts are unnerving those working in its supply chain and local stores.

Couriers complain deliveries to Hyundai’s main plant have dropped by between a half and two-thirds, while the owner of a nearby convenience store said his business had been hit because salaries at the plant were down.

The chief executive of a South Korean auto parts supplier employing over 100 Chinese employees said his factory’s utilisation rate had dropped by 30 percent. He had not laid anyone off yet, but said the future was uncertain.

“We have no choice but to reduce Chinese workers if the situation is prolonged. There are no signs that the situation would get better anytime soon,” he said.

Hyundai itself said there was “no current impact on employment in China”, that it was fully committed to the Chinese market, and would “continue to do our utmost to protect our employees in the region”.

The dispute over the THAAD missile defence system, which South Korea and the United States say is needed to contain the threat from North Korea, has prompted calls for boycotts in Chinese media and increased regulatory scrutiny for South Korean firms.

Lotte Group, which has suffered a local boycott of its products since it agreed to provide land for the US missile defence system, closed 75 of its 99 hypermarkets in China in recent weeks after regulatory inspections by authorities. It said workers at affected stores were being paid in full as per Chinese law.

This could drop to 60-70 percent in the second month of closure, but the firm would “pay the most it can”, a Lotte Mart spokesman said. Lotte Group employs 20,000 people in China.

Reuters spoke to five Lotte employees in stores around China who said they were still being paid and that workers were still coming into closed stores to check expiry dates and handle inventory.

Corporate risk analysts said China was willing to accept some “tolerable collateral damage”, and it was being strategic in the areas it targeted, avoiding, for now, big employers like tech giant Samsung.

“They’ve pretty carefully targeted Lotte in terms of what the government has orchestrated, as well as tourism, flights and duty free,” said Andrew Gilholm, director of analysis for China and North Asia at risk consultancy Control Risks.

He said the stand-off could go on at least until South Korea has new leadership, following the impeachment last month that ended the presidency of Park Geun-hye.

“Beijing is likely to keep the pressure on until the new government is set up in Seoul and has made its position (on THAAD) clear,” he said.

For now, Korean firms are keeping their heads down waiting for the row to blow over.

But workers and dealers remain anxious, with sales showing no signs of recovery and no idea when things might return to normal.

“The recent slide has been very serious. Normally we sell more than 100 vehicles in a month. Now we can only shift 30,” said a Hyundai dealer in Beijing.

“Anti-Korean sentiment has soared, and lots of consumers aren’t willing to buy South Korean cars,” he said.