Korea Faces Huge Challenge in Burgeoning China

Around 100 Korean businesspeople from Hong Kong, Shenzhen, Dongguan and Guangzhou gathered at a hotel on Hong Kong Island on Sunday for a China investment seminar. The event was hosted by the Ministry of Knowledge Economy, the Hong Kong branch office of the Korea Trade-Investment Promotion Agency and the Korean Residents Association of Hong Kong. Participants spent four hours asking questions and discussing various changing investment conditions in the region as well as the latest policies involving the yuan and taxation.

They were not optimistic. Business conditions have been deteriorating rapidly over the last several years, they agreed. When they entered the Chinese market in the early 1990s, the Chinese government provided various benefits including factory space, but they have disappeared and Chinese authorities are now applying strict environmental regulations, stringent fire prevention codes and new labor laws, while poring closely over tax filings. Those caught missing payments are slapped with huge penalties. Some corrupt government officials demand bribes, and refusals lead to astronomical fines, they said. "Until recently, our main concern was a lack of orders, but now we have to worry about a shortage of workers," one owner of an electronics components factory said. "I need to quickly change my focus to new materials or other high value-added industries or shut down the factory and get out."

China is changing fast. Over the last 30 years of reforms and market opening, it has achieved an average annual economic growth rate of 9.8 percent. As a result, it has bagged a lot of "no. 1" titles. Earlier this week, China's Vice Commerce Minister Zhong Shan said at an economic forum that China has probably replaced Germany as the world's largest exporter in 2009. China's National Bureau of Statistics forecast that China will overtake Japan to become the world's second-largest economy this year if the Chinese economy grows more than 8 percent and Japan's economy shrinks 6 percent.

As of the end of September this year, China's foreign currency reserves amounted to US$2.27 trillion, more than twice those of second-placed Japan. It holds $798 billion worth of U.S. Treasury bonds, ranking first in the world, and its automobile market overtook the U.S. this summer as the world's largest.

But there are also negative no. 1 titles. Some 320 million people drink polluted water, while around 560 million city dwellers are exposed to polluted air. China is the world's largest emitter of sulphur dioxide and ozone-depleting substances and the world's second largest emitter of carbon dioxide. The UN Climate Summit in Copenhagen was a venue for the world to pressure China to lower its greenhouse gas emissions.

China's state-run banks have emerged at the top of the global financial industry. According to Bloomberg, the world's top three banks in 2007 were Citigroup and Bank of America of the U.S., and HSBC, which is British. But as of the end of June this year, the world's top three banks are Industrial and Commercial Bank of China, China Construction Bank and the Bank of China. The Wall Street Journal reported on Thursday, "Backed by nearly $9 trillion in deposits, Chinese banks are beginning to finance projects from small businesses to a giant power station" in Africa. It said Chinese banks are investing across Africa through joint projects, investment in infrastructure projects, and loans. The $9 trillion held by China's state-run banks is about 39 times more money than Korea's entire 2009 fiscal budget of W267 trillion (US$1=W1,171).

China has been changing at the speed of light and will continue to change. It is against this backdrop that Korea's new ambassador to China, Yu Woo-ik, a former chief secretary to President Lee Myung-bak, began his official duties in Beijing on Monday.