Monday, July 26, 2010

Chinese Aren't Coming

Korea Times (July 23, 2010) By Sean Hayes

Willie Sutton, the famous 1940s bank robber, was attributed with answering a reporter’s questions concerning why he robs banks with: ``that is where the money is.”

The Japanese, knowing that China is where the money is, loves China ― why don’t the Koreans?

The Chinese knowing that Japan is developing a vibrant ``Chapanese” economy love Japan ― why don’t the Chinese love Korea?

Overwhelmingly, Korean employees and shareholders believe that the Chinese will enter the market to steal technology, lay off workers, and abuse their dominant world power. Chinese investors are not dumb; they know this perception by the Koreans.

China only accounts for 1.4 percent of the total foreign direct investment (FDI) in Korea, according to government data. While, China accounts for 11.1 percent of Japanese FDI with only the U.K., Canada, Germany and the United States surpassing Chinese investment in Japan, according to Japanese government data.

The Chinese have controlling interests in numerous Japanese companies including well-known golf club manufacturer Honma, die-maker Ogihara, electric technology company Nikko Electrics, and information services company SJI Inc.

Wealthy Chinese are gobbling up Japanese and other foreign products in Japan at a rate that makes even wealthy American consumers blush. The number of wealthy Chinese surpasses, in number, the entire Korean population.

This Korean situation is alarming and worrying considering that Korea is only a stone’s throw from China. China is one of the world’s largest economies and Korea bills itself as the ``Hub of Asia.”

These impressions by the Chinese come from, in part, the Ssangyong Motors disaster. Ssangyong Motors is a former Chinese-controlled Korean company. A controlling share of Ssangyong was sold to the Shanghai Automotive Industry Corporation (SAIC) in order to save the company from liquidation.

The SAIC attempted to avoid liquidation through reorganization. Members of the Korean Federation of Trade Unions and the Korean Metal Union Workers, unwilling to compromise with the company, led a 77-day seizure of the Pyeongtaek Ssangyong Motors’ plant.

Union members and hired thugs tossed fire bombs and projectiles from slingshots at police and caused significant damage to the plant and the reputation of Korea.

The then very unpopular Lee administration, out of fear of being perceived as too right-leaning, made few moves to end this strike until almost two months into the fiasco. The situation made a lasting impression on many foreign investors, not just the Chinese.

Why is the situation much different in Japan? The Japanese government has made a concerted effort to attract Chinese investment and the Japanese are much less nationalistic than Koreans. This nationalism is hurting the chances for the government to have a true sustainable growth rate.

We should no longer consider companies as national enterprises. Most major Korean companies manufacture more of their goods outside Korea and these and all multinational companies’ primary concern is profit, not promoting the nation of the management’s best interests. Nationalist company management is the rare exception and definitely far from the rule.

With this in mind, the Lee administration must make a government-wide effort to educate the population and officials to think with their minds first and not with their hearts and thus realize that Korea must focus on ``where the money is.”

A great start is the recent revision of the visa rules for Chinese visitors, but no true change will occur without a change in the hearts of the population, this will only come through a collective raising of consciousness and a realization as in the words of Thomas Friedman that: ``The historical debate is over. The answer is free-market capitalism.”

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SeanHayes@ipglegal.com