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South Korean firms already outrun by Chinese rivals: KERI

All Headlines 11:40 July 05, 2016

SEOUL, July 5 (Yonhap) -- Chinese companies have already outrun South Korean rivals in competitiveness and are quickly catching up in the high technology sector, an analysis by a private economic think tank said Tuesday.

The Korea Economic Research Institute (KERI) evaluated the non-financial listed firms of the two countries with 2007 and 2014 as comparison points. Assessment guidelines had eight areas, such as profitability and asset size.

According to the analysis for 2014, Chinese counterparts outperformed South Korean companies in five of the eight categories -- profitability, growth, asset size, the number of patents and overseas mergers and acquisitions. The increase in assets stood out for Chinese firms. Their average in 2004 was US$639.92 million, about 55 percent of the average $1.15 billion for South Korean companies. In 2014, the figure for China came to $1.57 billion, outdoing South Korea's $1.46 billion.

Chinese companies recorded a 7.66 percent increase in sales in 2014, roughly twice the 3.39 percent for South Korean firms.

China was also ahead in the rate of operating profits. The gap with South Korea increased from 4.26 percent in 2007 to 4.86 percent in 2014.

For mergers and acquisitions, the total for Chinese firms came to $7 million in 2014, comparable to South Korea's $2.28 million.

KERI's analysis reveals what has been masked in other reports that look mostly at the top 30 listed companies in sales, which put South Korea ahead of China. Even in such reports, however, the gap was described as narrowing, with Chinese companies having outperformed South Korean ones in three of the eight categories in 2014.

In that year, the rate of operating gains for Chinese companies was 13.82 percent, double the 6.82 percent for South Korean competitors. China marked 12.86 percent in the rate of sales increase. South Korea showed 5.45 percent.

In terms of the size of M&A, China grew from $330,000 in 2007 to $15.09 million in 2014. For South Korea, the increase was from $5.72 million to $9.12 million.

South Korea's top 30 firms were still running in front in R&D, patents, the proportion of overseas sales, asset size and labor productivity.

The analysis also looked at the technological difference between the two countries and concluded that China has already sped past South Korea in low and middle technologies and is quickly catching up in high technology.

In 2007, China was assessed to have three high-tech firms, compared to five in South Korea. In 2014, China and South Korea both had four.

"If you look at the top 30 listed firms, China is behind South Korea," Kim San-wol, a professor of Kookmin University who led the analysis work, said. "The problem is that the gap is narrowing with time."

Kim emphasized the urgency for South Korea to implement corporate measures against China's catch-up. "The government needs to improve the conditions for financing and create an inducive environment for technology investment," he said. "Conglomerates would need to use M&A to improve their technological assets, and smaller companies need to look overseas to aggressively expand their markets."
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