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China, Korea Probe Complaints Over Factory Closures

China and South Korea are investigating complaints that hundreds of Korean-invested factories have closed down, leaving workers without pay.

Although surging manufacturing costs are hurting foreign manufacturers in many areas, especially southern China, the Korean factory closures are mainly concentrated in eastern China's Shandong province, a region with many ethnic Koreans that is closest to the Korean peninsula.

"We heard that some South Korean companies closed their operations in Qingdao due to rising costs," Liu Xiaojiang, deputy director of Shandong's Department of Foreign Trade and Economic Cooperation said in a phone interview Wednesday. "We are now investigating. We don't know yet how many there are," he said.

Surging wages and costs for fuel and other raw materials, combined with the loss of tax rebates on exports - previously used to promote investment in export production - have put the squeeze on many manufacturers already enduring a potentially onerous tightening of labor and environmental standards.

Some low-tech manufacturers are closing, others moving to lower-cost regions of inland China, or to neighboring countries such as Vietnam.

Both sides appear to be taking pains to ensure the problem does not sour their otherwise very close, thriving business and political relations.

Officials in Seoul said a task force set up by the South Korean government traveled to Shandong, Shanghai and Dongguan in southern China's Guangdong province a month ago to study the situation.

The task force, based in Qingdao, a city in Shandong, will help companies legally liquidate their businesses if necessary, the South Korean government said in a statement.

In Qingdao alone, about 200 mostly small and medium-sized factories closed down without paying wages and taxes, said Kim Oh-ryong, deputy director of the China division at South Korea's Ministry of Commerce, Industry and Energy.

The companies are legally required to reimburse the Chinese government for any tax breaks or other benefits if they shut down in less than 10 years, he said.

Not all the companies affected are small ones.

In Yantai, another city in Shandong, the Yantai Shigang Fiber Co., a textile factory, suddenly shut down in early January, leaving some 3,000 workers without jobs or compensation, the Shanghai Oriental Morning Post reported Tuesday.

Calls to the company found its number out of service.

There were 19,529 South Korean-invested businesses in China as of September, almost all of them small and medium-sized companies.