January 14, 2014 2:31 am JST

Once lured to China, Japanese firms struggle to leave

Toshiba recently ended TV production at a Dalian plant.

Japanese business people here tempered their New Year's greetings with talk of the less-than-festive subject of "getting out," underscoring a shared sense that soaring labor costs and a weaker yen have left little benefit to running plants in this northeastern port city.

     But actually making an exit may be easier said than done.

     A local Toshiba unit, for one, pulled the plug on its television production lines late last year despite having been the largest exporter by value among Japanese companies.

     Businesses attempting to leave face a veritable "path of thorns," in the words of Kimiaki Kobayashi, local branch manager of personnel consultancy Intelligence. On top of compensation to workers, companies can expect business partners to refuse to pay for orders or seek breach-of-contract penalties, Kobayashi explained at a "restructuring and withdrawal" seminar.

     "Even a midsize Japanese company with 50 local workers and three Japanese staffers could have to foot 100 million yen ($943,840) in costs and spend two to three years to get out," he told a group of surprised managers.

     Foreign companies trying to cancel their registrations have to scuttle about requesting approval from central and local government bureaucrats. Unpaid fees and taxes can hold up the process -- and in the most nightmarish of scenarios, the government could even confiscate a foreign businessman's passport, trapping him in China.

     When Bo Xilai was mayor during most of the 1990s, Dalian plied foreign companies with exemptions from land usage fees and other perks. Firms trying to get out may face the grim flip side of such preferential treatment as local governments claw it back.

     In light of such pressures, one plastics-molding company called off plans to withdraw, instead opting to sell off most of its equipment and shrink its workforce to a fraction of its former size. "It was frightening to think of the burden getting out would entail," a top company official laments.

     Toshiba, meanwhile, plans to repurpose its TV production site to make more motors.

     The party officials now in charge of Dalian have proved frosty toward so-called Bo brands, the 2,000 or so Japanese companies that set up shop in Dalian under the then-mayor. Ironically, it seems, the more warmly a region welcomed businesses, the more difficult it is for them to leave.