The business presence of South Korean companies in China has withered palpably in recent years amid toughened competition from local rivals and sluggish domestic demand in the neighboring country, industry watchers said Monday.

In September, LG Display Co. sold its liquid-crystal display (LCD) factory in China's Guangzhou to a local company for around 2 trillion won ($1.43 billion), effectively ending China operations of South Korean LCD manufacturers following a similar move by industry rival Samsung Display Co.

Tech giant Samsung Electronics Co. closed its last remaining smartphone factory in Huizhou, Guangdong Province, in 2019. Once the leading player in the Chinese smartphone market, its market share plummeted to near zero, prompting the company to shift production to Vietnam and India.

Hyundai Motor Co., which once operated five production bases in China, now has only two remaining. After selling a manufacturing facility in Beijing in 2021, it sold its Chongqing plant earlier this year for 300 billion won. Its Changzhou plant has halted operations, with plans to sell it underway.

The combined market share of Hyundai and affiliate Kia Corp. stood at around 10 percent a decade ago, but now it has fallen to around 1 percent. The automakers are focusing on utilizing their Chinese factories as export hubs.

The retail sector has also suffered noticeably, with Lotte Group having borne the brunt of the lingering impact from a diplomatic dispute between Seoul and Beijing over the deployment of a US anti-missile system, called THAAD, in South Korea in 2017.

Lotte Group is currently seeking to sell a retail complex development project in Chengdu, which was halted after the THAAD incident. Once the envisioned sale is complete, Lotte will have completely withdrawn from the Chinese market after 30 years of operations.

At its peak, Lotte Mart had operated 112 stores in China, but it withdrew from the market in 2018. Lotte Department Store also ended its Chinese operations in June this year with the closure of its Chengdu branch.

Cosmetic giant Amorepacific Group has also been losing ground to local competitors in recent years, leading to the withdrawal of its Hera and Etude House brands. Amorepacific's Chinese subsidiary reported a 42 percent on-year decrease in sales to 75 billion won in the third quarter of this year, resulting in an operating loss of 30 billion won.

In general, South Korea's direct investment in China plummeted 78 percent on-year to $1.87 billion in 2023, making China the seventh-largest destination for Korean investment. A report by the Korea Institute for International Economic Policy (KIEP) cited rising labor costs and reduced incentives for foreign investors in China as key factors driving Korean companies to redirect investments to other regions.

Choi Ji-won, a researcher at KIEP's China research team, said, "The growing competitiveness of Chinese companies poses the greatest threat to South Korean firms."

"While varying by product, many Chinese firms excel in manufacturing and have strong price competitiveness," Choi added.

An industry source from a firm that has reduced Chinese operations said: "The days of securing sales volume in the Chinese market have passed. We need to find a structure where we can generate profit even with smaller sales."

Chung Yeon-seung, a business professor at Dankook University, noted, "China is a country where political logic is strong."

"One cannot merely trust China as a business partner based purely on economic logic. It is important to approach the market conservatively and with response measures." (Yonhap)