Difficulties in opening letters of credit (L/Cs) are cited by South Korean investors in China as one of several difficulties they face as they try to establish and maintain positions in the burgeoning Chinese economy.

The survey of 180 South Korean firms conducted by the Korea Trade-Investment Promotion Agency (KOTRA), nevertheless found that the greatest current problem faced by this group of investors was China's economic policy.

Cooling off

The majority of the survey participants said the Chinese "cool-down" economic policy impacted negatively on them in the short term but expected it would impact positively on them in the long term, according to the Kotra survey released this month.

Nearly 70 per cent of the companies said they have been impacted negatively since Beijing began implementing its tighter monetary policy. China has gradually tightened its monetary stance in an effort to cool down an overheated economy, prompting concerns over China's economic outlook.

L/C difficulties

According to the survey, around one in four companies said financing problems formed their biggest difficulties and around the same proportion of firms said a decrease in sales in China was their main difficulty.

Difficulties in opening L/Cs were also cited by the companies as hindrances to their business, along with securing resources and collecting revenues.

Lacking alternatives

It seems that the companies are not, however, looking outside China for financial solutions to their problems.

Only 15.6 per cent of the companies said they had come up with countermeasures, such as using Korean financial institutions for financing, discounting sales prices and diversifying their business activities. According to KOTRA, many firms were not formulating countermeasures because they lacked information.

More L/C arrivals

Back in South Korea meanwhile, exporters are seeing an increasing number of L/Cs arriving on their doorsteps to facilitate exports according to figures released in June by The Conference Board.

The widely recognised US-based Korean index compiler's survey methodology sees increased numbers of L/Cs as a very positive factor in the South Korea's all important manufacturing sector.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.