YANCHENG, China -- This prosperous city of 1.6 million north of Shanghai is a factory town for South Korean auto maker Kia Motors Corp. -- and a reminder that in a globalized world, Beijing can't punish foreign companies without sacrificing Chinese workers and business partners too.
China's unofficial campaign against South Korean consumer goods has hit hard here. Kia factory workers have been forced to accept dramatically reduced hours and lower pay amid a precipitous drop in sales of Kia models in China.
Those measures have staved off widespread layoffs, but even so, many workers have had to take second jobs as couriers or taxi drivers to make ends meet.
"This anti-Korean sentiment doesn't do us any good," said one 26-year-old Kia employee surnamed Chen, who felt that punishing Kia was threatening Chinese jobs.
Outside a company housing complex, Kia staff said they were working as few as three days a month on half pay in July.
They were willing to endure that in the short-term, according to Mr. Chen, since their overall incomes hadn't yet taken a serious hit -- but they were growing increasingly anxious about possible layoffs should the spat continue.
Kia is Yancheng's gold-standard employer, paying higher wages than other local manufacturers. Layoffs would have a ripple effect.
"In Yancheng everyone has a relative that works for Kia, or it's your friend, or the friend of a friend," said Sun Nan, sales manager at a local Kia dealership. "The auto industry is the backbone of Yancheng: no one wants anything to happen to it."
Sales of all manner of Korean goods in China -- from cars to pop songs to gadgets -- have been in sharp decline since March. Although no boycott has been declared, state-controlled media has encouraged the campaign in retaliation for Seoul's deployment of an American-made missile-defense system for North Korea's nuclear-weapons program.
Many Chinese consumers have followed Beijing in punishing Seoul, curbing holiday travel to South Korea and turning away from Korean pop music and TV shows that had been hugely popular in China before the spat.
The boycott isn't popular in Yancheng. The city's Korean affinity is on proud display, with strips of Korean restaurants, Korean-language street signs and South Korean flags fluttering along highways and outside factories.
Yancheng boasts a sprawling Korean business park, along with three Kia factories. Those factories employ 30,000 workers here, said a local Communist Party official, who asked not to be identified. The official said Yancheng has doubled in size since Kia's arrival in 2003.
Before then agriculture was the only game in town. Now the city is a thriving manufacturing hub with a high-speed rail line being built southward to Shanghai, a bustling commercial center and broad highways packed mainly with Kia cars.
The foundations for this success are largely Korean, the official said. Kia and the local auto-supply industry that has sprung up to support it contribute 60% of the city's tax revenues, closely tying Yancheng and much of its working population to the car maker's fate.
The sales of Kia and its parent Hyundai Motors Co. in China fell 61% from March to June. The local official said the plants were operating at only 30% capacity, but he said the authorities weren't even contemplating that the plants might close since so much investment had been sunk into them.
A Kia spokesman declined to discuss the company's China operations, beyond saying its plants were "operating in line with the current market environment."
Across town local locals gossiped and traded rumors about the company's woes.
The timing of the dispute could hardly have been worse for Hyundai, which opened a new Chinese plant last year, and is due to open another, its ninth in China, in August.
Dismal sales in the first half of 2017 have cast a shadow over those expansion plans, but it isn't only a blow to Hyundai: its Chinese joint-venture partners, state-owned auto makers Beijing Motor Corp. and Dongfeng Motor Corp., also stand to suffer.
A spokesman for Beijing Motor, which equally shared $1 billion in profits with Hyundai last year, said the company hopes "the difficulties are temporary."
While the dispute has led many Koreans to question the wisdom of being so economically reliant on China, some in Yancheng were waking up to the extent of their dependence on Korean corporations.
Local authorities are trying to dilute Korean influence over Yancheng's economy by encouraging investors from elsewhere, the party official said, but such a rebalancing will take a long time in the city that Kia built.
At the near-empty Kia dealership, new tax breaks and offers of cheap credit weren't yet reviving sales, said Mr. Sun, who felt China's tough line on Seoul was causing collateral damage at home.
"The anti-Korea sentiment damages our own interests," he said, pointing out that Kia's local joint venture is half Chinese. "The conflict has a negative impact on both China and Korea."
--Junya Qian contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
August 23, 2017 05:44 ET (09:44 GMT)