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.

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