Steeper 'Dalkorean' Trend... Last Year's Overseas Direct Investment Hits Record High (Comprehensive)

Overseas Direct Investment Amount in 2019 Reaches $61.85 Billion... Up 21% from Previous Year

Concerns Over Domestic Capital Outflow

[Sejong=Asia Economy Reporter Joo Sang-don] Last year, the amount of overseas direct investment exceeded $60 billion, setting a record high. There are growing concerns that the speed of 'de-Koreaization,' where domestic investment funds are flowing overseas, is accelerating. Experts point out that unless there is a proactive change in the domestic corporate investment environment, this phenomenon is bound to accelerate.

According to the Ministry of Economy and Finance on the 20th, the overseas direct investment amount in 2019 was $61.85 billion (approximately 78.16 trillion KRW), a 21.0% increase compared to the previous year ($51.1 billion). This is the highest amount since related statistics began in 1981.

By industry, the financial and insurance sector ($25.04 billion) and real estate sector ($6.93 billion) led the growth with increases of 45.4% and 33.3% respectively compared to the previous year. Notably, overseas direct investment in manufacturing, the backbone of the Korean economy, also rose by 13.8% to $18.35 billion. The Ministry of Economy and Finance diagnosed that the increase in manufacturing overseas direct investment was due to large-scale mergers and acquisitions (M&A) driven by globalization and facility investments in key sectors such as electric vehicles, semiconductors, and displays. By country, the United States accounted for the largest share at 23.9%, followed by the Cayman Islands, a representative tax haven, at 13.1%, China at 9.4%, Vietnam at 7.2%, and Singapore at 4.9%. The United States ($14.77 billion) saw a 32.4% increase from the previous year due to large M&As aimed at expanding global sales networks, while China ($5.8 billion) increased by 20.7% due to facility investments by large corporations expanding into local markets in electric vehicles and semiconductors.

The pace of increase in overseas direct investment is accelerating. From 2001 to 2005, overseas direct investment ranged between $4.1 billion and $7.4 billion, but it surpassed $10 billion for the first time in 2006, reaching $12 billion. It then sharply increased to $23.1 billion in 2007, $31.2 billion in 2013, $44.7 billion in 2017, and $51.1 billion in 2018. After increasing by another $10 billion in one year, last year it exceeded $60 billion. Conversely, foreign direct investment last year was $23.3 billion, a 13.3% decrease compared to 2018 ($26.9 billion).

Experts diagnose that the sharp increase in overseas direct investment and the decrease in foreign direct investment ultimately indicate a deterioration in the domestic investment environment. Professor Kim Sang-bong of Hansung University’s Department of Economics explained, "An increase in overseas direct investment means that earnings generated abroad are increasing, so the increase itself is not a problem. However, the problem lies in the fact that funds that should be invested domestically are moving overseas." He added, "In the case of the United States, policies such as reducing the corporate tax rate from 35% to 21% are actively being implemented to bring back companies that have gone overseas through 'reshoring.' It is not simply about lowering Korea’s corporate tax rate, but rather about providing tax benefits and easing employment regulations to encourage companies to return from abroad."

Joo Won, head of the Economic Research Department at Hyundai Research Institute, asserted that without groundbreaking policy changes from the government, the 'de-Koreaization' trend among companies cannot be reversed. Joo said, "Companies are leaving because business conditions are poor, but realistically, labor costs cannot be lowered to Southeast Asian levels. Ultimately, tax benefits such as corporate tax cuts are the only option, and unless the current government’s anti-business stance is changed, it will be impossible to prevent the outflow of corporate investment funds."

This content was produced with the assistance of AI translation services.