Corporate Investment '?Korea' Accelerates... "Pro-Business Regulations Must Be Eased"

[Asia Economy Reporter Joo Sang-don] The phenomenon of domestic companies' investment funds 'escaping from Korea' is accelerating. Last year, overseas direct investment exceeded $60 billion, setting a record high. Experts pointed out that unless there is a proactive change in the domestic corporate investment environment, this phenomenon will inevitably accelerate.

On the 22nd, the Ministry of Economy and Finance announced that 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 ever since related statistics began in 1981.

By industry, financial and insurance services ($25.04 billion) and real estate ($6.93 billion) led the growth with increases of 45.4% and 33.3% respectively compared to the previous year. In particular, overseas direct investment in manufacturing, the backbone of the Korean economy, also increased by 13.8% to $18.35 billion. The Ministry of Economy and Finance diagnosed that in manufacturing, overseas direct investment increased due to large-scale mergers and acquisitions (M&A) driven by globalization and major facility investments in electric vehicles, semiconductors, and displays. By country, the largest investment share was the United States (23.9%), followed by the Cayman Islands (13.1%), a representative tax haven, China (9.4%), Vietnam (7.2%), and Singapore (4.9%). The United States ($14.77 billion) increased by 32.4% compared to the previous year due to large M&A and other efforts to expand global sales networks. China ($5.8 billion) grew by 20.7% due to large companies' facility investments aimed at expanding local market entry in electric vehicles and semiconductors.

The pace of increase in overseas direct investment is accelerating. Overseas direct investment, which was at the level of $4.1 billion to $7.4 billion between 2001 and 2005, first exceeded $10 billion in 2006 with $12 billion, then rapidly increased to $23.1 billion in 2007, $31.2 billion in 2013, $44.7 billion in 2017, and $51.1 billion in 2018. After one year, it increased again by $10 billion, exceeding $60 billion last year. 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 the income earned abroad is increasing, so the increase itself is not a problem. However, the problem is 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 implemented to bring back companies that went abroad, known as 'reshoring.' It is not simply about lowering Korea’s corporate tax rate, but it is time to provide tax benefits and ease employment regulations for companies that want to return from overseas."

Joo Won, head of economic research at Hyundai Research Institute, asserted that without a revolutionary policy change by the government, the 'escape from Korea' phenomenon among companies cannot be reversed. Joo said, "Companies are going abroad because business conditions are poor, but realistically, labor costs cannot be lowered to the level of Southeast Asia. Ultimately, only tax benefits such as corporate tax remain, and unless the current government’s anti-business stance is changed, it is impossible to prevent the outflow of corporate investment funds."

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