The Bank of Korea: "Japan's Overseas Direct Investment in ASEAN and Non-Manufacturing Sectors Surges"

Bank of Korea 'Overseas Economic Focus'

[Asia Economy Reporter Eunbyeol Kim] It has been revealed that Japan is rapidly increasing its overseas direct investment to create new growth engines for companies amid a low-growth and low-birthrate environment. In the past, Japan increased overseas securities investments to generate profits and maintained a current account surplus even during recessions through income from these investments. Now, however, it is expanding not only securities investments but also direct investments.

According to the 'Overseas Economic Focus' published by the Bank of Korea on the 2nd, the proportion of direct investment in Japan's overseas assets has significantly expanded since 2010, rising from 19.6% in 2010 to 49.6% last year. As a result, Japan's net overseas assets have more than tripled since they were first recorded in 1996 at 365 trillion yen (approximately 4,164 trillion won), maintaining the world's largest level.

Japan's overseas direct investment is characterized by rapid growth in the ASEAN (Association of Southeast Asian Nations) region and in non-manufacturing sectors such as finance and insurance.

According to the Bank of Korea, Japan's direct investment in Asia, which was centered on China since the 1990s, has gradually expanded to other Asian regions such as ASEAN in the 2010s. As investment in ASEAN (the five ASEAN countries plus Singapore) rapidly expanded, the share of investment in the Asian region (based on balance) increased from 42.5% in 2010 to 50.7% last year. The proportion of direct investment in China has continued to decline since 2010 (31.3%), recording 25.2% as of 2019.

Investment in the ASEAN region is centered on Thailand, Singapore, and Indonesia, with active investments in finance and insurance, automobiles (transport machinery), and wholesale and retail sectors. Looking at the major investment sectors in the ASEAN region, the finance and insurance industry accounts for the highest investment proportion at 19.1%, followed by automobiles and wholesale and retail at 13.5% and 9.0%, respectively.

The Bank of Korea stated, "The increase in Japanese companies' investment in the ASEAN region is mainly due to growth potential as a new market and improved investment conditions," adding, "It also reflects recent concerns about China risk."

Regarding the increase in overseas direct investment in non-manufacturing sectors, the Bank of Korea explained, "Competition in the domestic market is fiercer than in manufacturing, and concerns about market contraction due to future population decline are growing, leading companies to actively enter overseas markets to secure new growth engines. In particular, for banking and insurance sectors, overseas market entry is inevitable due to intensified domestic competition and concerns about population decline."

Based on government policy support, independent overseas market entry by small and medium-sized enterprises (SMEs) has also expanded. Initially, SMEs mainly entered overseas markets alongside large corporations, but as Japan's domestic market stagnated, SMEs have been investing overseas to find new demand sources. Since 2010, the Japanese government has actively supported companies' overseas expansion to strengthen the competitiveness of SMEs.

The Bank of Korea's report stated, "Since South Korea is also experiencing a long-term current account surplus along with low growth and low birthrate, it seems necessary to support companies seeking overseas expansion to facilitate their entry into the respective regions," adding, "With the spread of the novel coronavirus disease (COVID-19), establishing a stable supply chain has become more important, so it is also necessary to prepare support measures for reshoring and near-shoring for companies that have already entered overseas markets."

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