Following Regulations, Now Labor Risks... Companies Turning Their Eyes Overseas
Domestic Investment Rate Likely to Decline After 1 Year
Overseas Investment Hits Record High
[Asia Economy Reporter Jang Sehee] Polarization in investment among domestic companies is becoming pronounced. While overseas investment by domestic investors reached an all-time high from the beginning of this year through October, domestic investment up to the third quarter of this year fell below last year's level. This is interpreted as a result of increased management risks such as the enforcement of the Serious Accidents Punishment Act and strong labor unions, as well as lower tax incentives for investment compared to other countries. There are concerns that the virtuous economic cycle of employment expansion, increased production, and reinvestment through investment could be broken.
According to the Bank of Korea on the 8th, cumulative overseas investment by domestic investors from January to October this year reached $42.47 billion, marking an all-time high. This is a 76% increase compared to the same period last year ($24.13 billion). Overseas investment in October alone was $7.72 billion, the highest on a monthly basis as well.
A Bank of Korea official explained, "Looking at the trend, overseas investment by domestic companies is increasing," adding, "Much of it is captured through stocks and loans."
On the other hand, domestic investment shows signs of decline within a year. According to the Bank of Korea, the gross domestic investment rate up to the third quarter this year was 31.4%, below last year's annual investment rate of 31.7%. The total investment rate in the fourth quarter must exceed 32.5% to surpass last year's level.
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Experts analyze that various regulations such as the Serious Accidents Punishment Act and low incentives make companies hesitant to invest domestically. Samsung Electronics decided to establish its second foundry plant in the U.S. on the premise of receiving tax benefits in the 90% range. In Korea, even for national strategic technologies, tax benefits are limited to 6% for large companies and 16% for small companies. Another factor discouraging domestic investment is the possibility that policy directions could completely change depending on the outcome of the presidential election in March next year.
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