Companies Hesitant to Invest... One in Two Has "No or Undecided Investment Plans for Next Year"

Hankyung Research: 49.5% of Top 500 Domestic Companies Have No or Undecided Investment Plans for Next Year
Investment Environment Perception Scores 65.7 out of 100... Citing Employment and Labor Regulation Issues

(Source: Korea Economic Research Institute)

[Asia Economy Reporter Lee Hye-young] A survey revealed that nearly half of the major domestic companies have not yet established their investment plans for next year. Companies cited employment and labor-related regulations as the biggest factors hindering investment decisions.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, commissioned the polling agency Mono Research to survey the top 500 companies by sales on their '2022 Investment Plans,' and announced these results on the 12th.

In this survey, 49.5% of the responding companies (101 firms) answered that they either 'have no investment plans for next year' (8.9%) or 'have not yet established investment plans for next year' (40.6%).

Among the companies that have set investment plans for next year, which accounted for 50.5%, more than half (62.7%) responded that they would 'maintain investment at this year's level.' Companies planning to 'increase investment next year compared to this year' accounted for 31.4%, while those planning to 'reduce investment' were 5.9%.

KERI explained, "Up to the third quarter of this year, 63.8% of the top 500 companies by sales reduced their investments compared to the same period last year," adding, "There are still numerous risk factors limiting economic recovery in 2022, such as the spread of the Omicron variant, raising concerns that companies may continue to hesitate in making investment decisions."

Specifically, companies that said they would not increase investment next year compared to this year cited the main reasons as ▲uncertain economic outlook for 2022 (31.8%) and ▲completion of major investment projects (31.8%). Other reasons included deterioration of trade environment due to global supply chain restructuring (19.7%), lack of investment capacity due to worsening management (12.1%), excessive regulations (7.6%), and lack of investment incentives (1.5%).

Companies planning to increase investment next year responded that their reasons were ▲securing competitiveness within the industry (50.0%), ▲entering new growth businesses (25.0%), ▲improving aging facilities (12.4%), ▲expectations of economic improvement in 2022 (6.3%), and ▲responding to increased product demand (6.3%).

The domestic investment environment as perceived by companies scored only 65.7 out of 100 points. Companies pointed to 'employment and labor regulations' (35.3%) as the primary factor suppressing domestic investment.

Other factors identified as hindering the investment environment included ▲local government permit and approval review regulations (29.4%), ▲environmental regulations (17.6%), ▲entry regulations for new businesses (11.8%), and ▲land regulations related to new or expanded factory construction (5.9%).

More than half (58.4%) of the top 500 companies forecast that the economic environment in 2022 will remain at this year's level. Those expecting an improvement in the economic environment next year accounted for 24.8%, while 16.8% anticipated deterioration.

Regarding risks that could negatively impact next year's investment, 52.9% of the responding companies pointed to 'increased production cost burden due to rising raw material prices.' Other major investment risks included ▲production disruptions due to global supply chain damage (17.6%), ▲concerns over financial instability in emerging markets due to U.S. interest rate hikes (17.6%), ▲domestic financial instability such as household debt (17.6%), and ▲prolonged U.S.-China conflicts and slowing growth rate in China (11.8%).

On the other hand, factors expected to positively influence next year's investment included global consumption recovery following the transition to With-Corona (44.0%), competitive advantages in new growth sectors such as semiconductors and secondary batteries (32.0%), export growth due to recovery in global trade volume (20.0%), and large-scale infrastructure and eco-friendly investments by advanced countries such as the U.S. and Europe (8.0%).

Voices also emerged emphasizing the need for policy support and deregulation to stimulate corporate investment. Regarding the most urgent policies to be pursued, the majority (40.6%) responded that expanding financial support such as funding is most urgent.

Following this were expanded tax support (33.7%), deregulation related to investment (28.7%), diplomatic efforts to resolve external uncertainties (17.8%), easing anti-business sentiment (9.9%), and expansionary macroeconomic policies (5.9%).

Choo Kwang-ho, Director of Economic Policy at KERI, pointed out, "In 2022, uncertainties such as the spread of the Omicron variant, prolonged rise in raw material prices, and global supply chain disruptions remain, making companies cautious about expanding investments hastily." He emphasized, "There is a need to strengthen government policy support for investment activation, including deregulation and tax incentives."

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