"South Korea's 'Greenfield FDI' Drops 33% After US-China Conflict"

KCCI Analysis... "US, China, Japan, and EU Are Increasing"

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] The scale of foreign direct investment (FDI) in South Korea has decreased by about 33% following the US-China hegemonic conflict.

According to the report "Recent Global FDI Characteristics and Implications" released by the Korea Chamber of Commerce and Industry on the 17th, the survey on 'Greenfield FDI,' where foreign capital purchases land in the host country to build factories, showed that South Korea's FDI decreased by 32.6% compared to before the US-China conflict. The survey calculated the average for three years before and after March 2018, when the US-China trade war ignited.

During this period, emerging Asian countries such as South Korea (-32.6%), India (-28.7%), and ASEAN (-12.3%) experienced significant declines. This was not only below the global average of 5.6% but also contrasted with advanced countries like the European Union (EU) at 47% and Japan (12.1%), which benefited, and even the US (5.7%) and China (13.5%) saw increases. Professor Lee Munhyung of Soongsil University's Department of Global Commerce analyzed, "The EU is promoting supply chain restructuring and industrial competitiveness enhancement through measures such as the Carbon Border Adjustment Mechanism (CBAM). As seen in recent investment cases by Intel and SK Group, major global companies tend to prefer investing in the EU or advanced countries, which are relatively less affected by the US-China conflict."

The reinvestment rate of profits earned by foreign investors through FDI was also notably low in South Korea. An analysis of the reinvestment rate of FDI profits over eight years from 2013 to 2020 showed South Korea at 24.7%, which is 10.3 percentage points lower than the OECD average of 35%. Countries like the US (51.3%) and Canada (38.1%) exceeded the OECD average, and Chile (32.5%) was also higher than South Korea. Narrowing down to the three years before and after the US-China conflict, South Korea's reinvestment rate dropped from 44.8% to 32.1%, a decline of over 10 percentage points, whereas the OECD average rose from 36.5% to 40.3%, an increase of 3.8 percentage points. During the same period, the US increased by 4.7 percentage points and Germany by 4.4 percentage points.

The proportion of 'mega M&A (mergers and acquisitions)' exceeding $5 billion (approximately 6 trillion KRW) per investment has increased globally. The global share of mega M&A expanded from 29.9% in 2011 to 39.7% last year. The number of cases rose from 69 to 197, about 2.8 times more. While the US (4.2 percentage points), China (28.4 percentage points), and Germany (29.1 percentage points) saw increases, South Korea remained stagnant. Since 2016, there has been only one case.

Lee Sungwoo, head of the International Trade Division at the Korea Chamber of Commerce and Industry, emphasized, "As the global FDI structure changes due to the US-China conflict and prolonged COVID-19, competition to restructure supply chains for advanced materials and components will intensify. We must actively foster new industries based on the Green and Digital New Deal policies and boldly remove various overseas funding regulations in South Korea to promote mega M&A."

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