[THE VIEW]Martial Law Undermines South Korea's Investment Appeal

Political Stability as a Prerequisite for Investment Attraction
Lessons from Hong Kong's Decline
Greatest Damage to Companies and Citizens

On the night of December 3, 2024, South Korea faced a 'national emergency.' The president declared martial law under an anachronistic pretext of eradicating pro-North Korean forces and attempted to control key institutions by mobilizing military power. In response, the Speaker of the National Assembly urgently convened lawmakers to take emergency measures to revoke the martial law and maintain the functions of the legislature. Ultimately, the motion to lift martial law was passed by a vote. As a result, the president lifted the martial law and the military forces withdrew, but the damage this incident caused to the lives of individuals and the national economy is severe.

The KOSPI plummeted, and foreign capital rapidly withdrew. Global credit rating agencies began reviewing South Korea’s sovereign credit rating downward, and major countries designated South Korea as a travel caution or risk country. The decline in foreign tourists will directly hit tourism revenues.

The greatest damage is expected to be borne by companies. When political instability becomes prominent, large corporations find it difficult to expand their businesses or explore new ventures. Domestic conglomerates have already reduced 40,000 jobs due to worsening financial conditions, and the hiring market remains frozen. This will have a ripple effect on small and medium-sized enterprises (SMEs) and self-employed individuals. When large corporations struggle, not only do partner SMEs experience sales declines, but self-employed people also face survival crises due to reduced consumption.

South Korea is also at a disadvantage in the competition to attract overseas companies and investment funds. Political stability is the most important prerequisite for economic growth and investment attraction. Especially technology and IT companies base their business strategies on long-term and consistent government policies, considering political risks as a key factor in investment decisions. The recent martial law and impeachment incidents have become a signal that significantly diminishes South Korea’s investment appeal.

The United States actively attracts global tech companies through deregulation, Ireland draws multinational headquarters with its low tax rates, and Singapore has established itself as Asia’s leading business hub with a stable political environment and full government support. In contrast, South Korea is losing appeal to companies by solidifying an unstable national image due to repeated impeachments and the recent martial law incident.

The case of Hong Kong offers an important lesson for South Korea. Due to China’s political control, the exodus of global companies from Hong Kong accelerated, and Singapore emerged as an alternative. Major global companies such as Microsoft, Alphabet (Google), and TikTok have already established their Asia headquarters in Singapore. While Singapore hosts 4,000 multinational companies’ Asia headquarters, Hong Kong has only about 1,300, falling behind in the competition to attract companies. South Korea is also assessed to be not free from such risks.

Ultimately, political crises are a direct cause of shaking the economic foundation. South Korea’s most important current task is to break the vicious cycle that undermines the country’s long-term competitiveness and to create a future that citizens, companies, and the international community can trust. It is essential to build trust-based policies and transparent governance based on bipartisan cooperation. Resolving political conflicts and instability and providing a long-term predictable policy environment are key. Through this, stability and a vision for growth must be presented simultaneously to investors and companies. I hope this political crisis can be turned into an opportunity to once again establish South Korea as a central country in Asia.

Kyung Na Kyung, Professor, Department of Computer Science, National University of Singapore

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