Korean Economy News
Korean companies more active in expanding facilities abroad than home: FKI report

[Graphics by Song Ji-yoon]

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[Graphics by Song Ji-yoon]

South Korean companies have been more active in expanding facilities abroad than at home over the last 10 years, compared with their peers in China and Japan.

According to a study by the Federation of Korean Industries (FKI) based on statistics from Korea Development Bank, China’s National Bureau of Statistics, and Japan’s Ministry of Finance, capital investment at home by Korean enterprises increased by an annual average of 2.5 percent from 2011 to 2020, compared with gains of 4.3 percent in China and 3.9 percent in Japan.

FKI attributed the slow growth in facility spending by Korean companies at home to imbalanced industrial structure where investments are overly concentrated in the semiconductor sector. Chip share in facility investment by manufacturers jumped to 45.3 percent last year from 23.4 percent in 2011.

The trade tensions between U.S. and China and delayed restructuring in manufacturing sector have also played a part.

The contribution of corporate investment to the country’s economic growth declined 0.8 percentage points in 2018 and 1.4 percentage points in 2019, registering negative growth for two consecutive years.

Unlike Korea, China has been steadily increasing investments in new growth areas like healthcare and e-commerce. Private investments in innovative industries have grown significantly in Japan also thanks to corporate tax cuts.

In contrast, overseas direct investment by Korean companies rose by 7.1 percent on average over the last 10 years, exceeding 6.6 percent by Chinese companies and 5.2 percent by Japanese companies.

Overseas direct investment by China has slowed since 2017 as its government restricted reckless overseas M&As and capital outflows.

“It is difficult for Korean companies to increase investments at home due to heavy regulations and high labor costs. The government must do more to lift regulations to stimulate investment at home,” said an official at FKI.

By Lee Soo-min

[? Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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