It is good news for the sluggish Korean economy that foreign direct investment has continued to increase at a fast pace this year.
New FDI pledged to Korea soared by 37.9 percent from a year earlier to $14.8 billion in the first nine months of the year, the highest-ever figure for the January-September period. The amount of new FDI that arrived here during the period also reached a record high of $9.7 billion, up 50.1 percent from a year earlier, according to data released Sunday by the Ministry of Trade, Industry and Energy.
Given these encouraging figures, Korea seems set to achieve its annual FDI target of $17 billion despite the slow growth of Korean and other major economies around the world.
Officials at the ministry say a set of policy measures and positive prospects for the Korean economy have offset negative factors at home and abroad to boost foreign investment here. Close scrutiny of the figures, however, suggests further efforts are needed to ensure that FDI in the country grows continuously in a balanced way and leads to strengthened competitiveness.
The steep increase in foreign investment here has been led by a massive inflow of money from China. In the nine-month period, newly pledged FDI from China skyrocketed by 230.4 percent from a year earlier to $1.03 billion, with the combined total from all Chinese-speaking territories, including Hong Kong and Taiwan, soaring by 89.8 percent to $3.01 billion. Chinese investment in Korea’s stock market has also increased rapidly, accounting for more than 60 percent of equity purchases by foreign investors during the first half of this year.
New FDI pledges from the EU and the U.S. increased by 84.1 percent and 6.4 percent on-year to $5.93 billion and $2.86 billion, respectively, in the cited period. In contrast, those from Japan shrank by 16.6 percent to $1.64 billion, indicating that the diplomatic tension between Seoul and Tokyo has spilled over into the economic field.
Korea needs to prevent or reduce the possible negative impact of a disproportionate amount of Chinese investment by attracting more investors from other countries and channeling Chinese money into the areas that will help boost its economy.
Efforts should be strengthened to reverse the decline in Japanese investment in Korea and to host research and development centers or regional headquarters of multinational corporations. It is necessary to attract more Chinese investment in the cultural content industry, food sectors and tourism and leisure facilities.
It is notable that foreign investment to fund merger and acquisition deals almost doubled to $7.23 billion in the first nine months of this year, while the comparable amount for building factories and other workplaces increased by a far slower pace of 8.9 percent to $7.59 billion. This trend shows that care needs to be taken to prevent foreign acquisitions ― especially by Chinese companies ― of local high-tech firms from weakening Korea’s competitiveness over the long term.
It is also important to implement measures to cut regulations, particularly in the service sector, in a consistent and drastic manner to facilitate massive investment by local and foreign investors.
