S. Korea should enhance protection for local industries amid ‘global investment protectionism’: KIEP

While the global market dwindled and corporate assets depreciated amid the COVID-19 pandemic, the limited range and number of companies and assets with growth momentum have gained popularity from investors across borders.

In order to keep the balance between economic revitalization and protection of “strategic business assets,” policymakers should raise the threshold for aspiring foreign investors here, according to a state-affiliated think tank.

“The preliminary screening process for foreign investment has been fortified since 2018 for national security reasons,” the Korea Institute for International Economic Policy said Thursday in a report.

“Now, under the influence of COVID-19, key economies around the globe have tensed up on the possibility that their competitive businesses may be acquired by foreign capital.”

Reflecting the slowing economic momentum and escalating trade tension, global foreign direct investment has been on a decline over recent years, standing at $1.39 trillion in 2019, down 1 percent from a year earlier. Cross-border mergers and acquisitions have also dipped 40 percent on-year in 2019.

Despite the concerns on the contracting market, however, key economies have underlined the need to heighten protection to secure strategic assets and technologies.

“As in any crisis, when our industrial and corporate assets can be under stress, we need to protect our security and economic sovereignty,” Ursula von der Leyen, president of the European Commission, said recently.

Accordingly, the EU has tightened the screening rules for foreign investment in assets that are crucial to public order and infrastructure.

France will be applying enhanced regulations upon foreign investment in the bio industry until the end of this year and ban foreign investors from acquiring stakes of 10 percent or more in designated core businesses.

Italy has introduced a so-called golden power, which enables the central government to restrict or ban foreign capital according to needs.

The United States in February kicked off its Foreign Investment Risk Review Modernization Act to tighten the grip over foreign investors.

Citing these overseas examples, KIEP advised Korean authorities to pay more attention to protective actions for local industries.

“As important as it is to attract foreign capital for the sake of market revitalization, it is also crucial to establish legal measures to prevent the (excessive) outflow of core industries and technologies,” the report said.

Also, as major economies have adopted investment protectionism, Korean companies that attempt M&A deals in the overseas market should exercise further caution concerning the FDI screening rules, it added.

By Bae Hyun-jung (tellme@heraldcorp.com)