South Korean companies increased their overseas investment by almost half last year, spending $27.6bn abroad as they sought to set up new plants and develop new markets, the finance ministry said on Tuesday.
The outbound surge contrasts sharply with the international appetite for putting resources into Korea, where foreign direct investment has fallen sharply in recent years, barely clearing $10bn last year. Although the government has been encouraging Korean companies to invest abroad, partly as a way to stem the appreciation of the Korean won, the sharp rise could add to concerns that companies such as Samsung and Hyundai are creating more jobs abroad than at home.
The finance ministry said that China accounted for the biggest part of the 49 per cent increase in overseas investment in 2007, with Korean companies spending $6.49bn there last year, up 43.8 per cent from the previous year. The US was the second most popular investment destination, attracting $4.35bn, while Vietnam was third. “Overseas investment has been increasing rapidly over the past few years as a result of eased regulations, mounting efforts to develop overseas resources and businesses’ globalisation strategies,” the finance ministry report said. Large companies such as Samsung Electronics, Hyundai Motor and Daewoo Shipbuilding have been establishing factories in neighbouring China to take advantage of cheaper labour costs. LG, the electronics and chemicals conglomerate, has such a huge presence in Nanjing that Chinese authorities have renamed the main street “LG Road”. But an increasing number of smaller companies are finding it difficult to operate in China and are considering moving their production back to Korea or to a cheaper place. “The business environment in China has deteriorated a lot in the last year, and it is true that many Korean firms are struggling,” said Kim Oh-ryong, from the China team of the Ministry of Commerce, Industry and Energy.
“We understand they are considering various options, of which returning home is one. But also they are thinking of moving their companies to Vietnam or other east Asian countries,” he said. The Bank of Korea on Tuesday said sounded downbeat about the prospects for Korean exporters, saying that the slowing global economy would take its toll. “The growth outlook for key global economies, including the US, Europe and China, has been revised down recently, and I believe that will affect our exports in the future,” said Lee Seong-tae, the central bank governor, after deciding on Tuesday to leave interest rates on hold at 5 per cent.
However, Mr Lee’s warning about “downward risks” led analysts to speculate that a rate cut is looming, perhaps as soon as next month. The BoK said that inflation was at the top of the bank’s 2.5-3.5 per cent target range and that the domestic economy would probably weaken, along with stock prices.
Financial Times
