Outpost Effect
Foreign direct investment (FDI) in Korea hit an all time high in the first half of this year. This is because there has been a sharp increase in the number of European investors who want to use Korea as a bridgehead to China.
According to the Ministry of Industry, Trade and Resources on July 4, foreign direct investment in Korea added up to US$10.52 billion, a year on year increase of 18.6 percent in terms of reported amounts. Exceeding US$10 billion in FDI in the first half is the second one since US$10.33 billion in the first half of 2014.
Investments by nation vividly show the effects of FTAs. In the case of the EU, its FDI arrived at US$4.2 billion in the first half, up 221.2% from a year before. China’s FDI soared 79.5% to US$700 million. The US’s FDI dropped to US$1.8 billion, down 13.7% from a year before. But by quarters, it grew to US$1.2 billion in the second quarter from US$500 million in the second half.
In particular, investment targeting the invasion into China’s domestic market of 1.3 billion people is gaining speed regardless of business and investment types. In the material sector, US$1 billion investment was made in the construction of a new carbon fiber composite material plant in order to supply the material to Korea and export it to China. In the secondary cell sector, US$150 million was invested in the expansion of separator plants in order to cope with demand for new energy industries in China. Foreign funds of US$175 million were invested in equities with a view to coping with the mobile and web game sectors rapidly growing in China.
The government evaluated that foreign direct investment was changing its direction from quantitative growth to qualitative one. It explained that investment which had centered on real estate such as local development projects evenly spread to the manufacturing and service industries. Investment in the manufacturing sector in the first second half rose 159.6% to US$2.85 billion. Korea’s major industries such as electricity, electronics, transport machinery and chemicals accounted for 74.7% of the investment. Investment in the service industry totaled US$7.24 billion, an increase of 13.7% from a year earlier.
By types, M&A-type investment which took over already established firms reached US$3.3 billion, up 46.1% from a year earlier. Green field-type investment that buys land and directly builds plants totaled US$ 7.22 billion, a year on year increase of 9.2%.