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1.36 Million Jobs Leave Korea for Foreign Countries over Past Five Years
Job Loss from Overseas Investment
1.36 Million Jobs Leave Korea for Foreign Countries over Past Five Years
  • By Michael Herh
  • July 20, 2017, 10:30
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A ceremony for completion of 8,5 generation LCD panel factory construction in Guangzhou, China in 2014.
A ceremony for completion of 8,5 generation LCD panel factory construction in Guangzhou, China in 2014.

 

Major Korean corporations are beginning to build overseas production bases one after another not only to reduce costs, but also to promptly respond to overseas demand. Building overseas production bases is also effective in avoiding trade restrictions because trade barriers of protectionism are increasingly expanding worldwide. As a result, overseas investment by Korean corporations continues, setting new records. On the other hand, foreign direct investment (FDI) in Korea was only one third of Korean companies’ investment in overseas countries. "Only if we reduce the net outflow of investment, we can enjoy effects of creating hundreds of thousands of jobs," experts say.

According to the Ministry of Commerce, Industry and Energy, foreign investment into Korea last year amounted to US$10.6 billion. On the other hand, the amount invested abroad by Korean companies reached US$35.25 billion. Last year, Korea's net investment outflow reached US$24.65 billion. If we calculate the net investment outflow with the employment inducement coefficient (12.9 people: The number of directly and indirectly created jobs to produce 1 billion won), it is estimated that about 370,000 jobs vanished. Cumulative employment losses from net investment outflows in the past five years amount to about 1.36 million. "136 million jobs are twice the Moon Jae-in administration’s target for public employment (810,000 jobs)," said Lee Tae-kyu, a research fellow at the Korea Economic Research Institute. “Only if the government cuts back on Korean companies’ investment outflow abroad for the next five years, the government will be able to generate substantial employment effects.  

In particular, Korea's foreign direct investment of last year reached a record high of US$35.2 billion. The figure climbed steadily from US$23.1 billion in 2007 and has increased by more than 150% in ten years. By country, investments in the US and Vietnam swelled significantly. Korean firms’ investment in the United States last year hit US$12.9 billion, nearly double the figure of US$7.32 billion in 2011. Investments in Vietnam also more than doubled over the past five years to US$2.72 billion last year. On the other hand, investment in China slid to US$3.3 billion, about 60 percent of US$5.7 billion in 2007 which is an all-time high. This tendency is holding this year. Korean companies’ overseas investment in the first quarter of this year surpassed US$10 billion for the first time in history, rising more than 30% from the previous year.

Unlike a boom in Korean firms’ foreign investment, foreign direct investment in Korea is tapering off. Last year, the reported volume of foreign direct investment in Korea stood at a record high of US$21.3 billion, but the actual investment (arrival amount) amounted to US$10.6 billion. The figure was the lowest since 2013, accounting for only 50% of the total. The big difference between the reported amount and the arrival amount is blamed on the abortion of planned mergers and acquisitions or investment cancelation due to unexpected regulation controversies.

By country, all major countries’ investment in Korea declined. China's investment dropped to US$440 million last year, a 75 percent decrease from the previous year (US$1.77 billion). Investment by the United States and Japan also lessened 45% and 33%, respectively.

"The decrease in FDI of last year stemmed mainly from China's retaliation for the deployment of the THAAD system and US trade pressure," Lee Byung-tae, a professor of business administration at the KAIST. "The world is competing for business-friendly policies such as US President Trump, who is bent on attracting investment, and French President Macron who lowers the corporate tax,” said Yoon Chang-hyun, a professor of business administration at Seoul City University. "It is time for all members of our society to recognize an imperative that Korea will not be able to escape from low growth if we lag behind in this race."