As the Association of Southeast Asian Nations (ASEAN), which celebrates the 50th anniversary of its founding, has become South Korea's second largest trading partner in 10 years after signing the Korea-Asean FTA, domestic companies are aggressively making a “post China” investment.
However, market watchers point out that companies should lead to a careful approach from the perspective of medium to long term investment since some ASEAN countries still have high regulatory barriers to foreign capital and they are potential growth markets.
According to government and business industry sources on August 7, South Korea's exports to the ASEAN market stood at US$118.8 billion (134 trillion won) as of last year with investments of US$.35 billion (4 trillion won) and construction projects of US$8.8 billion (10 trillion won). Accordingly, the ASEAN is now South Korea’s second largest trading partner, followed by China.
South Korea is making more investment in the ASEAN due to its world’s seventh largest potential growth with the population of 630 million as of 2015. In fact, the ASEAN has shown an annual average economic growth rate of 5 percent since 2007 and aims to grow to the world’s fourth largest economy by 2030.
Accordingly, domestic companies are making more investment in the ASEAN market. This is also largely due to the demand for an alternative market of China which has taken retaliatory measures against South Korea over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system.
In particular, Lotte Group, which is the biggest loser of the THAAD retaliation, is making the most aggressive investment in the ASEAN countries. Lotte Chairman Shin Dong-bin visited Vietnam at the end of last year and looked around Lotte Department Store, Lotte Hotel and Lotte Mart in Hanoi, reviewing additional investment businesses. Lotte is planning to invest 330 billion won (US$292.94 million) to establish a complex shopping mall with a total space area of 73,000 square meters in a new city in Tay Ho District, Hanoi, by 2020. The group will also build an eco smart city consisting of a department store, shopping mall, theater, hotel and office building in Thu Thiem District, Ho Chi Minh City, by 2021 with the investment of 2 trillion won (US$1.77 billion). Lotte Chemical has also acquired local petrochemical firm Titan, which has its production plants in Malaysia and Indonesia, actively targeting the Southeast Asian market by seeking to list the company on the Malaysian stock market.
CJ Cheil Jedang will invest 70 billion won (US$62.14 million) to set up an integrated food production base with an annual production capacity of 60,000 tons in Hiep Phuoc Industrial Park, Ho Chi Minh, by July next year.
Samsung Electronics and LG Electronics, the nation’s two largest electronics giants, has also secured a large-scale production base in Haiphong, Vietnam, the main market of the ASEAN. As the two companies established their large production bases in Vietnam, its related affiliates, including Samsung Display and LG Display, are also building their local production plants.
LG Chem has decided to set up a polaroid production factory in the industrial zone in Haiphong, Vietnam, and received approval of the establishment from the Vietnamese government at the end of last month. LG Chem’s new plant will post process polaroid which is to be supplied to LG Display’s television OLED panel plant completed in April as the LG Display starts mass production in earnest in the second half of this year.
The industry pays attention to the fact that the vertical integration of display production, which connects LG Electronics, LG Display and LG Chem, has been also completed in Vietnam, following China, as LG Chem is building a production factory in Vietnam. In fact, LG Display announced to make a 1 trillion won (US$888.26 million) investment in Vietnam as a new global production base after China last year, and LG Electronics has been also making a 1.5 trillion won (US$1.33 billion) investment in the country from 2013. Industry watchers believe that LG Chem is highly likely to expand its investment in Vietnam depending on the subsidiaries’ growth.