The volume of South Korean companies’ investment in China reached the lowest in three years. After controversy over China’s retaliation against South Korea for the deployment of the THAAD system, South Korean companies are lessening their investment in China.
According to the Ministry of Strategy and Finance on August 11, the amount of foreign direct investment remitted in the second quarter of this year shrank 3.2 percent from the second quarter of last year (US$8.74 billion) to US$8.47 billion. Foreign direct investment remittances to China amounted to US$470 million, down 44.7 percent from the second quarter of last year (US$850 million), recording the lowest level in three years since the third quarter of 2014 (US$445 million).
Investment in China which jumped from US$630 million to US$1.13 billion last year, declined to US$470 million this year. This investment trend is a contrast to South Korean investment in other countries. By country, South Korea’s investment in the United States in the second quarter of this year was US$2.72 billion, up 21.6 percent from the previous year. Investment in the Cayman Islands and Vietnam decreased by 30.5% and 22.6%, respectively, from last year, but not as significantly as investment in China.
The decrease in South Korea’s investment in China is due to a decrease in manufacturing investment. Manufacturing investment in China fell 50 percent from US$480 million in the second quarter of last year to US$240 million in the second quarter of this year. "The South Korean manufacturing industry’s investment accounts for 70 to 80% of South Korea’s total investment in China," said an official of the International Economic Department of the South Korean Ministry of Strategy and Finance. "Lately, investment in building factories or expanding existing factories has been going downhill."
In actuality, South Korean companies are avoiding investing in China after the controversy over the THAAD System. This is because serious damage was done to South Korean companies that already entered China. Of 112 Lotte Mart stores in China, 87 stores were shut down. Damage to Lotte Mart was estimated at 500 billion won (US$450 million) due to Chinese consumers’ boycotts.