South Korea's top 30 companies are reluctant to reinvest money earned and keep it in reserve due to tightening business regulations and deepening global economic uncertainly. As a result, their combined cashable assets jumped nearly 10 trillion won (US$8.93 billion) in the past year, while their investments grew only 3 trillion won (US$2.68 billion). Excluding SK Hynix Inc., which was relatively aggressive in investment, the remaining companies decreased their investments.
According to financial data from the Financial Supervisory Service (FSS) on Sept. 16, the consolidated cashable assets owned by South Korea’s 30 largest companies in terms of sales in the first half of this year amounted to 88.48 trillion won (US$79.04 billion), up 9.16 trillion won (US$8.18 billion), or 11.5 percent, from 79.33 trillion won (US$70.86 billion) at the same time a year earlier.
Cashable assets held by Samsung Electronics Co. increased 2.36 trillion won (US$2.1billion) to 31.36 trillion won (US$28.01 billion) over the same period, showing the biggest growth. Hyundai Motor Co. came after with 1.53 trillion won (US$1.37 billion), LG Display Co. with 1.31 trillion won (US$1.17 billion), S-Oil Corp. with 1.2 trillion won (US$1.07 billion) and LG Electronics Inc. with 1.06 trillion won (US$942.65 million). The total amount of money spent on investment and dividend dropped or remained steady. However, cashable assets surged as the combined net profit rose significantly thanks to better business performance.
The combined net profit made by 26 companies, excluding four firms that were split off or merged such as LG Chem Ltd., Lotte Shopping Co., Hyundai Heavy Industries Co. and Doosan Heavy Industries & Construction Co., came to 44.58 trillion won (US$39.82 billion), up 4.61 trillion won (US$4.12 billion), or 11.5 percent, from a year ago.
However, they were reluctant to make an investment. The total amount of tangible and intangible assets acquired by top 30 business groups grew only 2.88 trillion won (US$2.6 billion), or 6.2 percent, to 49.07 trillion won (US$43.83 billion) compared to the same period last year. The amount of tangible and intangible assets acquired is an indirect indicator of investment.
The increase in the total amount of tangible and intangible assets acquired was largely due to SK Hynix, which aggressively invested in its facilities. SK Hynix has been making a large-scale investment in facilities to expand supply. The amount of tangible and intangible assets acquired by SK Hynix jumped as much as 3.76 trillion won (US$3.36 billion), or 73.5 percent, to 8.87 trillion won (US$7.93 billion) in the first half of the year.
The combined amount of tangible and intangible assets acquired by 29 firms, except SK Hynix, stood at 40.19 trillion won (US$35.9 billion), down 883.5 billion won (US$789.19 million), or 2.2 percent. In short, SK Hynix was the only company that increased its investments. A half of the 30 companies decreased their investments. In particular, the amount of tangible and intangible assets acquired by Samsung Electronics, which completed 60 trillion won (US$53.6 billion) worth of large investments last year, was reduced by 2.98 trillion won (US$2.66 billion), showing the steepest decline. POSCO cut down its investments by 371.4 billion won (US$331.76 million) and Lotte Shopping 233 billion won (US$208.13 million), KT Corp. 189.2 billion won (US$169 million) and Hyundai Mobis Co. 114.1 billion won (US$101.92 million).
Market experts point out that companies are not willing to invest due to growing economic instability and strengthening business regulations. Kim Hyung-ryul, head of the research center at Kyobo Securities Co., said, “Since the economy has continued to show a sluggish performance, companies cannot invest aggressively. The government’s economic policy direction is also not business friendly. As companies need to bear the burden from investment by itself, they believe that there are more risks in making an investment, rather than opportunities.”
Even when companies make an investment, they focus more on other countries than South Korea. According to a report titled “Trend of Overseas Direct Investment in Q2 2018” from the Ministry of Economy and Finance, the combined amount of overseas direct investment in the second quarter increased 25.8 percent to US$12.96 billion (14.51 trillion won) from US$10.3 billion (11.53 trillion won) a year earlier.
It seems that conglomerates’ negative outlook on the domestic economy is reflected in the figure. The business survey index (BSI) conducted by the Bank of Korea recorded at 81 in May this year and then dropped to 80 in June and 75 in July before hitting a one-and-a-half year low at 74 last month.
However, the government is still not planning to ease regulations on businesses that lead to investment. The deregulation bills, such as the Act on Special Cases concerning Internet-only banks that is intended to relax regulations on the Separation of Banking and Commerce, Act on Regulation-free Zones and Regional Specialized Zones, Framework Act on Service Industry Development, Corporate Restructuring Promotion Act and Commercial Building Lease Protection Act, haven’t passed the National Assembly during the extraordinary session in August because of the disagreement between the ruling and opposition parties.
The government also pushes ahead with the revised Minimum Wages Enforcement Ordinance, which puts more labor cost burdens on companies, despite the opposition of the business circle. In addition, The government is expected to increase corporate taxes by 21.2 percent this year compared to the same period a year ago.