China Effect
Thanks to the “China Effect,” the Foreign Direct Investment (FDI) into Korea hit a new high of US$19 billion (21.1 trillion won) last year. As China’s capital investment in new investment models, including real estate, food, and clothing grew by a whopping 147.2 percent, the country saw the highest figures.
The Ministry of Trade, Industry and Energy announced on Jan. 5 that the FDI based on declaration reached US$19 billion (21.1 trillion won), while the FDI based on actual arrival amounted to US$11.52 billion (12.8 trillion won) in 2014.
The declared FDI amount was up 30.6 percent from US$14.55 billion (16.16 trillion won) in 2013, and up 16.6 percent from the prior high of US$16.29 billion (18.1 trillion won) in 2012. In terms of the FDI that arrived actually in the country, the figure grew by 17.1 percent compared to the US$9.84 billion (10.93 trillion won) of 2013.
Chinese investment into Korea increased drastically. The FDI from China almost tripled to US$1.189 billion (1.32 trillion won) from the US$481 million (534.25 billion won) of 2013.
Kwon Pyung-oh, head of the ministry’s trade and investment policy, said, “This is because Chinese capital invested in new investment models such as resort complex projects, games and food. It’s notable that considerable investments were also flown in through Hong Kong and Singapore.”
Indeed, China decided to invest US$300 million (333.12 billion won) in a resort project in Jeju Island. Also, China and Hong Kong plan to invest US$500 million (555.35 billion won) in a mobile game business. It is notable that investments from the pan-Chinese region, including Taiwan, Hong Kong, and Singapore, also increased. Total investments from these countries surged from US$1.462 billion (1.62 trillion won) in 2013 to US$2.837 billion (3.15 trillion won) last year.
By the amount of FDI, the E.U. is the largest foreign investor in Korea. Its investment grew 35.4 percent to US$6.504 billion (7.22 trillion won) last year compared to 2013. Despite not enough ability to invest, mega M&As in parts and materials and the petrochemical areas attracted investment. However, investment from the U.S. increased only 2.4 percent to US$3.609 billion (4.01 trillion won). Japanese investment into Korea decreased 7.5 percent to US$2.488 billion (2.76 trillion won). The weak yen and its poor domestic consumption are the main reasons for this.
By industry, the FDIs to both the manufacturing and services sectors improved. Investment in the manufacturing sector increased to US$7.65 billion (8.5 trillion won) while the services sector drew US$11.19 billion (12.43 trillion won). By type, investment through M&As increased remarkably compared to green field investment, where a new plant or a business is set up. FDI through M&As jumped by nearly four times from US$2.015 billion (2.24 trillion son) in 2010 to US$7.98 billion (8.86 trillion won) last year.
Kwon said, “There are also positive sides such as the retention of employment in domestic companies facing bankruptcy, through equity participation of foreign capital and acquisition. So, don’t be so negative about it.”