South Korea received some 33 per cent less “greenfield” foreign direct investments (FDI) as of 2020, compared with the amount before the start of the US-China trade war in March 2018, a report showed on April 17.
Greenfield investment refers to a type of FDI in which a parent company sets up a new affiliate in a different country rather than buying one and builds its own operations from the ground up.
“When three-year greenfield FDIs before and after the conflict are compared, the European Union’s growth rate amounted to 47 per cent, followed by China with 13.5 per cent, Japan with 12.1 per cent, and the United States with 5.7 per cent,” a report compiled by the Korea Chamber of Commerce and Industry (KCCI) showed.
“That of Korea stood at minus 32.6 per cent, which is far below the world average of 5.6 per cent,” it added.
While South Korea has been struggling with FDI, the EU has been a key benefactor from the ongoing US-China trade conflict, with the 27 member states remaining relatively free from the economic dispute.
“The EU has tried to rearrange its supply chains and enhance its industrial competitiveness through such efforts as the carbon border adjustment mechanism,” Lee Moon-hyung, a global trade professor at Soongsil University, said in the report.
Lee pointed to recent investment from US tech giant Intel and Korean conglomerate SK in the EU region, which aims to avoid risks stemming from the US-China trade conflict. Intel last month announced an $88 billion investment across Europe for 4-nanometer fabrication technology, while Korean energy giant SK Innovation started the operation of a new one trillion won ($819 million) battery plant in Poland last year.
EU-based companies also recently relocated their production lines from China to various countries of the 27-member EU region. French automaker Renault moved its electric vehicle motor production facilities from China back to its homeland, while German audio company Sennheiser moved its production lines in China to Romania.
Also slumping were India with 28.7 per cent and ASEAN with minus 12.3 per cent. The developed economies chalked up a 26.2 per cent growth on average compared to minus 4.5 per cent for the developing economies.
Asia’s fourth-largest economy also failed to see any mega-sized mergers and acquisition (M&A) deals – whose size tops $5 billion – since 2016, the report noted.
Globally, the number of mega-sized M&As nearly tripled from 69 to 197 in the recent decade from 2011 to 2021. By country, Germany saw the biggest increase in mega-sized deals in the cited period with a 29.1 per cent gain, with China following behind with a 28.4 per cent rise. The US saw a 4.2 per cent gain in the same period.
The KCCI called for policies that could uplift South Korea in the global market as an attractive investment target, by actively drawing advanced industries and beefing up global joint research and development programmes. On top of that, the country will have to make efforts to bolster the digital trade environment such as the protection of private information and cross-border data transfers.
It pointed to the nation’s rigid technical and labor regulations as major hurdles that have been hindering global investment and reinvestment. “The global FDI structure has changed due to the Sino-US conflict and the lingering virus pandemic,” KCCI International Trade Division vice-president Lee Seong-woo said.
“Against this backdrop, competition in new supply chains for high-tech materials and components will become stiffer through practices such as reshoring. Based on the green and digital new deals, we must nurture new businesses … For mega-sized M&As, various regulations regarding overseas funding should be boldly scrapped.”
THE KOREA HERALD/ASIA NEWS NETWORK