Business: International
South Korea becomes major Asian investor
- By James Broole
New York Times Service
Seoul, Jan. 16: Long focused on internal development, South Korea is quietly becoming a weighty investor in Asia, with multinationals like Hyundai and Samsung proving to be tenacious matches for Japanese, American and European companies in China and elsewhere in the region.
Samsung’s 29 plants in China, like this one in Tianjin, operate alongside traditional forms of commerce.
South Korea has emerged as perhaps the largest single source of foreign investment in China, making $6.25 billion in fixed investments there last year, according to data from the Chinese ministry of commerce. And as investor attention swivels to India, South Korea’s largest steel company, Posco, has agreed to make the largest Korean investment in another country, in a $12 billion iron mine and steel mill in the Indian state of Orissa.
Though it is overshadowed by the Asian giants China and Japan, South Korea has grown to become the 11th-largest economy in the world. Reflecting the nation’s increased affluence and economic strength, Korean manufacturers are now looking abroad to achieve the powerful growth rates they only recently enjoyed at home, from exports and rising domestic demand. Much of this interest is supported by a strengthening currency, the won, which gained more than 15 per cent against the dollar in 2004.
In a sea change, the government now says that to invest abroad is to be patriotic.
"Before, investment going in was good, and anything going out was bad," said Alan Timblick, a British citizen who directs Invest Korea, a government agency that has a new role: encouraging foreign investment. "Now, the companies are outsourcing their labour-intensive work, and moving up the technology ladder at their home base."
American investors in Asia, long used to Japanese competition, increasingly find themselves up against South Korean companies.
"In some dynamic areas, Korea is competing on the same level with the US and Japan: shipbuilding industry, cellphones, automobiles," said Moon Hwy Chang, professor of international business at Seoul National University. "Korea cannot be a centre for manufacturing any more because labour costs are rising. So Korea wants to be kind of a Switzerland at the centre of northeast Asia — a centre for finance, transportation, communication."
An economic casualty of wars and occupation a half-century ago, South Korea has grown aggressively, in the 1980’s registering an average annual growth rate of 8.7 per cent.
But more recently, its economy has looked increasingly mature. In the first half of this year, South Korea recorded a 3 per cent growth pace, better than in Japan but lower than the United States. It is expected to achieve a growth rate of about 4 per cent this year.
Korean exports soared 31 per cent in 2004, but grew 7.3 per cent in the first six months of this year.
Meanwhile, workers worry about a jobless recovery, employers say auto factory wages are approaching American levels, and almost everyone complains of soaring housing and land prices.
"South Korean wages have gotten too high to support a whole range of activities," said Edward M. Graham, a Korea trade and investment specialist at the Institute for International Economics in Washington. "The firms are keeping in South Korea the areas where they have a comparative advantage — the higher-tech, more capital-intensive businesses," Mr Graham said.
Indeed, in a familiar echo of worker complaints heard in the United States and Japan, Korean labour unions now accuse companies of exporting their jobs. Union leaders at Hyundai, the country’s biggest automaker, have made the company’s foreign investment plans an issue in wage negotiations this fall.
South Korea’s outward investment thrust is most evident in steel, cars, cellphones and energy. And the main target is China, where more than 30,000 South Korean companies now do business.
This push into China last year did not attract much attention, perhaps because, according to the Chinese Commerce Ministry, the top three sources of foreign investment were Hong Kong, the British Virgin Islands and South Korea. But Hong Kong is part of China, and investments from the Virgin Islands are often conduits for money from a number of countries and sources, leaving South Korea as most likely the largest single source of foreign investment in China last year.
In 2004, Korean investment in China, mostly in steel and cars, overtook Japan’s, which has an economy six times that of South Korea’s.