The Ministry of Trade, Industry and Energy announced on October 11 that foreign direct investment (FDI) arriving in Korea returned to growth in the first nine months of 2017, rising by 9.1 percent to $8 billion from a year ago.
Although new FDI commitments to Korea contracted 9.7 percent year-on-year to $13.6 billion, the amounts of both FDI arrivals and newly pledged FDI are the third highest on record since the government started tracking them in 1962.
The Ministry evaluates that FDI in Korea is on a long-term upward trend despite challenging circumstances including geopolitical risks, rising trade protectionism, and interest rate hikes by the U.S. Federal Reserve.
The growth in FDI arrivals in the third quarter, in particular, shows that foreign investors remained confident in the Korean economy and invested in Korea as they planned.
In order to help sustain the upward trend, the Ministry will carry out high-level investor relations activities, especially in the areas with high job creation potentials. The Ministry will also strengthen communications with international companies in Korea and overseas investors to resolve their concerns while reorganizing rules and regulations for FDI with a focus on employment.
A breakdown of foreign investments that have arrived in Korea or are newly committed show that more investments come from Japan, the U.S., and Europe.
Japanese entities invested $761 million between the first and third quarters of 2017 – up 28.9 percent from a year ago – and pledged investments worth $1.7 billion – up 90.2 percent.
Investments newly committed to the Korean service sector, in particular, soared 156.3 percent to around $760 million, with Japanese businesses increasingly partnering with Korean firms for global expansion and investing into areas relevant to the Fourth Industrial Revolution.
Investments made by U.S.-based entities grew 5.4 percent to $824 million, while new FDI commitments contracted 5.5 percent to $2.9 billion.
European entities invested $3.1 billion in Korea – up 1.4 percent compared to a year earlier. Newly pledged investments from Europe, however, declined 40.7 percent to $3.2 billion as large-scale investments into mergers and acquisitions (M&As) significantly shrank amid tighter control on capital passing through tax havens.
Chinese investments, both arriving and newly pledged, dropped as the Chinese government issued a guideline on FDI in August and controlled outbound remittance. Investments arriving from China shrank 53.7 percent to $130 million and investment commitments decreased 63.4 percent to $608 million.
Korea’s service sector received FDI worth $6 billion – up 17.8 percent from a year earlier – although new investments committed to the sector contracted 8.8 percent to $9.3 billion. Investments pledged to the logistics industry more than doubled, while a larger amount of foreign capital is expected to flow into IT service, game, and content industries as well as the startup ecosystem.
More than $2 billion of foreign capital flew into the manufacturing sector and that’s 6.1 percent down from a year earlier. New FDI committed to the sector also decreased 3.5 percent to $4.2 billion, while investments pledged to the metal, medical, and food industries significantly expanded.
Greenfield investments, which involve foreign companies building their operations in Korea from scratch and help create jobs, increased 4.9 percent to $5 billion. Newly committed greenfield investments were nearly unchanged, down 0.3 percent to $10.8 billion. This shows foreign investors’ confidence in making long-term investments despite geopolitical risks.
Investments in forms of M&As expanded 17.3 percent to $2.9 billion, while new commitments declined 33.9 percent to $2.8 billion amid booming M&A markets in developed economies.
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