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Korean firms’ investment overseas reaches new high

Korean companies’ capital investment overseas reached a new high in the fourth quarter of last year, as they ramped up the "go global" push in the face of slowing domestic growth.

In contrast, investment by foreign companies in Korea dropped, which experts said is an ominous combination that could lead to job losses for Koreans.

According to the Bank of Korea’s online statistical database, local firms’ direct purchase of shares or loans of an enterprise in foreign countries, a key component of foreign direct investment, totaled $10.2 billion in three months through December 2009. It was the largest investment outflow on the quarterly basis on record.

Net capital investment - the amount newly executed minus the amount recouped - stood at $5.8 billion during the quarter.

As Korean companies became more internationalized, they established production bases and acquired stakes in local companies in target markets, experts said. Korea, meanwhile, is losing its investment appeal with high labor cost and the domestic market’s limited growth potential, they said.

"The investment outflow has been growing as more Korean companies build factories in foreign countries with a more favorable business environment, such as cheap labor," Yang Ho-suk, a BOK official, said.

Another key factor behind the investment outflow in the fourth-quarter is the overseas construction boom among Korean builders, he added. Long-term construction projects in foreign countries by Korean firms are included in outbound investment in the BOK statistics, he said.

A separate data compiled by the state-run Korea Export-Import Bank also pointed to an accelerating growth in outbound investment.

Overseas capital investment by Korean firms went from $1.36 billion won in October 2009, $2.4 billion in November to $ 5.4 billion in December.

The three-month total is smaller than the BOK figure, due to different methods used in data compilation.

While Korean firms increased investment overseas, foreign companies reduced their holding of local assets.

The BOK data showed inbound foreign direct investment shrank to $1.2 billion in the fourth quarter from $2.1 billion in the previous quarter.

The central bank is scheduled to release later this week the International Investment Position at yearend 2009, which is basically a balance sheet showing the total holdings of foreign assets owned by domestic residents and the total holdings of domestic assets owned by foreign residents. - ANN

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