Foreign direct investment hit by trade war between US and China
Foreign direct investment hit by trade war between US and China

Foreign direct investment hit by trade war between US and China

Former United States President Donald Trump and Chinese President Xi Jinping will be seen in the Great Hall of the People in Beijing in November 2017. (AP-Yonhap)

South Korea received about 33 percent less foreign direct “greenfield” investment in 2020 compared to the amount before the start of the US-China trade war in March 2018, a report showed Sunday.

Greenfield investments refer to a type of foreign direct investment in which a parent company establishes a new subsidiary in another country instead of buying one and builds its own business from scratch.

“When comparing three-year foreign direct investment before and after the conflict, the EU’s growth rate was 47 percent, followed by China at 13.5 percent, Japan at 12.1 percent and the United States at 5.7 percent,” a report by the Korean Chamber of Commerce and Industry showed.

“That for Korea was at minus 32.6 percent, which is well below the world average of 5.6 percent,” it added.

While South Korea has struggled with foreign direct investment, the EU has been a major benefactor of the ongoing trade dispute between the United States and China, where the 27 member states remain relatively free from economic strife.

“The EU has sought to rearrange its supply chains and improve its industrial competitiveness through such efforts as the CO2 limit adjustment mechanism,” said Lee Moon-hyung, a global trade professor at Soongsil University, in the report.

Lee pointed to recent investments by US technology giant Intel and Korean conglomerate SK in the EU region, which aim to avoid risks arising from the trade dispute between the US and China. Intel last month announced a $ 88 billion investment across Europe in 4-nanometer manufacturing technology, while Korean energy giant SK Innovation launched a new 1 trillion won ($ 819 million) battery plant in Poland last year.

EU-based companies have also recently moved their production lines from China to various countries in the EU region with 27 members. The French carmaker Renault moved its production facilities for electric cars from China back to its home country, while the German audio company Sennheiser moved its production lines in China to Romania.

Also declining were India by 28.7 per cent and ASEAN by minus 12.3 per cent. The developed economies achieved a growth of 26.2 percent on average compared to minus 4.5 percent for the developing economies.

Asia’s fourth-largest economy has also not been able to see any mega-mergers and acquisitions – the size of which peaks at $ 5 billion – since 2016, the report noted.

Worldwide, the number of mega-sized M&As has almost tripled from 69 to 197 in the last decade from 2011 to 2021. By land, Germany saw the largest increase in mega-sized agreements in the said period with an increase of 29.1 percent, with China lagging behind with an increase of 28.4 percent. The United States saw a 4.2 percent increase over the same period.

KCCI called for policies that could elevate Korea in the global market as an attractive investment target by actively attracting advanced industries and strengthening global joint research and development programs. In addition, Korea will need to make efforts to strengthen the digital trading environment, such as the protection of private information and cross-border data transfers.

It pointed to the nation’s rigid technical and labor market regulations as major obstacles that have hindered global investment and reinvestment. “The global FDI structure has changed due to the Sino-US conflict and the ongoing virus pandemic,” said KCCI International Trade Division Vice President Lee Seong-woo.

“Against this background, competition in new supply chains for high-tech materials and components will become tougher through practices such as reshoring. Based on the green and digital new agreements, we must nurture new businesses … For mega-sized M&A, various rules regarding overseas financing should be boldly scrapped.”

By Jung Min-kyung ([email protected])


Leave a Reply

Your email address will not be published.