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(EDITORIAL from Korea Herald on Jan. 10)

All News 07:06 January 10, 2020

Declining investment
Moon government's anti-corporate policy makes Korea a difficult place to invest

In his New Year's address earlier this week, President Moon Jae-in pledged to strengthen efforts to increase investment in a bid to help revitalize the slumping economy.

For 2020, the government plans to push for large-scale investment projects worth 100 trillion won ($86.1 billion) in both the public and private sectors. As part of the investment drive, private companies will be encouraged to invest 25 trillion won.

Instead of setting rosy numerical targets, the Moon administration should work out a broad range of concrete measures to reverse a continuous decline in investment.

The country's facility investment decreased on-year for six consecutive quarters since the April-June period of 2018. Industrial data to be released by Statistics Korea in late January are expected to show that the downward streak of facility investment has extended to the seventh consecutive quarter in the last three months of 2019. It would mark the longest decline in facility investment since the government statistics office began compiling related data in 1995.

While reducing their investment here, Korean companies have expanded investment abroad.

According to recent data from the Ministry of Economy and Finance, direct overseas investment by local firms jumped 21.6 percent from a year earlier to $44.45 billion in the first nine months of 2019. The figure is estimated to have exceeded $50 billion by the end of the year, recording the highest since 1981 when related data began being tallied.

South Korea remains exceptional from the rising trend of corporate reshoring in most advanced economies, including the US and Germany.

A set of anti-corporate policies implemented by the Moon administration since it took office in 2017 added to Korean firms' incentives to increase overseas investment and cut domestic investment. Among them are steep minimum wage hikes, a rigid application of the shorter workweek for large companies and higher corporate tax rates.

Moon and his economic aides have not followed through with their repeated pledges to lift regulatory restrictions. Rather, they have been in step with ruling party lawmakers in putting more restraints on corporate activity by prodding the state pension operator to intervene in the management of private firms and introducing tougher safety and environmental regulations.

The worsening business conditions have also led to a fall in foreign direct investment in the country.

New FDI pledged to Korea decreased 13.3 percent on-year to $23.3 billion in 2019, recording the first contraction in six years, according to data released Monday by the Ministry of Trade, Industry and Energy.

Ministry officials emphasized that the amount of FDI commitments in 2019 was the second highest on record and marked the fifth consecutive year the country had received more than $20 billion in annual FDI pledges.

They should have focused on identifying reasons for the decline in foreign direct investment.

Trying to gloss over the declining trend with selected figures would hamper efforts to put together effective measures to make the country more attractive to foreign investors.

The Moon administration should depart from its anti-corporate stance and carry out regulatory and labor reforms to encourage both local and foreign companies to increase investment in the country.

In his address, Moon vowed to drastically lift regulations that hinder the development of new technologies and new industries. While making the pledge, Moon unveiled a plan to push for the revision of laws to foster a "fair economy" and enhance the "sound management" of local conglomerates. Such revised laws would introduce a horde of new regulatory restrictions on private companies.

Moon made no mention of the need to make the labor market more flexible and rein in excessive demands from unionized workers.

Private firms cannot be expected to increase investment when they are compelled to endure high costs, complex regulations and low labor productivity.

The decline in investment will deepen economic sluggishness.

The government forecasts that the country's economy will expand 2.4 percent this year following an estimated 2 percent growth last year. But the growth target, which is below Korea's potential growth rate estimated at 2.5-2.6 percent, is likely to be out of reach as ill-conceived policies continue to dampen corporate investment.

Moon, whose five-year term passed the halfway point in November, said that 2020 should be a year when the country would "reap tangible results from the policies my administration has carried out so far."

Without changes in policy, however, the country is more likely to see a further shrinkage of investment down the road, as it lags behind other major economies in competing to forge more business-friendly conditions.

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