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- The Korea Herald
- Jan. 26, 2005
- By Kim So-young


Figure totaled $6.25 billion in 2004

Korea's investment in China has more than doubled over the past two years, driven by local companies' rush to take advantage of cheap labor and huge consumer base in the world's fastest growing economy.

Korean direct investment in China amounted to $6.25 billion in 2004, up from $2.72 billion two years earlier, the Korea International Trade Association said yesterday.

The amount accounted for 10.3 percent of all foreign direct investment in the world's most populous nation, compared with 5.2 percent in 2002, underlining the growing economic exchanges between the neighbors.

The number of Korean companies operating in China also jumped to 4,920 in 2003 from 650 in 1992, the trade association said.

"A growing number of Korean companies, especially manufacturers, are heading for China to escape rising labor costs and sluggish consumer spending at home," said Park Seung-rok, senior researcher at the Korea Economic Research Institute. "As Korean businesses are also eager to tap into the neighboring country's enormous consumer base, the trend will continue over the next few years."

On a cumulative basis, Korean investment in China stood at $19.69 billion at the end of 2003, with 27,128 companies investing in the country.

The jump in Korean investment across the Yellow Sea contrasted with recent declines in investment by the United States, Taiwan and Singapore, the agency said.

The United States saw its investment in China drop to $3.95 billion in 2004 from $4.19 billion in 2003, with Taiwanese investment falling to $3.12 billion from $3.37 billion. Singaporean investment edged down to $2.01 billion last year from $2.05 billion a year earlier.

"While the United States has other investment destinations in South America, and Taiwan and Singapore have heavily invested in China for a long time, Korea has only begun to enter the Chinese market in recent years," said Chung Sang-eun, a researcher at Samsung Economic Research Institute.

"Moreover, Korea has few other options than to invest in China, for geographical and other factors. Thus Korea will continue to command an increasingly larger portion of foreign direct investment into China," Chung said.

Chung also attributed the trend to growing bilateral trade between the two countries.

China has overtaken the United States as Korea's largest trade partner, and Korea's trade surplus with China widened to $19.5 billion in 2004 - the highest since the countries established diplomatic relations in 1992.

"Fast expanding bilateral trade has also contributed to rising Korean investment in China. And this will again lead to greater trade between the two countries," Chung said.

Economists cautioned that Korea's growing dependence on the Chinese market could make it vulnerable to possible attempts by the Chinese government to further cool its overheated economy.

China's policy to rein in its rapid economic growth last year, dubbed the "China Shock" abroad, took its toll on Korea's economy, pushing down share prices of local companies and hampering exporters.

(soyoung@heraldm.com)