Foreign Investment in Korea Continues to Plummet

By Brendon Carr

The Korea Times has a must-read article describing how foreign investors have had enough of Korean double-talk on foreign-investment friendliness and are withdrawing their investments from Korea.

Asia’s most widely-quoted economist Andy Xie offers the following insight why:

“Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,” Andy Xie, an analyst of the Shenzen Development Bank (SDB) in China, who is the former Morgan Stanley chief economist overseeing the Korean economy and financial markets, told The Korea Times.

“Koreans may disagree but this view is widely shared in the international community,” he added.

“Korea’s development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model,” he added. “The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money. When Korea recovered, it reverted.”

This is the Lone Star Effect in action. Lone Star bought, at the government’s urging, a failing Korean bank and rescued the bank. But nobody told Korea that Lone Star would be doing it for a profit! Profit by a foreign investor is a difficult pill to swallow.

The [Bank of Korea] said that for investment promotion, the government needs to relax more regulations.

“Reforming regulations is the most urgent task for Korea to attract more foreign investment,” [BOK senior economist Lee Won-joon] said.

“If Korea is to become a major FDI destination, it should create a more foreign-friendly business environment by removing red tape and tackling its key competitive disadvantages, such as labor market rigidity,” he added.

Well, sure. But these are the exact same prescriptions which have been bandied about for the 11 years I’ve been working here as a lawyer, and if anything, in the labor aspect things have gotten worse. Labor-market rigidity will never be addressed, not until the economy has completely melted down. It’s like the third rail of Korean politics.

And i don’t think mere deregulation will be enough to draw new foreign investments. A real social change will be necessary. I’m reversing the order in the story, but I think Andy Xie nails it:

“I don’t think Korea can change in the near future to reverse the poor FDI trend,’’ Xie said.

“Korea may be unwilling to make the changes to attract FDI,” he added. “Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.”

As a signal of which direction things are going, the government apparently plans to renegotiate its just-concluded “deal” on re-opening the Korean market to US beef. Still optimistic that Congress will approve the KORUS Free Trade Agreement?

Now, the Lone Star case was a little bit special in that it involved investment in Korea Exchange Bank, a large commercial bank occupying one of the commanding heights of the Korean economy—and a sector which is highly unionized. Korean trade unions are nests of Marxist xenophobes, which made the Lone Star KEB investment sure to attract all the worst responses this country can muster.

But the government and legal system are supposed to moderate such instincts, not exacerbate and validate them. That’s the reason why foreign investors have lost interest in Korea. Most of them do just fine. But all of them fear having a target painted on their back by a reckless government, and then finding the courts more eager to appease public feeling than uphold the rule of law. L’affaire Lone Star has done considerable damage to foreign confidence in this country, and it will take many years for people to forget.

Thanks, Roh Moo Hyun!

To be honest, though, the damage done by Roh’s 386 gang of crypto-Communists is not the only factor. As BOK economist Lee Won-joon noted, and Pres. Lee Myung-bak echoed in his earliest public statements as President-elect and President, the general attitude of the government and its employees toward doing their jobs is appalling. Government in Korea is a severe cramp on productivity, and urgent deregulation is a necessity to reverse not just the foreign investment decline, but the flight of Korean corporations to better investment destinations. There is simply too much hassle on investors of all nationalities. Fix that, and one day the foreign investors might come back.

May 07, 2008

You Know, Maybe Government Suits Should Read the Expat Blogs...

Guess what? What many foreigners have been saying for a long time would happen HAS! While the Seoul Metropolitan Government wastes time asking western foreigners whether or not they like the toilets and tries to encourage tourism in Korea by just saying the country is now "sparkling!" foreign investment in Korea has been falling faster than a crackhead's mean body weight.

Any and all foreigners who've been in the middle of Roh Moo Hyeon's anti-American, anti-foreign, kneejerk nationalism has wondered how Korea would ever become the "hub of Asia" if any foreign firm who makes money here is constantly vilified beyond reasonableness, even as actual North Korean propaganda is allowed to be taught to schoolchildren by members of the Korean Teachers' Union, and the media continues to set up foreigners as the ultimate scapegoat for everything they can't now blame Lee Myung Bak for.

We've been saying it for years now.

If you're going to make Korea a place where it sucks to live, not to mention invest and make money, do you think anyone but the craziest or most committed are going to stay? Especially with the open and welcoming arms of China right next door? The first thing that Korean slogan and campaign planners need to figure out is that Korean automatically being the hub of anything was only a truism before there was international plane travel. Because now, people can fly OVER Korea without going THROUGH it.

I hate to say "I told you so." (Well, actually, I don't.) But "I told you so." And so did any other foreigner who's been here a long time and has been constantly shaking their head as Korea continued to embarrassingly piss yet another dream of being a "hub" down the proverbial drain.

And in this particular case, there's no one to blame other than -- wait for it -- the usual suspects: a formerly anti-American government and a continually anti-foreigner news media.

Congratulations! This time, there's no one to blame but Korea itself! And with the hysterics over the KORUS FTA, wow -- for better or worse, Korea sure knows how to create a hospitable atmosphere for making agreements and then having the population go absolutely berserk over it for the most irrational of reasons.