Korea becomes the world`s largest investor in China

Korea was the world`s largest investor in China in the first quarter of this year. Some attribute this to Korea companies` increasing China investment ahead of the effectuation of the Korea-China free trade deal. But many others also attribute this to the massive investments by Samsung Electronics and Hyundai Motor to build plants in China, and Japanese companies` business reorganizations in China.

○ Korea becomes big player in China

According to the Beijing office of the Korea International Trade Association, Korea`s investments in China stood at 1.62 billion U.S. dollars in the first three months of this year, the largest excluding Hong Kong (25.94 billion dollars). Korea beat Japan (1.06 billion dollars), Singapore (1.23 billion dollars) and Taiwan (1.29 billion dollars), all three countries that had previously topped Korea in China investment. Director Choi Yong-min of the Beijing office said, "Friendly collaboration atmosphere was created ahead of the effectuation of the Korea-China free trade agreement, while expectations for the entry into the Chinese market also rose." To further expand into China`s domestic demand market, Korean companies are trying to secure marketing footholds there while increasing investments in Chinese suppliers.

In particular, the massive plant constructions of Samsung Electronics and Hyundai Motor contributed greatly. Samsung invested 7 billion dollars, the most as a foreign company investing in China, in Xi`an, Shaanxi province to build a semiconductor plant there, which was completed in May last year. A Samsung Electronics official said, "The construction of the plant was completed last year but the 7 billion dollar investment is ongoing." Hyundai Motor also plans to complete a plant in Changzhou, Jiangsu Province by the end of 2016 where 200,000 cars will be produced annually.

Korea`s volume of exports and imports are also expected to soon top Japan. In 2013, Japan surpassed Korea in monthly average trade volume by 3.2 billion dollars, but the gap narrowed to 1.79 billion dollars last year. In the first four months of this year, Japan`s total trade was only 680 million dollars higher than that of Korea. Japan`s exports and imports with China fell by 11.2 percent while Korea`s declined just by 4.8 percent.

○ Changes in China`s industrial structure

Yet many experts say it`s an exaggeration to say Korean companies massively increased investments in China due to high anticipation for the free trade deal. Not just Japan but also the U.S., Singapore and Taiwan are reducing China investments mainly due to the changes taking place in China`s industrial structure.

Panasonic TV Beijing, the first foreign company established in China, closed its plasma display panel plant there in 2013 and shut down its TV plant in January this year. The major reason was rising deficit due to drastic increase in labor costs and rapid growth of China brands. Chinese media say Panasonic will soon transfer its washing machine and microwave oven plants to Japan.

sunggyu@donga.com