Regulations Slow Corporate Investment

While the government is encouraging corporate investments, businesses complain that various regulations act as obstacles to their making new investments. Companies’ investment decisions are often discouraged due to the government’s regulations limiting facility construction in areas of high population density and of natural value.

Increasing numbers of companies argue that they cannot even dream of making investments due to outdated and unconvincing regulations. Of course, there must be some exaggerations to this claim, but experts say it is not entirely unfounded.

Hynix Semiconductor has a factory in Icheon, Gyeonggi Province, and plans to invest six trillion won to build a NAND flash memory manufacturing facility on a 3,000-pyeong land plot around the existing factory. However, due to regulations that designate the area as a nature conservation zone, the company is allowed to expand only by 1,000 pyeong.

The waste water produced in this factory is purified within the facility before being used for agriculture. Nevertheless, it is virtually impossible to make investments in this area for environmental protection reasons.

The problem is not that there are valuable natural resources, but that Yeoju and Icheon have been designated as nature conservation zones in which companies cannot get permission to build facilities.

New factories are expected to create 8,000 to 9,000 new jobs in the area, but for now, any large scale investment seems impossible.

One cable manufacturer in Anyang, Gyeonggi Province looked for land around Seoul to add new factories. It could not find additional space at its current location because the area had been developed for residential uses. Unfortunately, the company had to give up its search.

Within the Seoul metropolitan area, only eight high-tech industries, which do not include cable manufacturing, are allowed to move their facilities. Thus, the only option available to the cable manufacturer was to move to other provinces or to go overseas. This is not such an attractive option for the company, since the farther away the factory is, the greater damage will be done to the firm’s competitiveness.

Companies have many complaints about the government regulation that limits the scale of corporate training facilities to 1,000 pyeong in the metropolitan area as well. That is because training facilities are classified as population-concentration facilities.

“Training facilities are where instructors and trainees stay only for a short training course. I do not see how such facilities can cause a population concentration,” said one company executive.

Shinsegae has plans to establish “premium outlets” in four major transportation centers that link to the Gyeongbu Expressway and Honam Expressway together with global outlet company Chelsea.

It searched for spaces with good accessibility about 50 kilometers away from major cities. However, most of such lands were absolute farmlands that cannot be developed for other purposes. The company managed to find a suitable space owned by the Yeoju-gun office near Yeongdong Expressway, but it is struggling to find three more spots in the Gyeongbu region and Honam region.

Shinsegae plans to make a one trillion won investment, creating 4,000 new employment opportunities, but admits that the project has little chance of succeeding for now.

One major energy company is planning to build a power plant with private investment, but it is pressured to give up due to equity investment restrictions. In order to establish an independent firm, it has to sell its stakes in other firms because of the restriction.

SK Networks tried to establish Toyota’s Korean sales dealers, but it had to cancel the contract due to the same restriction.

The same regulation hinders massive SOC investment by large conglomerates, which includes investments in the construction of corporate cities. To make such investments, the company has to establish a Special Purpose Company (SPC), which is counted as equity investment.

“In order to boost sluggish investment, regulations on corporations, such as the restriction on the number of factories within the metropolitan area and equity investment ceiling system, must be eased,” Oh Jung-keun, vice chairman of Research Institute for Finance and Economy at Bank of Korea pointed out.

“427 industries which account for 35.7 percent of the total 1,195 industries are subject to various entry regulations. In addition to entry regulations, regulations on location, environment, and finance must be lifted in order to encourage bold investments,” said Lee Seung-chul, head of the economic research department at the Federation of Korean Industries.

Young-Hae Choi yhchoi65@donga.com legman@donga.com