With fat wallets, Chinese investors rush to Korea

The power of Chinese money is sweeping Korea.

With the world’s largest foreign exchange holdings of 2.5 trillion U.S. dollars and ample liquidity, China is making forays into Korean real estate, tourism and foreign direct investment, not to mention stocks and bonds.

Korea has long considered China a destination for investments, but as Chinese wallets have grown fatter, the flow of capital is heading both ways. This has prompted Korea to figure out not just how to invest in China but also how to attract Chinese capital to Korea.

Chinese capital has attracted attention in Korea’s financial markets by snapping up bonds issued by Korean companies. According to the Financial Supervisory Service, China invested a net 4.2 trillion won (3.7 billion dollars) in Korean bonds over the last 11 months of this year, more than double from 1.8 trillion won (1.6 billion dollars) last year.

The number of Chinese tourists in Korea surged from 1.3 million last year to 1.6 million in the first 10 months this year. As rich Chinese rush to invest in Korean real estate, including resort towns on Jeju Island, jokes have even surfaced over whether China wants to buy the entire island.

Chinese direct investment in Korea remains minuscule, however. In the first 10 months of this year, China invested just 660 million dollars in Korea, a paltry sum compared to its overall foreign investment of 82 billion dollars. Experts say Seoul should actively attract Chinese capital to help create jobs, reinvigorate provincial economies, and overhaul the industrial structure.

“Korean small- and medium-size companies that are long on technologies but short on capital can be revived by attracting Chinese investment,” said Lee Chi-hoon, an official at the Korea Center for International Finance under the Strategy and Finance Ministry.

To entice Chinese investors, Korea must first remove negative perceptions about Chinese capital. Shanghai Automotive Industry Corp.’s controversial acquisition of and withdrawal from Ssangyong Motor has had a lingering impact on Koreans’ negative views of Chinese investors.

Because of this, experts urge the promotion of partnerships between Korean and Chinese corporations and for the Korean government to exert diplomatic efforts to attract Chinese investors. Chinese foreign investment of 30 million dollars or more requires approval from Beijing.

Seoul, albeit belatedly, has rolled up its sleeves to attract Chinese capital. The Knowledge Economy Ministry formed a department on economic cooperation with China last month after launching a “China desk” task force on wooing Chinese investors.

“Since the global financial crisis, Chinese capital has grown more important as the ability of advanced economies to make foreign investment has decreased sharply,” said Byeong Jong-rip, in charge of formulating investment policies at the Knowledge Economy Ministry.

“We will actively try to attract Chinese investment in the service industry, including tourism, leisure and culture, and new sectors such as solar energy development.”