FKI sees 7 signs of manufacturing flight from Korea

The Federation of Korean Industries raised concerns of a possible exodus of manufacturers as more and more Korean companies are looking into moving their factories overseas due to a deteriorating corporate management environment coupled with unfriendly corporate regulations in Korea.

In a report titled “Seven Signs that Raise Concern over an Exodus from the Korean Economy” released yesterday, the FKI gave seven reasons to back up its argument and indirectly criticized President Park Geun-hye’s moves toward so-called economic democratization, which often target large companies and favor small and medium ones.

“The Korean government is trying to levy higher corporate taxes going against the global trend in which other countries are lowering corporate tax rates to rejuvenate corporate activities,” the FKI said in the report.

“Due to excessive corporate regulations, local companies that left Korea aren’t trying to return to the country.”

It said the U.S. government is mulling lowering corporate tax to 28 percent from the current 35 percent, a move reflected in Britain (to 22 percent from 24 percent), Sweden (to 22 percent from 26.3 percent) and Denmark (to 22 percent from 25 percent).

In Korea, lawmakers proposed a bill raising corporate tax to either 25 percent or 30 percent from the current 22 percent.

It has been referred to the National Assembly’s Strategy and Finance subcommittee on tax revenues.

The FKI’s survey conducted in 2012 showed only one out of 164 Korean companies operating overseas said they were considering a so-called U-turn to Korea, bringing back manufacturing moved overseas.

In addition to taxes, the business lobbying group said excessive corporate regulations, difficulties in adjusting supply prices, the weaker Japanese yen, high production costs, stiff labor-management relations and anti-corporate sentiment were the six other factors that could presage an exodus from the Korean economy.

According to the World Economic Forum, the Korean government ranked 114th in regulatory burdens and 96th place in the efficacy of regulatory improvements out of 142 countries in 2012.

The FKI said there are already signs suggesting an exodus from the Korean economy.

Last year, Korean companies made a combined $23.6 billion in overseas direct investment, but foreign direct investment in Korea was only $5 billion, meaning money invested in overseas markets was nearly five times higher than foreign money invested here.

“To deter the possibility of an economic exodus, [political circles] need to come up with policies to improve the corporate management environment,” said an official at the FKI.

“If companies, which have been the driving force of our economic development, leave Korea, this will further speed up the structural sinking of the Korean economy and intensify low-growth rates in the future.

By Kim Mi-ju [mijukim@joongang.co.kr]