Corporate investment crucial

South Korean investment appetite remains stubbornly tepid due to prolonged stagnation in domestic demand. According to a survey of 228 companies by the Korea Employers’ Association, large businesses are mostly tightening their belts, while small and midsize companies plan to maintain the status quo. Fifty-one percent of companies don’t plan to increase investment in 2015, and a fourth said they will scale back. Most companies do not want to make new investments without clear signs of improvement in the local economy.

Moreover, much of the investment next year is expected to be earmarked for overseas projects. A survey by the Korea Chamber of Commerce and Industry of 305 companies with overseas operations showed they were more attracted by foreign than domestic opportunities. Whatever companies have budgeted for investment next year may do little to help Korea’s economy. Domestic demand will recede further if companies trim their investment or spend overseas.

Twin sluggishness in corporate and consumer spending has led to protracted lethargy in domestic demand. Consumer spending cannot be expected to improve next year, given reduced income from the long slowdown and snowballing household debt. Corporate investment is the only engine that can generate domestic demand. Hopes for recovery next year will be dashed if investment decreases. In other words, the solution to economic recovery is revived corporate investment.

The government must take radical steps to persuade companies to invest at home. Various regulations that impede investment must be removed. If necessary, the government should consider easing so-called taboo regulations, such as the ban on industrial activities around the capital. It must use whatever means are necessary to keep companies at home, while at the same time attracting foreign investment. Investment vitality is the key to recovery in the Korean economy.

JoongAng Ilbo, Dec. 22, Page 30