Central bank urges more aggressive overseas investment

The Bank of Korea (BOK) on Sunday recommended that the government support increased overseas investment to counter slow domestic growth and economic problems associated with the country's low birth rate.

The central bank cited the policies of the Japanese government in 2010, which overcame a long-term economic slump by backing aggressive investments in overseas markets.

“Japan which faced a saturated domestic market, started to go abroad for new growth engines,” the bank said in its research paper released on Sunday. “It started with portfolio investments, but recently the trend has shifted to direct investment as well.”

According to the report, Japan’s net overseas assets stood at 365 trillion yen ($3.45 trillion) in 2019, a more than threefold increase from 1996.

Net assets from portfolio investments stood at 106 trillion yen in 2019, coming in third spot after Hong Kong and Singapore. Japan is also the world's top holder of direct overseas investments, with 168 trillion yen in net assets, the report stated.

Direct investment during the 1970s had been concentrated primarily in the United States and Europe, to avoid trade conflicts and reflecting a focus on local manufacturing. That subsequently shifted to ASEAN countries, with direct investment in China booming between 1990 and the mid-2000s.

"The annual growth rate of ASEAN countries' GDP averages 5 percent, pointing to its potential as the world's next consumer market," the bank said. "Investment there will continue to rise."

Japan's overseas assets recorded investment profits of 20 trillion yen in 2019, coming in second spot after the United States, which earned $257 billion from overseas investment.

“Based on its accumulated investment profits over the years, Japan is maintaining its current account surplus despite a low birth rate and a low-growth environment,” the bank said.

The research also pointed out that the Japanese government has been helping domestic small and mid-sized enterprises to go overseas on their own. While initial advancement to overseas markets for those businesses usually occurred in partnership with conglomerates, the report stated, government consulting programs and funding enabled them to advance independently.

“Considering that Korea is also experiencing a long-term current account surplus in addition to slow growth and low birth rates, more policies should be laid out in order to help companies vying to advance abroad,” the bank said.

“In the aftermath of Covid-19, it would also be necessary for the government to come up with solutions for domestic manufacturing firms to 'reshore' its factories to secure stable supply chains.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.k]