Korea companies having doubts about big investment plans
Korean companies are cutting back on investment as global economic turmoil has them rethinking rapid expansion.
Major companies rolled out mid to long-term investment plans totaling over 1,000 trillion won ($770 billion) after the Yoon Suk-yeol government was inaugurated in May. But they are revising the plans due to economic challenges, including high inflation, rising interest rates and the falling won.
LG Energy Solution, a Korean battery maker, said it will "reassess" its 1.7-trillion-won Arizona battery plant project on June 29. The initial plan, which was announced in March, was to start construction in the second quarter and begin operation by the latter half of 2024.
"We are closely reassessing the timing, amount, transactions and other details of the investment, but nothing has been decided yet," an LG Energy Solution spokesperson said.
Other companies are also having second thoughts.
Among 100 large companies in Korea, 28 percent responded they are planning to reduce investment in the second half compared to the first half, according to a survey conducted by the Federation of Korean Industries (FKI) from June 7 to 14. Only 16 percent responded they will increase investment in the latter half of the year.
Investment in export-driven businesses, such as those related to electronics, steel, metals and petrochemicals, are expected to drop the most. Investments in the electrical and electronics category, excluding semiconductors, is expected to decrease by 57.1 percent compared to the first half of the year. Semiconductors is the only category where investment is expected to increase, according to FKI.
As to why corporations are reducing their investment, 43.3 percent said global economic instability.
"Some big corporations are planning to expand investment based on the expectations from the Yoon government to propel businesses and to secure competitiveness in future industry, but the overall trend within big corporations is to reduce investment due to unstable circumstances," the FKI said.
High inflation, the unstable global economy and lingering supply-chain disruptions due to the Russia-Ukraine war were the top 3 factors that the companies see as the biggest risks for the expansion of investment.
"Many efforts, including the new government's improvement in the corporate tax system and cooperation with other countries to supply raw materials, should be made in order to recover investor sentiment," said Choo Kwang-ho, the FKI's economic research division head.
Small and mid-sized firms that have weaker balance sheets than big corporations are expected to make more conservative investments.
"There should be some measures for these small and mid-sized companies so that they won't be heavily affected by the shrinking economy," said a spokesperson for the Federation of Middle Market Enterprises of Korea.
"The government should make efforts, including lowering taxes and reforming regulations and the labor market, as less investment would yield fewer jobs and negatively affect the economy," said Sung Tae-yoon, an economics professor at Yonsei University.
Some big companies, such as Hyundai Motor, have chosen to make more investments to expand their presence in the global market.
Hyundai Motor, Kia and Hyundai Mobis will establish a company in Delaware, likely by August, according to Hyundai Motor on June 30. Hyundai Motor will be investing 291.2 billion won of cash and Kia 456.4 billion won.
By BAEK IL-HYUN, CHO JUNG-WOO [firstname.lastname@example.org]