In a meeting with a group of executives from foreign-invested firms here last week, President Moon Jae-in asked them to take note of the vast economic opportunities that would stem from a peaceful Korean Peninsula.
He said geopolitical risks on the peninsula had dwindled swiftly following three summit talks he held with North Korean leader Kim Jong-un last year.
He matched his rosy view of the security environment with a promise of increased support and an emphasis on what he said was the strong foundation of the South Korean economy to appeal for more foreign investment in the country.
Still, few participants in the meeting, the first of its kind since Moon took office in May 2017, appeared to be in accord with Moon’s description of the country as a “very attractive place to invest.”
In unison, the executives of foreign-invested companies called for more sweeping deregulation. They said more policy flexibility was needed, noting corporate management here was a challenging task.
Moon and his aides have recently pledged to step up efforts to lift regulations. But the views expressed by the executives of foreign-invested firms showed they saw no improvement in the regulatory environment.
During the meeting, Moon pledged to ensure that foreign-invested firms could do business here as comfortably as in their home states by eliminating unnecessary regulations and increasing incentives.
He should match his words with concrete acts. It is necessary to overcome objections from vested interests to regulatory reforms and readjust a string of pro-labor policies that have imposed heavier burdens on companies.
Moon said last week that Korea’s key strategy for attracting foreign investment is to shore up “your success in Korea.”
It should certainly be so. Over 18,000 foreign-invested companies account for nearly 20 percent of Korea’s exports and 7 percent of all jobs in the country.
Efforts to create favorable conditions for investment are all the more necessary to induce Korean companies to invest here rather than abroad.
According to data from the Korea Economic Research Institute, overseas direct investment by local firms increased 11.6 percent from a year earlier to $49.8 billion in 2018, which was nearly three times the amount of total investment by foreign businesses here in the same year.
Particularly notable was that investment by local manufacturing firms soared 92.7 percent on-year to a record annual high of $16.3 billion last year.
This steep rise stemmed mainly from the Moon administration’s business-unfriendly stance as demonstrated by a set of pro-labor measures, including steep increases in the minimum wage, a shorter workweek and pressure to turn temporary jobs into permanent ones.
A recent survey of 120 foreign-invested firms with more than 100 employees showed they also regarded rigid labor policy as the greatest burden on their management.
In a broader sense, a major shift in economic policy is needed to prevent the Korean economy from plunging into a sharp downturn.
Data released by Statistics Korea a day after Moon’s meeting with the executives of foreign-invested firms showed the foundation of the country’s economy was weakening.
Production, consumption and facility investment declined together on-month in February. In particular, facility investment recorded a 10.4 percent contraction, the steepest decline since November 2013.
The coincident and leading composite indexes, which reflect current and future business conditions, fell for 11 and nine consecutive months, respectively.
Exports, which had shored up the country’s economy in recent years, decreased on-year for the fourth consecutive month in March, according to figures released Monday by the Ministry of Trade, Industry and Energy.
The weakening of Korea’s economic fundamentals is expected to accelerate as local manufacturing firms are scrambling to move production abroad to avoid rising wages, complex regulations and uncompromising labor demands. Foreign governments have been trying to attract Korea’s manufacturers by offering a wide range of incentives from tax exemption to financial support.
The hollowing out of the manufacturing sector will further aggravate the unemployment problem with the Moon administration’s misguided income-led growth policy having driven mostly low-wage workers out of their jobs.
Moon’s optimistic view of the peace process on the peninsula has been questioned since February’s summit between US President Donald Trump and North Korea’s Kim ended without a deal on denuclearizing the North.
Even if the peace process is put back on track, it is too naive to expect a thaw in geopolitical tensions to turn around a worsening economic situation partly caused by ill-conceived policies.
Last week’s meeting with executives of foreign-invested firms should serve to get Moon to seriously undertake regulatory and labor reforms in order to keep pace with intensifying global competition to forge more business-friendly conditions.