According to a recent survey by the Export-Import Bank of Korea, 78.9 percent of 216 domestic companies which took loans from it to expand their businesses abroad said they did not intend to bring their overseas establishments back to the country.
Asked about the business environment in South Korea and abroad, 76.9 percent chose a foreign country. This shows the sorry state of economic affairs here.
Another survey of 150 companies with overseas business operations, conducted by the Korea Economic Research Institute in November last year, was even more shocking. As much as 96 percent said they have no interest in bringing their enterprises abroad back to Korea. Just two companies (1.3 percent) were considering reshoring.
As for the reasons, they cited the need to expand their overseas markets (77.1 percent), higher wages here (16.7 percent) and the rigidity of the domestic labor market (4.2 percent).
This reluctance of local companies has led to a surge in investment outflow and a slump in investment inflow.
According to Eximbank, overseas direct investment from Korea in the second quarter jumped 13.3 percent from a year earlier to $15.01 billion. The figure is the highest since related data was first compiled in 1980.
In contrast, foreign direct investment in Korea plunged 38.1 percent on-year in the quarter to $6.7 billion.
This trend of relocating overseas is not limited only to companies. According to the Foreign Ministry, the number of overseas emigrants jumped from 825 in 2017 to 2,200 in 2018.
The 2018 number is about five times more than 455 in 2016, just two years earlier, and the highest figure since 2008. Also, the number of emigrants rose to four-digit levels for the first time.
For aspiring Korean emigrants, the US was the most popular country last year, followed by Canada, Australia and New Zealand. The number of Koreans issued a US immigrant investor visa more than doubled from 195 in 2017 to 531 in 2018.
Remittances to foreign countries for real estate transactions shot up from $380 million in 2016 to $625 million in 2018, according to the Bank of Korea. This excludes remittances by financial and nonfinancial corporations for the purpose of business operations.
The figures above indicate people are fleeing Korea increasingly because their future here looks bleak. In light of the current economic reality, their pessimism can hardly be dismissed as individual complaints.
On numerous occasions, business circles have complained of the difficulties caused by anti-corporate policies such as drastic hikes in the minimum wage and the steep reduction of working hours.
However, the administration of President Moon Jae-in has stubbornly pushed income-led growth policies for about 2 1/2 years. They generated serious side effects. Temporary jobs created by the government for seniors have increased, but employment of those in their 30s and 40s has decreased. The gap between the rich and the poor has also widened.
While vowing to work to boost business activity, the government has moved in the opposite direction. It raised the maximum corporate tax rate from 24.2 percent in 2017 to 27.5 percent in 2018. Korea’s inheritance tax rate -- 65 percent when inheriting a company -- is the highest in the world.
No matter how hard the business community supplicated the government for a change in its policy direction, it went the wrong way. So businesses and people are fleeing the country.
Corporate flight, among others, has wider effects on the national economy than capital flight. If a company transfers its business abroad, not only employment and tax revenue but also the earnings of companies which do business with it will decrease.
To bring Korean enterprises overseas back and encourage people to be optimistic about life in the country, the government needs to make economic conditions more business-friendly.
Its most urgent priority should be to send a message to the markets at home and abroad that it will roll back policies that have discouraged corporate investments.
In Eximbank’s survey, companies cited tax cuts and financial support, deregulation and high labor mobility as the three areas where policy changes are required most. If the government turns a deaf ear to the demands, business, capital and human migration will keep growing.