South Korea’s investment flow in China slumps to worst in over 30 years

In the most significant decline in over thirty years, South Korea experienced a substantial decrease in its direct investment flows into China in the previous year in a weakening economic relationship between the two countries, particularly as the United States urges its allies to reduce dependence on Beijing.

Bloomberg cited data released by the Finance Ministry on Friday which revealed a sharp 78.1% drop in fresh foreign direct investment by South Korean companies in China, amounting to $1.87 billion in 2023 compared to the previous year.

It was the first time since 1992 that China has fallen out of the top five destinations for South Korean FDI, with the manufacturing sector witnessing the most significant decline, according to the ministry.

These figures reflect China’s shifting significance for the South Korean economy, which heavily relies on foreign demand and manufacturing. This change occurs amidst Washington’s efforts to diminish Beijing’s influence on global supply chains. Also, the muted investment flow underscores the growing pessimism among foreign businesses regarding China, with direct investment into the world’s second-largest economy registering the smallest increase since the early 1990s.

Moreover, Japanese companies saw the least amount of net new investment in at least a decade, while Taiwanese firms displayed increased reluctance to expand their operations in China, recording the lowest new investment since 2001.

The decline in South Korean investment flows into China can be attributed to various factors, including the downturn in Korean car sales in the region. Geopolitical tensions, intense price competition, and the rapid transition to electric vehicles have all contributed to this slump.

According to customs data showed on Monday annual growth in South Korean exports to China and the United States, with the rise in shipments to China hitting a nine-month low, adding to worries about a global economic slowdown.

Exports to China, South Korea’s top overseas market, rose 29.2 per cent in value in July from a year ago, the lowest growth since October 2009. Shipments to the United States, the country’s No.3 export market after the European Union, gained 39.5 per cent in July from a year ago versus a 47.0 per cent rise in June.