Foreign investment down 18% amid trade uncertainty…Q3 cumulative FDI USD 20.6 billion

Effects of M&A contraction, high exchange rates, etc.

EU, Japan and China also see investment declines

Trade uncertainty originating in the United States has prolonged, and foreign investment in the country has fallen sharply.

The Ministry of Trade, Industry and Energy said on the 15th that cumulative third-quarter foreign direct investment (FDI) registrations amounted to USD 20.65 billion, a decline of 18% from the same period last year. By type, mergers and acquisitions (M&A) investment fell 54%, and greenfield (production facilities) investment also decreased 6.1%. By industry, manufacturing fell 29.1% and services fell 6.9%.

A ministry official explained, "Domestic political instability in the first half of the year, uncertainty over US trade policy, a global contraction in M&A deals, and a rising exchange rate are the main causes," adding, "a base effect also had an impact as last year's third quarter recorded the highest-ever performance."

By country, while US reported investment increased 58.9%, the European Union (EU, -36.6%), Japan (-22.8%), China (-36.9%), and Hong Kong (-77.2%) all decreased. A ministry official said, "In the case of the US, the increase was not driven by a single large investment and the overall number of investment cases was similar to last year," adding, "it appears US companies were relatively less affected by trade uncertainty."

US companies often invest to enter the Korean market or for technology cooperation, so unlike European, Japanese, and Chinese companies that use Korea as a production base to export to the US, they do not receive the direct hit from tariff policies.

In fact, FDI inflows to Korea this year amounted to USD 11.29 billion, a 2% decrease from the previous year, but the US accounted for USD 2.97 billion, a 99.7% increase. Investment in advanced industries such as artificial intelligence (AI), data centers, software, autonomous driving, robotics, and secondary batteries continued steadily.

The ministry said, "Investment in information and communications, especially in the AI field, continues, suggesting that foreign investors' confidence in Korea's economic fundamentals is being maintained," and added, "we will continue overseas IR (investor relations) activities targeting advanced industries such as AI, semiconductors, materials, parts and equipment, and strengthen incentives such as cash and site support."

Reporter Ha Ji-eun hazzys@hankyung.com