South Korea has seen more investments from foreign companies that are seeking to leverage the Korea-China free trade agreement (FTA) that was implemented in December. A number of companies based in Japan and the European Union are making investment inquiries to set up production bases in Korea for goods that will benefit from the bilateral trade pact. Some local companies that produce consumer goods increasingly popular in China are also receiving steady investment from Chinese firms.

According to recent data released by the Ministry of Trade, Industry and Energy, foreign direct investment to Korea from China registered with the government reached $375 million in the first three months of this year, which is more than a seven-fold increase from $53 million in the same period last year. An official from the trade ministry said that the inflow of Chinese capital into Korea surged rapidly after the Korea-China FTA was implemented late last year. In the first quarter of this year, in particular, investments in the manufacturing sector rose significantly as many Chinese companies have sought to secure Made in Korea products that are popular to Chinese consumers. On an annual basis, investment from China soared from $730 million in 2012 to $1.98 billion last year.

According to the trade ministry, global manufacturing companies that seek to expand their presence in the Asian market, especially in China, have also increased their investments in Korea, leveraging Korea as a springboard. Italian cosmetics manufacturer Intercos Group that in January notified the trade ministry its plan to invest $4.2 million in Korea joined hands with Shinsegae Group, Korea’s retail tycoon, to set up a joint venture called Shinsegae Intercos Korea and announced a plan to build a plant in Osan, Gyeonggi Province to produce basic and color cosmetics products. Intercos is a leading global original equipment manufacturer (OEM) that produces beauty products of global cosmetics brands including Lancome and Estee Lauder -

Local cosmetics companies including the country’s leading cosmetics OEM company Kolmar Korea Co. are known to be receiving calls from many Chinese companies to set up a joint venture. Korean consumer goods manufacturers are also gaining attention from Chinese investors. China’s apparel company Lancy Group has recently acquired Agabang & Co.

In March, China’s Uzen Group announced to invest $20 million to build a titanium manufacturing facility in Korea while Chinese real estate developer Jiutian Group announced to build a five-star hotel in Pohang, North Gyeongsang Province. Such investment pledges were mostly made after the implementation of the Korea-China FTA.

Among other global companies, Toray Industries Inc., a leading textile maker in Japan that is well known as a supplier to apparel brand Uniqlo, is expected to begin the operations of its new facility in the Saemangeum Industrial Complex in North Jeolla Province, in July, two years after the company broke ground in 2014. The plant will produce polyphenylene sulfide (PPS) resin, a high-performance material that is primarily used for component parts of vehicle engines and other precision machinery. Demand for PPS resin is projected to grow particularly in emerging markets like China. Toray plans to utilize the facility in Korea as a base to enter the Chinese market by injecting 300 billion won ($262.1 million) to expand the production site by 2018.

Meanwhile, the construction of a 30,000-ton ion exchange resin production facility in the Gunsan Free Trade Zone built jointly by Japan’s Mitsubishi Chemical Corp. and Korea’s Samyang Chemical Corp. will be completed this month. Japan’s Sumitomo Seika Chemicals Co. is also expected to complete the construction of its facility that produces high-tech materials for diapers in June after investment began in 2014.

These manufacturing facilities are all located in the west coast of Korea, which is seen as a strategic move because the west coast is considered the best route for exports to China. More foreign companies are known to be reviewing investing in Korea as an export base to China.

Another official from the trade ministry said that foreign companies are one by one announcing strategic investments to utilize Korea-China FTA as an export platform to China. The move comes despite the fact that investment conditions of major countries have weakened due to the slowdown in the global economy, the official said.

By Seo Dong-cheol, Chang Young-suk

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