Korea Seeks to Attract Chinese, Mideast Investment

The Korean government and financial institutions are seeking to attract capital from China and the Middle East, two regions which are called the new "Silk Road" of global finance.

Expectations are growing that Chinese and Middle Eastern capital will play a pivotal role in the restructuring of Korean companies.

Despite slight recovery in the global financial market, the United States and European nations have little capital to invest abroad. On the other hand, capital-rich China and the Middle East have strengthened their prowess in the global capital market.

In line with the attempt to reshuffle their own industrial structures and diversify investment targets, China and Mideast countries have recently shown more interest in the Korean market.

○ Interest paid to Chinese and Middle Eastern money

The state-run Korea Development Bank will conduct a study on investment demand of Middle Eastern money in several Asian nations, including Malaysia. The bank plans to create private equity funds for corporate restructuring and is hoping for Middle Eastern money given the lack of interest by Korean investors.

In a presentation to Middle Eastern investors in Singapore, Financial Supervisory Service Gov. Kim Jong-chang said, “Middle Eastern money will definitely play a key role in reforming the world financial order. We’ll spare no effort to help Middle Eastern investors invest in Korea.”

Chinese investment in the Korean market is already increasing. The Korea Center for International Finance said Chinese capital in the Korean stock market jumped 15 percent from the end of last year to 458.3 billion won (368.1 million U.S. dollars) as of late last month.

Lee Chi-hun, the head of the center’s research analysis department, said, “If Chinese capital, which comes to Korea via Hong Kong, is also included, much more Chinese capital has been poured into the Korean market.”

○ Korea emerges as source of profit

Korean financial institutions have struggled to lure Chinese and Middle Eastern capital because of difficulty attracting foreign capital amid the global financial crisis. Korean securities companies have also considered Mideast financial markets a new growth engine.

Woori Investment & Securities manager Yu Jae-woo said, “Global investment banks in the U.S. and Britain advanced into the Middle Eastern market only few years ago. Accordingly, Korean brokerages will also have many opportunities.”

China has poured money into Korea’s capital market to prevent its currency from drastically appreciating by reducing the amount of dollars circulating in the Chinese market and nurturing its own industries.

Chinese investors are also putting their money in Korea because the Korean stock market has become more attractive than Hong Kong`s.

Oh Seung-hun, head of the Korea-China research team at Daishin Securities in Seoul, said, “In line with its policy to increase the amount of its sovereign wealth fund, the Chinese government has increased the number of qualified domestic institutional investors, referring to financial institutions that can invest in overseas markets, to encourage more institutional investment into overseas markets.”

○ Will the money support Korea’s M&A market?

Financial experts in Korea say Chinese and Middle Eastern money will also affect Korea’s corporate restructuring. At the same time, however, they urge Korean financial institutions to ponder the influence of each type of capital on Korea’s capital market or industry since the two types of capital have different features.

From a practical point of view, Chinese capital is more likely to flood into Korea’s takeover market. Oh of Daishin said, “China is struggling to add high-added value to its own industries. That means China could show interest in takeovers of Korea’s small and medium-sized companies with advanced technologies.”

Middle Eastern money is more likely to be injected into the Korean market indirectly, however, since Mideast investors have little interest in corporate management.

Lee Do-heon, a managing director of Korea Investment & Securities, said, “Given Aramco’s acquisition of Ssangyong Oil Refining, Middle Eastern investors could purchase a few Korean companies. But most Mideast money invested in Korea will be long-term investment in the form of private equity funds.”

Other experts say Middle Eastern money is better than China`s as the financial source of Korea’s corporate restructuring, adding Chinese money drew much controversy after Chinese companies took over Hynix Semiconductor and Ssangyong Motors.

Yu of Woori said, “Chinese purchases of Korean companies are highly likely to spark controversy over technology leaks and result in tension with (Korean) trade unions. On the other hand, Middle Eastern money is less likely to cause problems since it will be injected into the Korean market as indirect investment.”

mint4a@donga.com