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Study on Korean and Taiwanese Investment Patterns in China

Study on Korean and Taiwanese Investment Patterns in China

By PARK Bun Soon et al.

Published: Aug. 1, 2008

Page : 274 p.

ISBN : 978-89-7633-381-0

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After industrializing in the 1960’s, Korea and Taiwan economies continued to grow rapidly. However, after the mid-1990’s, when China started to integrate into the global economy, Korea and Taiwan’s growth and investment rate dwindled. At the same time, employment (Korea) and production (Taiwan) in the manufacturing industry have been decreasing as well. This economic decline is at least partially due to the emergence of the growingChinese economy. Because China’s competitiveness in exports is strengthening and the inflow of foreign direct investment (FDI) is expanding, China is depriving Korea and Taiwan of market share in their main export markets, including the United States.

Further analysis of investment in manufacturing and the ensuing relationships between China and both countries is required. After the 1990’s, Korean and Taiwanese companies have been expanding their investment in China aggressively. This aggressive investment in China is leading to deindustrialization in Korea and Taiwan. Forboth Korean and Taiwanese companies, investment in China reinforces the increase in Chinese exports by forcing small parts and intermediate goods to be produced in their own countries instead of in China. Thus, Korea and Taiwan’s investment in China demonstrates contradictory characteristics.

This study analyzes the effects and results of Korean and Taiwanese investments in China. It also analyzespossible areas where the two countries can cooperate with each other. To achieve these goals, theSamsung Economic Research Institute (SERI) and the Taiwan Institute for Economic Research (TIER) conducted a study jointly. SERI researched the historical growth of Korea and Taiwan’s economies as well as the current challenges Korea and Taiwan face.

Analysis of Korea and Taiwan’s investment in China showed unexpected results with Korea and Taiwan having more similarities than differences. In the beginning, both countries started to invest in China to utilize low-cost labor and exported products to industrialized countries like the U.S. Accordingly, China contributed to the tremendous development of the Korean and Taiwanese economies. Exports greatly increased the supply of parts and intermediate goods from Chinese subsidiaries, while trade among vertical industries in the trade structure has expanded. Simultaneously, however, China’s industrial foundation has strengthened and slowed down growth of exports in parts. As China’s industrial base grows in strength, both countries’ investments will face new challenges. Native investment, moreover, has increased the independence of manufacturers of small parts and intermediate goods in China. Accordingly, SERI has found that Korea and Taiwan’s export industry in China will likely decelerate.

This project is a joint study conducted by SERIand TIER. Results have been further refined by convening a joint presentation on the study in both countries. We hope this book will serve as a useful resource to bothKoreans and Taiwanese who are interested in foreign investment in China.

  • Park Bun Soon (Senior Fellow, SERI)
  • Kim Jung-Woo (Research Fellow, SERI)
  • Park Sung-Bae (Research Fellow, SERI)
  • Kao Jen-Shan (Ph.D. Associate Research Fellow, TIER)
  • Liu Yau-Jr (Ph.D. Associate Research Fellow, TIER)
  • Lin Hsiu-Ying (Assistant Research Fellow, TIER)
  • Sun Ming-Te (Assistant Research Fellow, TIER)
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