With the prolonged global economic slowdown, the paradigm for economic growth in the three Northeast Asian countries of Korea, Japan and China is shifting. China and Japan are both putting emphasis on the domestic market.

China is attempting to vitalize the domestic market in the process of moving from quantity- to quality-oriented growth, while Japan seeks an exit from deflation and to revive its economy through Abenomics.

If we look closely, however, a new form of movement can be detected from both countries. China and Japan may seem interested in only the domestic market, but they are, in fact, actively expanding overseas as well. Both are moving on two tracks.

China has seen its outbound foreign direct investment increase by 30 percent year-on-year in the first half of this year as a result of an acceleration in overseas investment since the global financial crisis in 2008. This shows that the policies of the Xi Jinping government, which aim to acquire natural resources and advanced technology through overseas investment and to enhance China’s industrial structure through the globalization of enterprises, have been effective.

As for Japan, its outbound foreign direct investment increased by 129 percent in December of 2012, which is when the Abe administration took office, compared to the previous month. Just this past April, Japan’s outbound foreign direct investment increased by 77 percent compared to the month prior. Japan is pouring $400 billion in loans and FDI into emerging Asian economies. This is an indication that Japan is continuing to invest overseas regardless of Abenomics. Particularly, the Abe government’s decision to increase overseas expansion through free trade agreements, which is part of the growth strategy adopted at a meeting of the Industrial Competitiveness Council in early June, is helping accelerate the rise in foreign investment.

China and Japan’s expansion of overseas investment presents an opportunity for Korea, as Korea has a geopolitical advantage over the two countries. The U.S.-led Trans-Pacific Partnership, the China-led Regional Comprehensive Economic Partnership and the Korea-China-Japan FTA, which are currently under discussion, are positive signs for Korea’s foreign investment attraction efforts because Korea can seek new investment cooperation measures using its superior foreign investment environment and the economic integration of the three Northeast Asian countries.

In fact, a publication by the Chinese Ministry of Commerce called “Invest in Korea” highly evaluates Korea’s investment environment, including its advanced technology, high capacity for research and development, well-developed social overhead capital, competitive information technology, wide market breadth and skilled manpower. Additionally, Japanese companies in Korea have chosen Korea’s foreign investment attraction policies, global manufacturing hub created through FTAs and relatively low wages, corporate tax and electricity rates as factors that boost Korea’s competitiveness as an investment destination.

Then, what should Korea do to take advantage of the new opportunities?

First, we should analyze the industrial structures of Korea, China and Japan and find a business model that gives Korea an upper hand in investment cooperation with China and Japan.

Second, Korea should actively use its advantages as an FTA hub. With the implementation of the KORUS FTA, an FTA network linking North America, Europe and Asia was established. In addition, discussions about a Korea-China-Japan FTA have provided a systematic framework for economic cooperation between the three nations. It is time for Korea to consider ways to strengthen investment attraction efforts using the FTAs.

Finally, although the economies of Korea, China and Japan are inter-dependent, there are many political and diplomatic issues that remain unresolved. As a middleman of sorts between China and Japan, Korea should suggest a framework of trilateral cooperation that can help the three sides overcome cultural and historical differences. 

By Han Ki-won

The writer is commissioner of Invest Korea at the Korea Trade-Investment Promotion Agency. He also serves as the treasurer of the American Chamber of Commerce in Korea. He previously served as the global head of equity capital market and head of investment banking in Japan and Europe at Daiwa Securities, and as the managing director of DC Advisory Partners. The opinions reflected in the article are his own. ― Ed.