Favorable reshoring environment expands under Yoon administration

Aerial view of Hyundai Motor plant in Jeonju, North Jeolla Province / Korea Times file By Yi Whan-woo The government’s efforts to induce Korean businesses to bring back their earnings and operations outside the country appear to be paying off, following measures that are aimed at lessening the businesses’ tax burden while encouraging more investment. Industry sources said Wednesday the Korean manufacturers that run plants abroad are paying attention to the Ministry of Economy and Finance’s plan to support up to 50 percent of the investment needed for their reshoring. The plan was a part of the economic policy objectives announced by the government, Tuesday. The targeted sectors are secondary batteries, semiconductors and other cutting-edge technologies. “The planned financial support possibly makes Korea a better place for manufacturing than China,” a source said, referring to the intensifying U.S.-China rivalry, restructuring of global supply chains, souring Korea-China ties and other unwelcoming business factors for Korean manufacturers in China. Another source voiced a similar view, noting even conglomerates such as Samsung Electronics and SK hynix are struggling to make earnings. The net profit of Samsung Electronics in China shrank 21.9 percent year-on-year to 35.6 trillion won in 2022. SK hynix’s plant in the eastern Chinese city of Dalian has accounted for 20 percent of the firm’s entire NAND flash production in recent years but not any longer due to weakened global chip demand. A third source said relocating operations from China to third countries other than Korea or China can be challenging, considering the firm would have to build a network with suppliers from scratch. Under the circumstances, sources speculated Tuesday’s announcement for investment support adds to tax incentives that have increasingly prompted reshoring this year. Effective from Jan. 1, the government has softened double taxation by excluding 95 percent of dividend earnings from abroad from being taxed in Korea after they have been taxed in the country of residence. It also has slashed the maximum corporate tax rate to 24 percent from 25 percent. Accordingly, Samsung Electronics brought back overseas income worth 8.44 trillion won from China, Vietnam and other countries in the first quarter of the year, sources said. Hyundai Motor Group announced last month that it plans to draw $5.9 billion in reserve funds from its overseas subsidiaries to invest in manufacturing electric vehicles (EVs) in Korea. The amount of retained earnings ― a sum of money earned by overseas subsidiaries and not transferred to domestic parent companies ― went down by $1.06 billion in January but increased by $240 million in April, the Bank of Korea (BOK) said.

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