Machinery Investment Remains Sluggish
By Lee Hyo-sik
Staff Reporter
Corporate investment in industrial tools and other machinery fell in the third quarter for the first time in six years as companies have become more reluctant to reinvest in plants and other facilities.
Instead, they are holding record high cash reserves because of increasingly risk-averse corporate management amid an uncertain economic outlook, indicating that local manufacturers' growth potential and their ability to generate new jobs have weakened.
According to the Bank of Korea (BOK) Monday, the combined investment in industrial machinery totaled 17.4 trillion won in the third quarter, down 0.9 percent from the same period last year. It is the first decrease since the fourth quarter of 2001 when investment fell 3.7 percent year-on-year.
The country's machinery investment, which accounts for about 80 percent of the total corporate facility investment, had showed an upward curve over the past six years as manufacturers of semiconductors and other information technology products expanded production capacity to get an upper hand in the global markets against their foreign rivals.
``Despite rising corporate earnings over the past years, however, companies have been reluctant to invest in plants and equipment, which ended up increasing their cash reserves. Recently, rising international oil prices and other external negatives have further discouraged businesses from expanding operations at home and abroad,'' a BOK official said.
He said to help increase corporate investment, the country should ease regulations and improve uneasy management-labor relations to create a more business-friendly environment here, as well as nurture a knowledge-based and valued-added services industry.
In contrary to the sluggish machinery investment, manufacturers spent more on industrial vehicles and other transportation equipment during the July to September period, up 14.4 percent from a year ago.
The overall corporate facility investment, consisting of machinery and transportation equipment investments, rose 1.6 percent in the third quarter, the lowest since the first quarter of 2004 when investment fell 0.1 percent, the central bank said.