SK, LG reconsider expansion amid looming recession

By Park Jae-hyuk

The looming global economic recession has prompted Korean conglomerates to adjust their combined 1 quadrillion won ($760 billion) investment plan, announced immediately after President Yoon Suk-yeol took office in May, according to industry officials, Tuesday.

SK hynix reportedly decided late last month to postpone its plan to invest 4.3 trillion won to build a new semiconductor plant in Cheongju, North Chungcheong Province, by 2025. The chipmaker's board of directors is said to have taken a cautious stance, considering the strengthening U.S. dollar, soaring raw material prices and interest rates, as well as a worsening semiconductor market sentiment.

In May, SK Group announced it would invest 247 trillion won in the semiconductor, battery and biotech industries by 2026. SK Group Chairman Chey Tae-won, however, indicated during the Korea Chamber of Commerce and Industry's forum on Jeju Island last Wednesday that the investment plan is subject to change, as it was devised before the rapid increase in raw material prices.

"The investment could be delayed due to strategic reasons," Chey said at that time.

LG Energy Solution (LGES) also said in a regulatory filing last month that it began to reconsider its plan to invest 1.7 trillion won to build an electric vehicle battery plant in Arizona. The announcement was made a month after LG Group pledged to make a 67 trillion won investment overseas by 2026, alongside a 106 trillion won investment here.

"Because of the soaring costs resulting from the worsening global economic environments, we have thoroughly reviewed the timing and the size of the investment," the battery maker said.

Lotte Group, which promised to invest 37 trillion won over the next five years, convened a meeting of chief executives of the group's affiliates in Busan last Thursday to review their investment plans. Lotte Group Chairman Shin Dong-bin said at the meeting that the economic crisis has continued from the beginning of this year, due to interest rate hikes and stagflation.

Samsung, Hyundai Motor and other conglomerates have yet to show signs of adjusting their long-term investment plans. However, they are also reportedly keeping a close eye on the economic situation. In May, Samsung Group promised to invest 450 trillion won over the next five years. Hyundai Motor Group vowed to invest 63 trillion won in Korea over the next five years, after announcing its plan to invest $10 billion in the U.S.

Some critics point out that chaebol groups made empty promises.

"Chaebol groups have repeatedly announced large-scale investment and employment plans whenever a new president takes office, in order to arouse hopes of economic growth and to form an amicable relationship with the new government," the Solidarity for Economic Reform said in a statement.

The conglomerates have refuted the claim, emphasizing that their investments will be made as planned, once they overcome the latest crisis. The SK Group chairman said he will not withdraw the group's long-term investment plan, despite the possible delay. LGES said nothing has been decided about its investment in Arizona.

Korean companies, however, are expected to face difficulties in making aggressive investments for a while, considering the recent trend of the world's largest businesses slowing down their hiring and spending.

Apple, Microsoft, Google, Meta, Tesla and Facebook have already decided to reduce their workforces, according to foreign news outlets. Goldman Sachs CEO David Solomon also hinted at a possible restructuring, during Monday's conference call on the investment bank's second-quarter earnings.

According to the Federation of Korean Industries (FKI), a recent survey of the nation's 500 largest companies in terms of revenue showed that only 16 percent of respondents answered they would increase investments during the second half of this year.

"It is difficult for companies to increase their investments preemptively, amid the uncertainties caused by rising commodity prices, U.S. dollar and interest rates," said Choo Kwang-ho, head of FKI's economic research division.