The number of corporations transferring their headquarters or factories from the metropolitan area to regional areas is decreasing. According to the Ministry of Trade, Industry and Energy on the 20th, only one corporation applied for and received regional investment promotion subsidies for transferring its headquarters or factories last year. As jobs decrease in regional areas, young people are leaving for the metropolitan area, and a vicious cycle continues as corporations hesitate to move there due to concerns about labor shortages.
Regional investment promotion subsidies are funds provided jointly by the central government and local governments to alleviate the financial burden of corporations investing in regional areas. They apply when corporations previously situated in the metropolitan area transfer to regional areas to invest, when domestic corporations establish or expand business sites in regional areas, or when corporations selected as regional job creators by the collaborative regional job review committee invest in regional areas.
The regional investment promotion subsidy system started based on the Special Act on National Balanced Development, which was established on April 1, 2004. When the subsidy system was first introduced, the maximum national subsidy that a corporation could receive was 5 billion won. This subsidy limit increased to 6 billion won in 2009, reached 10 billion won in 2018, and was 20 billion won last year. The budget for last year also increased to 212.7 billion won, approximately 1.5 times the 135 billion won budget in 2018.
Although the subsidies and budget received by corporations increased, the effects have been negligible. In 2011, 77 corporations received regional investment subsidies after moving their headquarters to regional areas, but the number has decreased to single digits since 2019, dropping to just one last year. This is the first time this has happened since 2021 when the COVID-19 pandemic severely froze the economy.
Last year, the corporation that transferred its headquarters to a regional area was an automotive parts company, which received support of 3.8 billion won (18%) from the government (1.7 billion won) and the city of Cheonan (2.1 billion won) out of its total investment of 21.1 billion won. A Ministry official noted, "The amount of subsidies varies according to the city and the scale of the transferring corporation; we supported this corporation with 1.7 billion won," adding, "This corporation was the only one that applied for subsidies last year."
Even including corporations that received subsidies for newly establishing or expanding business sites in regional areas, the situation remains unchanged. The number of corporations that transferred their headquarters or factories or established or expanded business sites in regional areas dropped from 122 in 2011 to 54 last year. This indicates that the effects of the subsidies are minimal.
A Ministry official stated, "In the early 2000s, when the regional investment promotion subsidy system was created, many corporations moved down. The corporations that could transfer their headquarters moved at that time, so there aren't many corporations that have moved to regional areas recently."
The concentration of corporations in the metropolitan area is gradually widening the gap between the metropolitan and non-metropolitan areas. According to the Regional Era Committee, in 2010, the Gross Regional Domestic Product (GRDP) share for the metropolitan area was 49.4%, lower than the non-metropolitan area at 50.6%, but by 2021, it increased to 52.8%. As of 2022, 86% of the headquarters of the top 100 corporations were in the metropolitan area, with 50.5% of the total population residing there. The number of areas experiencing population decline also reached 89, accounting for 40% of all districts nationwide.
The biggest reason corporations hesitate to transfer to regional areas is labor supply issues. A survey conducted by the Korea Chamber of Commerce and Industry in 2023 of 159 corporations located in the metropolitan area found that 61.7% are not considering transferring to regional areas. When asked what policy support is needed, the most common response was "smooth supply of necessary personnel (38.8%)," which they considered more essential than tax incentives or financial support such as subsidies (23.5% and 20.4% respectively). Corporations believe improving living conditions and building transportation infrastructure in regional areas are necessary to attract talent.
Experts noted, "Long-term policies are needed rather than incentives." Heo Dong-suk, a former research fellow at the Korea Research Institute for Human Settlements, stated, "The concentration of large corporation headquarters in the metropolitan area is due to the abundance of information and talent as well as financial concentration, along with the ease of overseas expansion. Only long-term measures, such as nurturing high-quality talent and improving childcare and education systems in regional areas, can lead to corporations transferring there."
Professor Emeritus Kim Ki-chan of Catholic University remarked, "Some corporate owners lament that they could not find personnel in regional areas and have returned to Seoul," adding, "Solving the labor issue, rather than short-term incentives, is essential for corporations to transfer to regional areas."