A finance ministry official attributed the sluggish performance to slow domestic economic growth and uncertainty about Korea's economic future. A ministry statement said mergers and acquisitions made up 57.5 per cent or $329 million of the foreign direct investments in the first quarter. The new administration of president Kim Dae-jung has campaigned hard for foreign investment as the country tries to recover from last year's financial crisis and reform bloated and non-competitive domestic industries.

But South Korea has long had a reputation for being xenophobic about foreign ownership and for having one of the most militant labour forces in Asia. "For some years, Korea has been known for its militant unionism," the English language newspaper Korea Herald said in a weekend editorial. "Excessiveand impractical demands by labour, coupled with the generally xenophobic sentiment of the people, are bound to drive off any prospective investors from abroad." South Korea's drive to make foreign investment a new linchpin of industrial development comes a decade after south-east Asian countries did the same and embarked on a period of rapid growth. But president Kim Dae-jung has vowed the country would be wholehearted about the effort.

"It has been only two months since I was inaugurated," Kim told an economic conference sponsored by the Financial Times last week. "I believe there are few countries which have pushed the liberalisation of foreign investment faster or more effectively than we have."

The government is lifting all restrictions on foreign investment in the stock and bond markets.

It has promised all controls on capital inflows in and out of Korea would be lifted on July 1, making it easier for foreign firms to repatriate profits. Much of the property market is also being opened to foreigninvestors. Overseas buyers will soon be free to buy almost any Korean company, including getting involved in hostile takeovers.

But that could be met with a hostile response from unions. Outraged union members chained themselves to the doors for three days in mid-April to lock Yoo Chong-yul, the new court-appointed administrator for troubled Kia Motors, out of his office. The 14,000 union members wanted Yoo to assure them the company would not be sold off, even though it was finally put into court receivership this month.