Yesterday new poster here Minso beat me to a delightfully skeptical Korea Times piece about Korea’s renewed mission to become a “Hub”. Great post, good article, and questionable plan.
Regarding the plan, consider this about the leadership in the Yonhap:
The Ministry of Finance and Economy made the road map public after holding a second financial hub meeting, presided over by President Roh Moo-hyun. Participants in the meeting included government and private sector advisors.
I seriously have to wonder though how informed the Ministry of Finance, the president, and the “advisors” are. I mean do they even read the newspaper?
Take today’s news just for an example. In the latest piece of the protracted Daewoo clean up, Daewoo shipbuilding is going to be sold off. What a great opportunity! A profitable business with hard to move fixed assets in a booming industry. Not only will KDB get a great price for the company if they allow foreign bidders, the operations are near impossible to move out the the country in the short to near term, if not long term. And to boot, it gives Korea a chance to show politicaly how open it is to foreign investment.
Not so fast, according the the Joongang Ilbo:
State-run Korea Development Bank plans to set a schedule for the sale of Daewoo Shipbuilding and Marine Engineering Co. after it posts earnings for the first half of this year. The bank may consider barring foreign investors from making a bid to take over the shipbuilder, according to Kim Jong-bae, vice governor of Korea Development Bank.
What kind of message does Korea think its sending here? How much stability can an investor expect if Korea can just willy-nilly tag something “off limits”, especially something relatively unrelated to national security? The same village of idiots that are planning the “hub” are controlling KDB and making these types of decisions. Are they not aware of all this when they draw up their hub plan?
(Yes I expect some of you to bring up the UNOCAL/CNOC case in the US recently, but then the US has no hopes or plans to become a “hub”.)
What is going on here, no doubt, is Korea wants everything. They want to keep being a “hub” of shipbuilding in perpetuity, but also be a “hub” of finance and everything else under the sun. However anybody with even a smattering of economics knows this is impossible. Why doesn’t the Ministry of Finance and the Economy, Roh’s brain-trust, and fancy “advisors” know this? Even more troubling is the implication that this collection represents the cream of the crop of Korea’s economic planners (shudder).
Take something else from the same village. A couple weeks ago I somewhat snarkily referred to this in the Korea Times:
The Financial Supervisory Commission (FSC) said Monday that it is considering curtailing the sum of money foreigners’ bank accounts can hold to help prevent growing financial fraud through international phone calls.
It is also contemplating putting the upper limit of money transfers by foreign account holders and restricting them from using online banking services.
Since the beginning of the year, a person or groups, mostly ethnic Chinese fluent in Korean, have posed as a legitimate businesses, which they use to phone people to obtain credit card numbers, user names, passwords and other financial information.
They use the data, obtained through the so-called “phishing,” to make unauthorized financial gains. Bank accounts opened by foreigners here have been used for phishing scams as the money is transferred overseas via the accounts.
So the FSC will now have some pretty draconian powers to limit ANY foreign owned bank accounts. The rationale being the threat from ethnic Chinese fraud-sters. Now consider the news today in the Chosun Ilbo (emphasis mine):
Ethnic Chinese people in Korea will be allowed to take Korean names starting in August. They will be issued with new alien registration cards which will carry both their English and Korean names. The measure aims to help ethnic Chinese people carry out real estate and financial transactions more easily.
So now I pose the same question I once asked in jest. Are the foreign owned bank account restrictions a backdoor to something?
And getting back the question, how much faith is an investor, particularly in the financial sector, going to put in a system which not only gives mixed signals, but also a system that can freeze there accounts whenever they want? Sure you can say there are legal safeguards, but then isn’t that what Lone Star thought?
20 Comments
“Ethnic Chinese people in Korea will be allowed to take Korean names starting in August.” Is that like when Koreans were “allowed” to take Japanese names in colonial times? WTF? Why can’t they just use their Chinese names? Is this considered some kind of benefit?
“curtailing the sum of money foreigners’ bank accounts can hold” — still amazed at that one.
You’re right Dram, they could allow foreign investment in the shipbuilder, and still have six Korean-owned shipbuilders, and still be the world’s largest shipbuilding country.
Dram_man, well put.
Korea has a long way to go towards becoming a financial hub. Indeed, I’ll state for the record that due to Korea’s hermit-esque culture, that it won’t be anything close to a financial hub in my lifetime. The fixed pie “if you (foreigner) win, I (Korean) lose” mentality is an anathema to prosperity through international finance. Companies are more than happy to take their ball (money) and go play (invest) in someone else’s back yard (country).
With that said, I do find Korea to be a very pleasant place to live, for many, many reasons, and hope to live here a lot longer. Life is about balance, after all.
There was some controversy regarding the sale of DSME to a foreign owner, because of the fact that DSME is a major defense contractor.
But, of course considering that BAE Systems owns what used to be FMC Corp.(a major supplier of armored vehicles for the US Army and Marine Corps.), preventing the sale of DSME to a foreign owner based on the defense contractor argument is weak.
IMO, I think the Korean government wanted to exclude Chinese and Japanese suitors, because to them, it would mean giving away the keys to the house, but since that would evoke accusations of unfairness, I guess they decided to ban foreigners altogether.
Which reminds me, I have to change my name in the “Profile” page.
While I agree much with this site having been a long-time reader, I’ll have to take objection with this critique on protectonism. While it is hypocritically laughable of South Koreans to desire to be a financial hub while also raising these measures, I think it’d be foolhardy of the ROK to actually open up their economy as many people believe they should.
Simply put, South Korea is following a tried and true strategy of economic growth that has worked so far. Yes it is more or less copying Japan’s blueprint, but if it ain’t broke..
After the USSR fell in the early 1990’s, Japan sought to lend a hand with their protectionist, export led development model. Unfortunately Yeltsin chose help from the West, with the subsequent looting of the country leading the KGB to step in with Putin to shore things up again. China smartly chose to follow Japan’s blueprint after seeing what happened to Russia, and the positive outcomes in the ROK and Taiwan.
South Korea can be pretty naive when it comes to global finance, so they are smartly being cautious after the 1997 IMF debacle. I’d be scared too with the news coming out of the US. Seriously, LTCM anyone? Enron, Worldcom? Bear Stearns and their two hedge funds losing 91% and 100% respectively, on the order of $16BN?
Be careful South Korea, be a hermit country. Bad things are a brewin’ in foreign shores!
Well, the ethnic-Chinese residents of Korea are for all intents and purposes Koreans whose parents happen to have come from China. This is their home, as it has been for decades. I rather read the “name-change” authorization to be an acknowledgment of how these people are a part of Korean society and face discrimination — show up at a Korean bank, even the foreign-owned Korean banks like Citibank — with a foreign name and try to get a loan. Helping them “pass” probably seems like a nice accommodation to the people that thought it up.
It’s a start. Better still would be a strong non-discrimination law, regularly enforced, forbidding discrimination between Koreans and lawful foreign residents. The optimist in me sees such a non-discrimination law being passed in the near future, what with the rising percentage of foreign-born and mixed-race residents. The realist in me sees the law being quite toothless and widely ignored.
A strong non-discrimination law? Regularly enforced? In Korea? Surely, you jest! Which part is the joke– the law or the enforcement?
I wonder what ceiling they will set for the max amount in foreigners’ bank accounts. When you apply for an investor (D-8) visa you have to bring in a photocopy of your bank book, proving that you have at least 50 million won in your account.
Thanks for the details Mr. Carr–personally it seems offensive that people would need to change their names and that the gov’t generously lends a hand to society’s bigotry. You would think after Japanese colonization people would be a little more sensitive about suggesting name changes.
I agree about the non-discrimination law and share the general skepticism that the “rule by law” gov’t here would enforce it.
mins0306 is correct that DSME has a military segment in its shipyard, and for this reason a majority will not be sold to any foreign company.
According to Lloydslist, an interesting and delightful conflict of interest is the fact that DSME’s union wants Korea Development Bank to sell its share piecemeal to individual investors, and buy Korea Asset Management Corporation’s stake of the company, leaving the union as the single greatest sharholder. I guess striking would only shoot themselves in the foot.
But to correct Dram-Man (and I apologize for being picky), DSME is not really profitable. In fact last year they were in the red. Currently their margin is only about 0.9%
There’s no reason the defense bit can’t be spun off to one of the other shipyards.
And regarding union ownership–just look at United Airlines for an example of why that doesn’t work.
Mins & CaptBBQ> I can understand the military could be a hang-up. Perhaps the question is would DSME be better off with those units split up, which is not unheard of. If I were KDB this would be something to look into, not simply dismiss it out of hand (of course that assumes KDB wants to get the most money out the situation, but KDB is more famous for purusing policy goals of the govrenment, ex. Hynix).
On the other hand, to Mins’s comments, arguably a foreign firm could own the defense end of DSME. What I cannot understand is why such is not simply part of selecting “appropreate” bidders. I think that just barring ANY foreign bids smacks of exactly the problem I am referring to.
CptBBQ> Granted DSME is not too profitable, but it that does mean that it cannot get a good price given the state of the shipbuilding market right now. If you ask me the commercial building division may be the perfect target for a turnaround firm. (then again to harken back to my KDB point above, we all know how Korea loves the idea of sales to foreigners that may result in leaner profitable operations, note KT&G).
This is because in order to be recognized as a foreign company, with the benefits granted to Foreign Direct Investors, you need a capital of 50 million KRW.
$55,000 for an investor visa? That sounds like a bargain.
Correct me if I’m wrong, but aren’t naturalized Koreans actually required to take a Korean name as part of the naturalization process or is it just customary? Computerized Korean forms frequently limit personal names to four spaces, so the last syllable of my surname always got chopped off.
@#5
Japan didn’t invent economic development under the umbrella of protectionism. The British and Americans practiced it, too, during their respective periods of industrialization. Export-led protectionism only works if the other guy doesn’t protect his market from your goods. I’ve written my reps and am keeping my fingers crossed that the US Congress will scuttle the proposed US-Korea FTA.
hi sonagi, i’m still trying to figure that one out. koreans say the FTA hurts them, but so do the americans.
who does it benefit that they’re pushing this through so strongly?
Insip9reg, are you familiar with this paper from Columbia development economist Robert Lawrence and Columbia Japanese economic specialist David Weinstein?
http://digitalcommons.librarie.....an_wps/76/
The professors claim that NON-PROTECTIONIST systems would have markedly accelerated growth in both Korea and Japan. Also, Ricardo and many, many other economists have shown the folly of protection. Beyond simple competitive advantage/division of labor gains, free trade and acceptance of FDI also helps foster human capital buildup (education) and transfers technology to poorer countries, leading the Columbia professors to claim that even in the supposed “export-led” growth of Japan and Korea, imports (even in limited quantities) played a major role in forcing those companies to modernize and compete on the global scale.
After all, where is INDIA in your list of “protectionist dynamos”? Oh, I forgot…most if not all large Indian companies SUCKED and ripped off Indian consumers when the government protected them.
And plenty of credible economists have claimed that China’s rapid growth is not actually export-caused, but is instead an inevitable consequence of a country of over 1b finally allowing private property and some free transfer of labor, as well as some openness to Western ideas, methods, processes.
barbarian 曰:
If memory serves, in Singapore it’s 3,000 SG$, along with a biz plan and other paperwork… So 55K US$ is a bit stiff, in that light…
“who does it benefit that they’re pushing this through so strongly?”
Businesses whose goods/services trade will be liberalized and free trade religionists.