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SOUTH KOREA: POISED TO BECOME THE NORTHEAST ASIAN FINANCIAL HUB?


July 31, 2008 Source:  www.AsiaEcon.org South Korea is implementing economic policies and projects to develop the country into a Northeast Asian business hub country.


 

July 31, 2008

Source: www.AsiaEcon.org

South Korea is implementing economic policies and projects to develop the country into a Northeast Asian business hub country. The business hub economic model shifts the economic goals and focus of a country away from the manufacturing sector to the financial sector. The primary goal in shifting this focus is to become a player in the global capital markets.

In April of 2002, the South Korea government announced its long-term master plan of making South   Korea a Northeast Asian business hub country. This plan includes, among other things, a ‘logistics center’ including development of an international airport, innovative constructions projects like the Trans Siberia Railway(TSR) and Trans China Railway(TRC), and encouraging creative market environments.

One example of a creative market environment is South Korea establishing a plan to establish a “Special Economic Zone” near the Western sea region of the country. The Special Economic Zone is set up to attract the foreign investors to South   Korea and includes the following incentives: tax cuts; deregulation for foreign business; and establishment of accommodation and education facilities foreigners. The Special Economic Zone goals also include further developing the country’s IT network and its digital media industry.

While South Korea is serious in its intent to become the Northeast Asian financial hub, it faces competition from other East Asian countries equally intent on becoming the center of the international finance for the Northeast Asian Region. South Korea does, however, have some distinct and important advantages over its competitors.

First, there is the scale of the South Korean Economy. The South Korean economy is highly developed and one of the four largest economies in Asia and the thirteenth largest economy in the world, based on GDP terms. South Korean is home to major industries and several big companies, like Samsung, Hyundai, and LG. These and other major companies are great sources for creating big investment demand and large scale financial transactions. Second, there is the geopolitical influence of South Korea. It is located between Japan and China, and 20% of the world’s economy is produced in that region (World Bank, 2007) A third advantage is the economic motivation and drive of South Koreans. They are very quick, savvy, and decisive in making transactions. South Korea’s educational system is highly regarded worldwide and produces a highly talented workforce. Forth, South   Korea has a well established financial industry. South Korea has 9 major financial institutions that are among the largest 100 financial institutions in Asia. The South Korean financial markets are strong and active. Fifth, South Korea is extremely advanced in technology. The IT infrastructure is well established to support 24-hour financial transactions of stock exchanges and foreign exchanges. A final distinct advantage that South Korea has over its competitors is its government policy. Unlike other countries in this region, the South Korean government is determined to reform the financial sector to highest and best used.

The above-mentioned factors give South Korea the greatest potential to be a financial hub for Northeast Asia. However, several obstacles to South Korea achieving its goal. One fundamental question is whether South Korea can really establish a strong financial center presence in this region, as Hong Kong, Singapore, and Japan have done. Many economists argue making South Korea an important financial hub is contingent on development of the country’s infrastructure. Experts opine there are two types of infrastructure, which are equally important: hard and soft. Hard infrastructure includes information technology (IT), telecommunications and transportation/logistics. Soft infrastructure includes many and varied issues, e.g, tax policy, market protection, competitive financing, high costs of labor, and relationships with neighboring countries.

The geopolitical history and tension of the region raises some concerns. South Korea has political issues with both Japan and China. Because of historical and ideological conflict among them, the kind of cooperation that is needed to integrate South   Korea into a position of economic power will not be so easily achieved and will require much work.
Furthermore, Korea has to acknowledge the ascendance of the Chinese economy, and the likelihood that China will become the world’s leading “factory” for manufactured goods, and they must realize growing markets that is being provided by developing economies in neighboring countries. Now it is up to South Korea and other East Asian countries to turn this economic chance in to economic opportunity. .

The South Korea economy has been called “a miracle” for its surging economic growth. As such, the South Koreans government’s recently initiated vision to transform the country into a world class business and financial center is achievable, but need time. South Korea’s greatest resource is its own people-a highly educated and motivated workforce. South Korea rose from poverty to become one of the richest country in Asia in a few short decades. As long as South Korea stays focused on its plan and coping with the challenges presented to it. There is no reason why South Korea cannot become the Northeast Asian financial/business hub and become a partner with both China and Japan.

Source: www.AsiaEcon.org

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Source: www.asiaecon.org |


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