Over the past 60 years, South Korea has grown into the world’s 13th largest economy (with a gross domestic product in 2007 of $969bn) and the 11th largest trading nation ($726bn in 2007).
The country has rapidly evolved from an export-driven economy based on heavy industries and manufacturing into an IT powerhouse. It now ranks first in the global shipbuilding industry, third in semi-conductor production, and is the world’s fifth largest builder of automobiles, powered by national flagship companies such as Samsung, LG, Hyundai Motor and POSCO. Now the country is firmly on course to develop as a global financial centre.
High Growth Potential
Building on solid economic fundamentals, Korea is well placed to capitalise further on its achievements.
In particular, the growth potential of its asset management industry is substantial. Many economies in Asia, including Korea, are still either in their early or intermediate stages of development. As these economies continue to mature, their capital markets will expand in parallel. There is a growing demand for services to invest and manage assets, and Korea is well positioned to adopt a more active role in asset management for the region and grow this sector.
Additionally, Seoul provides convenient access to 51 cities in north-east Asia that have populations of more than one million and are located within a three-hour flight. This gives it a unique geographical advantage.
Business-Focused Reform
In 2003, the Korean government initiated a roadmap for developing Seoul into an international financial centre, and today the government continues to push for this in close collaboration with the Seoul Metropolitan Government (SMG) and the financial services sector.
This is best illustrated by president Lee Myung-Bak’s goal to further position the financial services sector as the nation’s growth engine. The president’s CEO-like management style is characterised by his strong leadership and determination to get things done.
Market observers expect that he will push for further deregulation and reforms to sharpen Seoul’s competitiveness in financial services and attract more foreign investment. Already the government has reaffirmed that any remaining foreign exchange controls on capital account transactions will be removed by 2009.
The Capital Market Consolidation Act (CMCA), enacted in 2007, will also create long-term benefits for the development of the local capital market. It aims to eliminate blocking walls between futures, asset management and securities companies to strengthen Seoul’s position and competitiveness. The CMCA will help to open the market further, making a wider variety of investment products available to local investors.
Furthermore, the designation of an ‘international financial district’ will be made by the end of this year. Accompanying this, further deregulation of the financial market, reform of the tax system and more accommodating immigration policies are expected, to support Korea’s goal to attract more foreign investment.
Jun Kwang-Woo, chairman of the Financial Services Commission (FSC), emphasised that he “will put top priority on deregulation and encourage the general public to acknowledge the importance of having a world-class capital market”.
Talent and IT Infrastructure
A best-in-class capital market is not possible without a sufficient supply of highly skilled financial talent. Although Korea may lag behind other major cities in the region in this regard, there are opportunities for the country to better use its well-educated and technology-savvy population to boost its competitive edge.
According to official statistics, 31% of Koreans are educated to college level. Already the country boasts 88% university enrolment, and the education level is likely to increase in the years ahead. This year, the SMG began collaborating with local universities and industry organisations to establish the Seoul Asset Management School and to develop professionals with practical experience in asset management.
The financial services sector critically relies on IT to rapidly process an enormous amount of data. With its reliable and advanced IT infrastructure, Korea can ensure the efficient and effective processing of all types of financial transactions, thereby creating a strong competitive advantage in terms of operations and administration.
The Shared Vision
The SMG has launched several initiatives to support the overall goal of developing Seoul as an international financial centre. For example, the Globalisation Project aims to improve the quality of life and broaden the business environment to bring the city on a par with other world-class locations.
Oh Se-Hoon, mayor of the SMG, says: “I believe Seoul will become an attractive investment destination only when we are able to provide an attractive, convenient and pleasant living environment for international residents.” SMG is spearheading the establishment of more international schools and English-speaking clinics to offer more facilities and support services to expatriates and their families.
Part of the city’s plans to transform itself into a major international financial destination is the International Finance Centre Seoul (IFC Seoul). Set to begin transforming Seoul’s skyline by 2010, this project is a unique collaboration between AIG Global Real Estate and the Seoul Metropolitan Government.
Designed to create a dynamic environment for international business, the 5.4 million-square-foot (500,000-square-metre) development is a world-class, mixed-use development with plans to include three towers of grade-A quality office space, a five-star hotel, a retail mall, fine dining and a multi-screen cinema.
“We know from our international development experience that global financial services firms seek certain attributes for their office space,” says William F Freeman III, president of AIG Korean Real Estate Development YH.
“As planned, IFC Seoul will be constructed to meet those needs in a wide variety of ways,” he adds.
“Many cities have the ambition and aspiration to become international financial centres,” says Kim Kihwan, chairman of the Seoul Financial Forum. “However, the key to success will depend upon whether there is a consensus or shared vision among the critical stakeholders, including the government, its people and the industry in general that a dynamic, world-class capital market is critical to the overall economy of the country.”
Seoul certainly is well positioned to transform its vision of becoming a global financial centre into reality.
FACTS & FIGURES
Market capitalisation$957bn (as of January 2008), almost tripled in the past five years. (Proportion of foreign shareholding at 32.39% as of December 2007)
Market value of listed bonds$883bn (as of January 2008)
Foreign exchange reserves$262bn (as of December 2007), ranked sixth in the world, and with daily foreign exchange transaction amounting to $46bn in 2007
National pension fund$228bn (as of August 2008)
Total assets under management(of securities, MMF, derivatives, real estate, commodities, fund of funds special assets) $335bn (as of May 2008)
Korea’s saving rate30.6%, as of 2007
Sources: Bank of Korea, Korea Exchange, Ministry of Strategy and Finance, Asset Management Association of Korea.
