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Korea's ambitious plan to establish Seoul as one of Asia's three financial hubs is adrift, analysts said Friday, as global financial groups are closing their offices here, or downsizing their businesses.
Multinational financial firms pointed out that Korea is no longer an attractive market, saying there are few merits here for them to keep doing business.
"Returns are not impressive anymore while employees' salaries are higher than at other emerging markets," said a director at a U.S. financial firm, asking not to be named. "Strong trade unions and tough regulations are also pressuring foreign firms to leave the country."
Analysts said foreign financial firms are struggling to eke out profits as domestic markets are being saturated due to sluggish growth and low interest rates. Cutthroat competition with local players also puts pressure on them.
Worse, the Park Geun-hye government appears to have no interest in turning the country into a financial hub, officials said.
"Under Park's leadership, even the financial hub slogan has disappeared," an official from a foreign financial firm said. "Previous governments at least tried to attract foreign financial firms, but even such efforts are hard to find these days."
Asia's fourth-largest economy is expected to have posted less than 3 percent growth last year, and global investment banks said they've found no reason to expect better this year. The nation's central bank is holding its key interest rate at 1.5 percent, the lowest ever, to boost private consumption and corporate investment, but no signs of recovery are yet being seen.
The financial regulator said earlier this week that U.K. banking group Barclays is moving to shut down its banking and securities business here, as part of its plan to exit from non-core businesses. U.S. banking giant Citigroup also completed the sale of its consumer finance subsidiary in the country to local player Apro Service Group.
Last year, British banking heavyweight Royal Bank of Scotland decided to close its banking and brokerage businesses in Seoul, following its compatriot HSBC which shut down its retail banking unit in 2013.
Market watchers said such an exodus of global financial firms hurt the government's strategy to build Seoul into one of Asia's key financial hubs. The financial regulator has pushed for the plan for more than a decade since December 2003 when it unveiled its dream of being one of three financial hubs in the region along with Hong Kong and Singapore by 2015. But now, few believe that Seoul is on the same level with those two Asian powerhouses.
Experts said that the country needs to change its direction from becoming Asia's top-tier financial hub to offering business opportunities for financial firms from emerging countries in the region.
"I don't think that it is realistic that Seoul will replace Hong Kong or Singapore," said Park Kwang-woo, a professor at the college of business of the Korea Advanced Institute of Science and Technology (KAIST). "We need to develop our own model, attracting investors from emerging economies in Asia, including China."
The government said it is sorry to see global financial firms withdrawing from Seoul, but attributed this to their own global strategies, not the problem of the Korean market.
"The exit of Barclays is not Korea's specific issue, but the group's own issue of global restructuring," said Choi Hee-nam, the deputy finance minister of international affairs. "It is due to worsening business circumstances in the international financial markets, not a problem of the Korean market."
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