KIC CEO Chin Young-wook

By Oh Young-jin

Chin Young-wook, CEO of the Korea Investment Corp. (KIC), is among Korea’s leading financial experts in both practical and theoretical terms.

The 59-year-old has been in charge of Korea’s sole sovereign wealth fund, which was set up in 2005 with $17 billion entrusted by the Bank of Korea and the finance ministry.

Three years has passed since Chin took control and the KIC is expected to balloon to $50 billion by the end of 2011. KIC’s growth reflects the many varied deals and agreements made under Chin’s initiative in the financial world.

So it seemed quite appropriate to ask him about two of Korea’s currently most vexing questions concerning the financial industry during a recent interview at his downtown office. The first inquiry concerns why Korea is not taken seriously in the international financial arena and the second involves the Lone Star conundrum.

Chin is dead against Korea becoming a financial hub.

Mainly, he believes that Korea would have more to lose than to gain by trying to become one.

Rather, the goal should be to nurture the manufacturing foundation.

“First, language barriers stand in the way,” he said. “Then, Korea’s limited capacity to open up is a second obstacle.”

More elaborately, Hong Kong’s emergence as a regional financial hub is closely related to past British colonization that led to an enormous amount of investments from western countries with few limiting factors such as different languages or unfamiliar rules. A local joke credits Filipina maids for playing a key role in Hong Kong’s growth as their presence contributed to the comfortable lifestyle there for foreigners.

On another note, SC First was recently under probe for trading metals by Korean regulators.

In financially advanced countries, precious metal trading is permitted. Thus the question arises of how far Korea can go in terms of deregulation.

“I don’t think becoming a financial hub is worth the risk,” Chin said.

It is not hard to see how devastating excess deregulation can be in the ongoing Euro-zone crisis, Ireland being the prime example. Thus, he suggests a cool-headed evaluation of which sector between the manufacturing and financial industry that Korea has a comparative advantage.

“Can we emulate Britain or the United States,” Chin asks, not waiting for an obvious answer.

Instead, he sees Japan and Germany as models for Korea. Despite the natural disasters that have wiped out towns destroying both human lives and material wealth, Japan can get back on its feet because of its robust manufacturing base.

Chin raises an issue with one aspect of the culture in Korea Inc.

“Children of industrialists who toiled at factories now turn to financial products for a quick payoff,” Chin said. “It may eventually eviscerate the backbone of Korea’s manufacturing power.”

“When they can make 10 times what their father took a lifetime to earn through a financial product, what do you think they will do,” he asked. “They lose it all by futures trading.”

He said that he was happy to see top talent from top schools gathering in his firm,” he said. “It sometimes feels bittersweet.”

Regarding Lone Star’s entanglement, Chin also stands out from the crowd that is still reluctant to let the Texan buyout fund get away with big profits from its sale of a controlling stake in the Korea Exchange Bank (KEB).

“I know of the power of our court of public opinion,” he said. But holding on to Lone Star has been costly on two fronts for Korea.

First, the buyout fund has reaped far more than its investments through big dividend payouts, leaving KEB with little to invest for its future. “KEB ended up losing its core competencies.”

In a recent National Assembly meeting, the mood was set against allowing Lone Star to make an exit. The participating bureaucrats were also not forthcoming with any prompt action to resolve the Lone Star problem.

As a matter of fact, the Financial Services Commission (FSC) recently delayed a decision on whether to approve Lone Star’s withdrawal, effectively killing the chance for its sale to Hana Financial. The announcement followed the National Assembly meeting.

Even if the deal is finally derailed, Lone Star still could sell its stake in parts, which would still enable it to pocket a significant size of profits on top of its investment.

Secondly, it is undeniable that the tug of war between Lone Star and financial regulators has provided prospective foreign investors with reasons to think twice about Korea.

Some Korean regulators have tried to explain away the anger of foreign investors by cultural differences but insufficient reasoning cause some to cite it as an example of Korea’s xenophobia.

Chin offered SWFs as an alternative for Lone Star, pinpointing as the heart of the Lone Star problem its purchase of management control. “SWFs have little interest in management,” he said.