Financial hub in East Asia: a pipe dream?

By Hank Ahn

Commissioner, Invest KOREA

These days foreigners are envious of Korea’s rise to 16th place on the Global Financial Center Index (GFCI).

It’s amazing that Seoul ranks third as a global financial center likely to become more significant and fourth as a global financial center where new offices are likely to be opened.

Seoul outranks Beijing, Taipei, Paris, Luxembourg, Dubai, and Amsterdam, according to the Z/Yen Group in London. Six cities are ahead of Seoul in Asia. Given the marginal ratings difference with Sydney and Shenzhen, Seoul may catch up to them in the foreseeable future.

Hong Kong is ten points behind New York and sixteen points behind London. Since Hong Kong and Singapore scores 108 and 71 points more than Seoul, respectively, they may belong in a different league from us for a while.

However, both Shanghai and Tokyo score 43 points more, which is identical to the number by which we improved in a year. Therefore, it is not a pipe dream for Seoul to aspire to be included in the world’s top five centers by outpacing both cities.

These impressive results didn’t come up out of the blue. Korea keeps presenting outstanding records in various areas.

Korea is No. 1 in terms of broadband access, Global Innovation Index, e-Gov Development Index, and patent productivity. Korea is No. 3 in terms of IT technology skills, scientific infrastructure, and Global Manufacturing Competitiveness Index.

In terms of R&D expenditure as a percentage of GDP, Korea is included among the top five spenders. Korea ranks 11th worldwide in terms of number of conferences held. Newsweek announced that Korea ranks 15th in the “World’s Best Countries.”

According to the World Bank, Korea is 16th best country in terms of ease of doing business. According to EIU, Korea ranks 20th after the U.K. in terms of Democracy Index and is number one in Asia.

Korea has a world-class logistics network in place, comprised of Incheon International Airport, which has been named the world’s best airport in passenger service for six years and is world’s second in cargo volume; Busan Seaport, which is the world’s fifth largest in cargo handling; the world’s 5th high-speed railway, and a strong network of highways.

All these wonders have contributed to Korea’s rapid rise in the GFCI ratings.

Five key areas of competitiveness include the “people” index, which summarizes the availability of business education and the skill-set of the workforce; the “business environment,” which aggregates and values regulations, tax rates, level of corruption, economic freedom and the ease of doing business; and the “market access,” which looks at the various equities and bonds available, the volume and value of trading, and the cluster effect of different financial service companies.

The others are the “infrastructure,” which accounts for the price of real estate and public transport, and “general competitiveness,” which relies on price levels, quality of life, and economic sentiment.

What should we do to be a leading center? The following survey of financial professionals gives us a hint on the measures we must take:

• 43 percent are considering leaving London and 11% are departing soon;

• of these, 86 percent of individuals blamed the cost of living and 69% the quality of life;

• 75 percent of the institutions blamed the tax burden as a reason for their departure.

Debates on the strengthening of regulation have been hot in the wake of the global recession.

Consensus builds around the view that it’s more important to have regulations and supervisions that focus on “macro systemic integrity” rather than “excessive conduct of trade detail” that reduces competitiveness and hinders transparent and effective regulation.

I should note that concerns about stability and clarity of regulation are raised by foreign businesses.

Since London and New York must work closely in partnership with other international financial centers to keep their lead, we need to create partnerships with them. Further, partnerships with Hong Kong, Shanghai and Tokyo should be added.

Like we converted barren mountains into forested mountains over the past five decades with persistence, we can make Seoul the financial hub in East Asia. Dreams do come true for those who dare to dream.