Korea's financial hub vision becomes more 'elusive'

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China's financial liberalization puts Korea in worse footing

By Lee Kyung-min

Korea's long-term vision of becoming a financial hub in Asia has become more and more “elusive” as China has decided to open its financial market worth $45 trillion (52.5 quadrillion won) by removing regulations on the ownership of foreign financial players operating there.

Given that Korea is already struggling to attract foreign investment due to its militant unions and anti-business policies, this latest development will make it harder for Seoul to become a regional financial center.

A recent report by Bloomberg stated that the Chinese Communist Party will “enact the most sweeping changes in decades this year― starting with its insurance and futures markets ― to allow the likes of Goldman Sachs Group, JPMorgan Chase & Co. and BlackRock to expand their footprint in China and also compete with local firms.”

Once Beijing's plan is put into action, foreign financial firms are expected to invest $1 trillion over the next few years, expecting annual profits to top $9 billion, according to the report.

Drawing particular interest is life insurance, a segment dominated by locals ― China Life Insurance and Ping An Insurance Group.

Under the new changes, foreign insurers will be allowed to launch 100 percent-owned units offering life insurance. Also, overseas firms can set up their own entities to trade futures in a market crowed by 150 local players.

A night view on Yeouido Stock Street in Seoul / Korea Times file

Market experts said that China's move will put Korea on a worse footing as the country's attempt to become a financial hub has already been hampered by management risks associated with rigid labor rules and anti-business sentiment.

“It has become simply elusive,” Yun Chang-hyun, an economist at the University of Seoul, said.

In Korea, foreign businesses except for some sectors such as telecommunications are able to set up corporate entities, branches and liaison offices.

Yet their collective reluctance to stay here is growing, illustrated by many of them moving out and relocating to countries with more favorable business conditions.

“Korea fails to induce inbound businesses not because of regulatory hurdles, of which there are close to none, but because of other uncertainties most of which will not be cleared up anytime soon. No wonder that foreigners flock to China where they deem opportunity and potential for growth abound,” he said.

Lee Chae-woong, a professor emeritus of economics at Sungkyunkwan University, agreed.

“Since the idea was first floated about 20 years ago, nothing concrete has occurred,” he said.

The only consistency is that the private sector has always had the motivation to pursue the project, an initiative repeatedly frustrated due to a lack of shared sense of urgency compounded by complacency in the minds of the financial authorities.

“Different administrations wrote countless reports for viability reviews for the same project. At the end of the day, it all comes down to whether the government has the vision and insight to support what is likely to be a long, hard task. None had them, few will,” he said.

Unrest in Hong Kong

Some experts said that Korea should take advantage of the continuing unrest in Hong Kong.

Korea is well positioned to elevate its status as the Asia's financial hub with the ongoing unrest in Hong Kong, according to Kim So-young, an economist at Seoul National University.

“At the risk of sounding opportunistic and callous, I think this would be an opportune moment for Korea to advance the long-awaited initiative,” he said.

True, China is the world's second-largest economy, but Korea in his view is far better in terms of financial market development with considerably enhanced global recognition backed by stable market operations.

“With the unrest in Hong Kong being dragged out much longer than previously expected, uncertainties about capital outflow and its possible subsequent loss of status as a financial hub have grown over the past few months,” he said. “The choice now is how we can best use this before it becomes an opportunity lost.”