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Mon, February 6, 2023 | 01:46
Economy
Is Seoul's financial hub vision feasible?
Posted : 2016-04-24 20:59
Updated : 2016-04-24 21:56
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The Korea Times interviewed five global finance experts to see why Korea is losing its attractiveness as an investment destination and how the country should shift its strategy to become a financial center in Asia. The following discussion has been reconstituted based on separate interviews conducted through phone calls and emails from Apr. 6-20. ― ED.

Korea advised to give up Japanese model, embrace changes

By Kim Jae-kyoung

Jeffrey Jones, international lawyer at Kim & ChangJames Rooney, chairman of Advanced Capital PartnersMauro Guillen, director of the Wharton School at the University of PennsylvaniaGarcia Herrero Alicia, chief economist of Natixis Asia PacificMark Yeandle, associate director ofZ/Yen Group of Companies
Jeffrey Jones, international lawyer at Kim & Chang
Jeffrey Jones, international lawyer at Kim & ChangJames Rooney, chairman of Advanced Capital PartnersMauro Guillen, director of the Wharton School at the University of PennsylvaniaGarcia Herrero Alicia, chief economist of Natixis Asia PacificMark Yeandle, associate director ofZ/Yen Group of Companies
James Rooney, chairman of Advanced Capital Partners
Jeffrey Jones, international lawyer at Kim & ChangJames Rooney, chairman of Advanced Capital PartnersMauro Guillen, director of the Wharton School at the University of PennsylvaniaGarcia Herrero Alicia, chief economist of Natixis Asia PacificMark Yeandle, associate director ofZ/Yen Group of Companies
Mauro Guillen, director of the Wharton School at the University of Pennsylvania
Jeffrey Jones, international lawyer at Kim & ChangJames Rooney, chairman of Advanced Capital PartnersMauro Guillen, director of the Wharton School at the University of PennsylvaniaGarcia Herrero Alicia, chief economist of Natixis Asia PacificMark Yeandle, associate director ofZ/Yen Group of Companies
Garcia Herrero Alicia, chief economist of Natixis Asia Pacific
Jeffrey Jones, international lawyer at Kim & ChangJames Rooney, chairman of Advanced Capital PartnersMauro Guillen, director of the Wharton School at the University of PennsylvaniaGarcia Herrero Alicia, chief economist of Natixis Asia PacificMark Yeandle, associate director ofZ/Yen Group of Companies
Mark Yeandle, associate director of
Z/Yen Group of Companies
Q: Why do you think Korea is losing attractiveness as a global financial center?

Jeffrey Jones: The factors and environment required by a financial center have not been fully implemented ― a flexible labor environment, remaining foreign exchange controls, controls on fees earned by financial institutions, a high volume of audits by the Fair Trade Commission, Korean consumer loyalty to domestic institutions, broad mastery of English and so on.

James Rooney: The biggest barrier to Korea's participation in international finance has been the lack of convertibility of the Korean won. If you want to go beyond just having a domestic financial sector into real international financial intermediation, it is an essential prerequisite for onshore international market participants to have complete freedom to directly convert onshore and offshore monies between different currencies and to be able to transact business in multiple international currencies without any friction. London, Hong Kong and Singapore all have this freedom.

In the present environment, Korea's commercial banks and securities companies will never prove themselves to be competitive internationally because they are not gaining real experience by being active in the international environment. It is too late for this generation of bankers to learn what they need to know to be successful in that highly complex, risky and competitive environment.

Garcia Herrero Alicia: Korea is making the same mistake as Japan, namely protecting the incumbents, namely the domestic financial firms ― true for banks but also other financial institutions.

Q: Singapore has been Asia's top financial center for a long time. What do you think is the biggest difference between Singapore and Korea from the perspective of foreign investors?

Jones: The biggest differences lie in the acceptance and promotion of foreign financial institutions by the Singapore government, liberal regulations including foreign exchange rules, ability to freely establish pricing by market forces, English usage, acceptance of foreign workers and transparency of the regulatory environment.

Rooney: Korea's regulations are oriented toward managing the domestic market, which often has very little relationship to the competitive dynamics and realities of the international market. Neither the regulators nor the market participants get to learn very much about how to participate in the global market.

Muro Gullen: I think it's more of Singapore and Hong Kong gaining more prominence because of their concerted strategies to become financial centers. Seoul will need to come up with a strategy in an already crowded field. The tax regime in Singapore is very attractive. Also, their strategy to attract the headquarters of multinational firms. And English is the language.

Mark Yeandle: The main difference now is that of reputation and sector development. Singapore is very well established as a financial center while Seoul has grown rapidly in recent years. Financial professionals know the strengths of Singapore better than those of Seoul. As an older center, Singapore is more developed in certain sectors of the financial services industry.

Alicia: Allowing for foreign competition explains Singapore's and Hong Kong's success. In addition to this, the integration of foreign talent into local institutions is much more limited in Korea than in Singapore or Hong Kong. Again, Korea seems to be emulating Japan on this, which has proven not to be the winning option.

Q: The next game changer in the financial industry is fintech, or financial technology. Korea is lagging behind other advanced countries. Do you think Seoul's setback as a financial center is attributable to the fintech factor?

Jones: Despite the tremendous IT infrastructure and technological capabilities, the regulatory environment is not conducive to innovative fintech business models. For instance, Korea still does not have an operating Internet bank. The absence of innovation is certainly one of the factors in the city's declining ranking.

Rooney: Korea's big problem in fintech is that our human talent is only gaining experience in homegrown applications and solutions, which are almost entirely disconnected from the standard practices, languages, operating systems and protocols operating in the rest of the world. So we are creating wonderful human talent but who have absolutely no capacity to write software and provide solutions that can be useful outside of Korea, and whose market audience will therefore forever be limited to 50 million people in Korea rather than the 7 billion people around the world ― that is a market-scale difference of more than two orders of magnitude. This makes Korea deeply uncompetitive.

Guillen: Fintech should be an advantage for South Korea given Samsung and the venture scene. Seoul needs to take advantage of its large electronics firms for this.

Yeandle: Fintech is certainly going to be a game changer. However, it is hard to predict how it will affect the competitiveness of financial centers. Seoul performs well in the innovation measures that we track

Q: Do you think Korea's dream to become a major financial center is still feasible? If so, what is the most urgent issue for Korea to tackle to improve its competitive edge as one of Asia's leading financial centers?

Yeandle: Yes. It is certainly feasible. I think there are two things that Seoul needs to do. First, it should continue to internationalize Seoul. Great steps have improved Seoul in the past few years and it is now a more welcoming city for Westerners than it was but there are still improvements to be continued. Secondly, it needs to beef up marketing Seoul as a great place to conduct international financial business. Alarmingly few professionals in the West consider Seoul as a possible location when making location decisions.

Jones: It is possible. It will require cooperation of the financial industry, the regulators, the public, the media and the National Assembly to foster and promote a strong financial sector, innovative business models and a regulatory environment that is responsive to market forces, is transparent and permits financial institutions to be highly profitable.

Rooney: I think that Korea should shift its focus and emphasis to pursuing the implications of "Korea is rapidly becoming the country with too much money," which means that we urgently need to learn and prepare for the safe and successful management of Korea's financial assets outside of Korea, in other people's countries and in investment instruments and products and projects that we are less familiar with than investing here at home.

Guillen: They need to differentiate themselves. Competing against Singapore and Hong Kong will always be difficult. I would emphasize the link to industries in which Korea is a leader, especially electronics.

Rooney: We need to open the doors and attract experienced foreign talent, make it easier for Korean investment into overseas and into advanced products, and realize that managing finance and investment is fundamentally driven by accumulating wisdom and experience over a long period of time, so that the sooner you start, and can learn from your mistakes, the better you will do in the long term.

Emailkjk@ktimes.com Article ListMore articles by this reporter
 
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