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This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk – South Korea
2015 represents President Park’s last chance to make an impact on the economy. Success depends on passing key economic reforms through the National Assembly. Progress on regulatory reform especially important for UK businesses. FinTech is the current top priority for Korean financial leads - and an open-door opportunity for the UK.
2014 GDP growth at 3.4% was 0.5% less than projected. The huge stimulus package announced by DPM/Finance Minister Choi in June, followed by the Bank of Korea’s interest rate cuts had little impact. The Bank of Korea has just revised down its 2015 GDP growth forecast to 3.4% from 3.9%, departing from the Government’s forecast of 3.8% (which is in line with the OECD’s).
Main concerns are rising consumer debt and slowing demand for Korean exports in the face of China’s increasing competitiveness and the ever-weakening yen. The low oil price helps many manufacturers but will hit orders for ships and steel and the petrochemical sector.
On 12 January, President Park renewed the focus on her three year economic plan: prioritising structural reforms in the public sector, labour market and financial services; nurturing the creative economy (3D printing, big data and green technologies); and maintaining her regulatory reform agenda. The Ministry of Strategy and Finance has since provided detail:
Public sector reform: reform civil service pensions; further reduce debt in state-owned corporations; increase private finance in public projects;
Labour market reform: narrow the gap in terms for temporary and permanent workers; strengthen the social safety net; encourage flexible working hours; increase the active workforce though long-term immigration and female participation;
Financial services reform: develop Korea’s FinTech industry to support internet banking and e-commerce (the Finance Minister and FSC Chairman have both identified FinTech as a top priority for financial services in 2015); and improve regulations to encourage venture capital and private equity.
Park’s plan aims to rebalance the economy away from dependence on exports to increased domestic consumption. Rising household debt poses the greatest barrier to this.
The focus in 2015 is on managing the debt, including by encouraging households to move to longer-term fixed rate loans, and promoting debt restructuring among small businesses. Changes to mortgage rules failed to boost the property market as intended, and have been criticised for encouraging further household debt.
Korean exports achieved record levels in 2014. FTAs with Australia and Canada have entered into force. Completion of an FTA with China is imminent but could face obstaclesin the National Assembly: compensation for farmers will be needed. On TPP,progress is slower. The Government hopes foreign companies will take advantage of Korea’s FTAs, in particular with China, to establish production bases here. The Ministry of Trade, Industry and Energy claims that FDI pledges in 2014 increased by over 30% on the back of this potential.
Regulatory reform continues to be a priority. The Korean Prime Minister’s office recently introduced a “cost-in cost-out” system modelled on the UK’s one-in one-out, and is rolling out training based on UK Better Regulation best practice across all 38 government departments and agencies. Embedding the system now depends on approval of draft legislation by the National Assembly.
Any FDI boost from Korea’s FTAs will be limited unless there are also improvements in the regulatory environment. That will require culture change across ministries. Many UK businesses, particularly in financial services, tell us they only see things getting more challenging.
FinTech has shot up the policy agenda in recent weeks and is an obvious business opportunity. It is likely to be a major topic of the next UK-Korea Financial Forum planned to take place in Seoul in April. We have also received expressions of interest in UK experience on the innovation and cyber security aspects of FinTech. A technical visit to the UK by Korean experts next week will be the first step in positioning UK companies to capitalise.
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