Monday, October 27, 2008

South Korean captures Skate America women's title

South Korea's Kim Yu-Na captured the Skate America women's title here Sunday, the 2008 world bronze medalist winning the free skate and short programme in figure skating's season opener.

Kim took the free skate Sunday with 123.5 points to 115.07 for second place Yukari Nakano of Japan and 110.62 for former world champion Miki Ando of Japan in third.

Kim captured the overall crown with 193.45 to 172.53 for Nakano and 168.42 for Ando with reigning world junior champion Rachael Flatt fourth on 155.73.


The secret to happiness in Seoul


Free economic zone in Songdo takes shape

As an international banker on Wall Street and in Tokyo, and as a mother who raised two kids in London, Min Hee-kyung knows what expatriates need the most.

Many years of relocating and sending kids to international schools greatly helped her in landing a job as a city marketer, she said.

"What expats are concerned the most with is education for kids and quality of life," said Min, who is director general of the Incheon Free Economic Zone`s Business Opportunity Bureau. In her recent two-hour long presentation for international investors, where the mayor of Incheon attended, she said she was bombarded with questions, mostly about educational facilities and living conditions.

The Incheon Free Economic Zone, comprised of the three regions of Songdo, Cheongna, and the island of Yeongjong, is the first free economic zone in Korea, designated by the government in 2003.

The IFEZ aims to transform these three areas into hubs for logistics, international business and leisure for the Northeast Asian region. The zone is a specially designated area to create a favorable business and living environment where foreign nationals can live and invest conveniently.

"Our best selling point is quality of life," she said. IFEZ is planned to be a self-sufficient living and business district featuring air and sea transportation, an international business center, financial services, international schools, hospitals, and shopping and entertainment centers.

Many regard the free economic zone as a test bed for Korea`s ambitious plans to transform itself into a global financial powerhouse. The plan to use the financial hub to draw global capital and financial professionals is vital to sustainable economic growth in Korea and the rest of Asia, experts say. In the wake of the global credit crunch, many regional companies have limited or no access to capital as they heavily rely on offshore financing.

"The crisis underscores the significance of the role of capital markets for the economy. Developing a financial hub will be strategically more important for Korea," said Kim Ki-hwan, chairman of Seoul Financial Forum.

Songdo will be the world`s first city to be designed as an international business district. It is the largest foreign real estate development project.

"If you look around Asia, many of the traditional cities such as Singapore, Hong Kong and Shanghai have created a financial hub," said Stan Gale, chairman of Gale International, the majority partner in the development of Songdo International Business District.

"Korea, located between China and Japan, is trying to make its own version and its first step towards a financial hub."

The conventional city development process starts creating residential districts, followed by the development of commercial property and office districts. In the case of Yeouido, it took more than five decades to make the area into what it looks like today. In Songdo, the whole process is taking place at the same time.

"We need to have a little bit of everything from the beginning," Min said. She travels abroad almost every month to hunt for potential clients. One of her toughest challenges in terms of promotion is reducing the perception gap between international investors and Korean residents.

"Most of international investors have an image of a rice paddy or production factories when they think of outside Seoul," she said.

Min has a long list of potential clients, including everything from multinational corporations, schools, museums and hospitals. Her target clients are those corporate executives who have plans to expand their Asian businesses, relocate some part of their operations or move their head offices into Incheon.

Still, Songdo is relatively inconspicuous outside of Korea and it may need more time to draw the attention of international investors, she said. Most industrial construction sites have been sold out. Some 100 foreign-invested companies, including 30 multinational corporations are expected to start their operations in 2010 and students and teachers from all over the world will pack into classrooms and university campuses.

"We`ll be able to move forward faster than now once we reach the tipping point," she said.

The new city is not just about new roads and parks and buildings, but the atmosphere and the cultural aspect of the city is another important pull factor to induce more international residents here.

"Bringing a more diversified pool of students here will definitely help us to make Songdo vital and full of life and create communities for international residents," she said.

A focused strategy, legal framework and a favorable eco-system are the critical success factors in setting up a financial hub, experts say.

"A differentiated value proposition is key to attract international investors," said John Meinhold, a global partner of A.T. Kearney.

The most challenging task to make Songdo into a truly international city is perhaps to change the way people think.

Many international investors find real estate-related regulations in Korea too complicated, calling for the need to cut through red tape. So far, the central and local governments have been too slow to make progress in their deregulation process.

"It is a complex issue, which would require extra work to deal with public sentiment and policy coordination between local and central governments," Min said. (27 Oct 2008) ◦

U.S. beef imports in South Korea up sharply in September

SEOUL, Oct. 26: U.S. beef imports surged in September, fueled by consumer demand for premium sirloin and rib cuts, a report by the Agro-Fisheries Trade Corp. said Sunday. The state-run corporation said U.S. imports totaled 7,030 tons worth US$43.98 million, or roughly 35 percent of the total quantity of beef brought into the country in the one-month period. In terms of total value, U.S. beef accounted for 43 percent of all imports, as U.S. cuts fetched higher prices than those imported from Australia and New Zealand.

South Korea imported 20,253 tons of beef worth $103.13 million last month. After banning U.S. beef imports outright in December 2003, South Korea allowed boneless beef into the country in April 2007 before quarantine inspections were halted in early October that year. The market was finally opened to most U.S. cuts as of June 26 after a new trade agreement went into effect. The findings showed U.S. beef imports jumped 126 percent in terms of value and 136 percent in terms of quantity compared to August when inbound shipments reached $19.45 million and 2,984 tons.

"There is steady increase in demand for beef ribs that are sold at restaurants," said an official source at Agro-Fisheries Trade. He speculated that at present pace, U.S. beef would easily outpace rivals, especially since the recent gains were made despite the fact that U.S. cuts are not sold at major retail outlets, department stores or large restaurant chains. These businesses have said they will not handle U.S. beef to avoid confrontation with consumer groups who claim that the meat in unsafe to eat. South Korea was rocked by massive nationwide protests after Seoul agreed to lift the long-standing ban on U.S. beef on April 18 this year. Imports of Australian beef, which has been the best-seller in the absence of U.S. beef, fell to 10,501 tons worth $49.47 million in September. The figure still represents about 50 percent of all imports, but is lower than the 70 percent market share the meat enjoyed in May. New Zealand beef, which ranked second, lost more ground with imports falling to 2,312 tons worth $8.42 million. South Korea also imported small quantities of beef from Mexico and the Philippines. ◦

Suicide in South Korea

An epidemic has taken over Korea.

Suicide has always been a problem. There have been singers and actors who chose to cut their lives short in the past, but recently, such occurrences have become alarmingly frequent. The first in the current wave was movie star Lee Eun-joo, who ended her life in 2005. This was followed by a sting of high-profile suicides, including iconic actress Choi Jin-sil, transgender actress Jang Chae-won, homosexual model Kim Ji-hu and former government official Kim Young-cheol this month.

Many Koreans were shocked by the deaths of the stars they admired. A fan in his fifties killed himself, leaving behind a message: "I am Choi Jin-sil`s fan forever. I am following her." Many women in their 30s and 40s hung themselves in the same way Choi did, soon after the news of Choi`s death shook the world.

On Oct. 5, Rep. Im Du-seong of the Grand National Party cited a report by the Ministry of Health, Welfare, and Family Affairs saying the number of suicides increase greatly after high-profile suicides.

According to the report, 119 more suicides were committed in August 2003 than in the previous month when Chung Mong-hun, the former chairman of Hyundai Group, killed himself. The same phenomenon was seen in February 2005 after actress Lee`s suicide. In particular, the number of women`s suicides shot up to twice the normal rate a month after her death. Call Center 129, an institute run by the Ministry of Health, Welfare and Family Affairs, said that calls from people on the verge of suicide doubled after actor Ahn Jae-hwan recently took his life.

Suicide rate highest in OECD
According to the National Police Agency, 66,684 Koreans killed themselves over the past five years. According to the National Statistical Office, the number over the last ten years is 94,878.

That is enough people to fill a city.

Since 2003, Korea has suffered the dishonor of having the highest suicide rate among OECD countries. In 2007, 24.8 of every 100,000 Koreans committed suicide. That is more than twice the OECD average of 11.2, and nearly 10 times higher than Greece`s figure of 2.9.

Korea`s suicide rate started its rapid increase in the wake of the 1997 financial crisis. The number of suicides surpassed 10,000 for the first time in 1998, increasing by 42.1 percent within a year.

A report from the Health Ministry states that the suicide rate has climbed by an average of 13 percent every year since 2000, and is almost double the 1997 rate, when 13 out of 100,000 Koreans committed suicide. Last year, an average of 33.3 Koreans killed themselves everyday.

It was especially worrisome in 2002, when deaths from suicide exceeded that of car accidents - the most common cause of unnatural deaths in most developed countries. According to a report Rep. Jin Seong-ho of the GNP received from the National Police Agency, 51.4 percent of unnatural deaths from 2003 to 2007 were due to suicide.

Why Koreans commit suicide
Experts say social, political and economic instability is a big reason. "The Korean government has changed hands five times since 1987," says Oh Jin-tak, a professor of thanatology at Hallym University. "The problem is that everything fluctuates when governments change, such as the ruling principles, the tone and even the owners of the press. Koreans are severely insecure politically, socially and mentally."

Economic changes have also led to sudden shifts of Korean society during the past half-century.

Korea`s annual income in 1961 was a mere $82 per person, but increased dramatically during the Park Chung-hee regime in the 1960s and 1970s. Korea quickly became a developed country, and joined the OECD in 1996.

However the joy did not last long. The Asian financial crisis hit the nation in 1997, and 1.49 million people lost their jobs. "The country never actually recovered from this crisis," contends Oh.

Issues such as poverty, unemployment and bankruptcy, which have plagued the country since, then are still considered the most direct motivation for suicides. "It is assumed that the suicide rate rose because more people were undergoing serious economic situations such as inability to pay credit card bills," said an official of the NSO this month.

The largest increases in the suicide rate have come after economic problems. The number spiked after the Asian financial crisis. It settled down for a year or two while the country was healing from the shock, but has increased since 2001. In 2003 when a credit crisis spread through the country, the suicide rate jumped again, to 24 per 100,000.

It appears Korea is going through more economic malaise. Per capita income has dropped to $15,000 this month from $20,045 at the end of last year. In turn, the suicide rate is rising.

The internet has emerged as a new factor in increasing suicides, say experts. Korea is one of the most advanced IT countries. Ninety-seven percent of Korean households enjoy high-speed internet, while 35 percent in Britain are still not signed up to any internet services at all.

But fast internet access does not always result in positive social results. Groundless rumors and real time replies to online gossip stories is thought to be the biggest reason celebrities choose to kill themselves. People also tend to make hasty decisions online. In 2003 a group of teenagers committed suicide together after meeting through an online suicide community.

Some teenagers even confuse the online world with the real world. In 2006, a 15-year-old boy killed himself leaving a note saying "Seo-mo died ... I will follow my friend Seo-mo, for our friendship." It turned out Seo-mo was only an online character in a game.

"Teenagers who are used to computer games think of death like the reset button on computers. Internet users tend to view the cyber world as reality, so there is a possibility that this kind of misunderstanding will grow," says Oh in his book, "Suicide, the Most Unfortunate Death."

Some experts say that Koreans` tendency to think that this life is all that matters causes high suicide rates. "Concentration on the materialism of this life is the most significant characteristic found among Koreans," writes Jung Su-bok, a researcher at L`Ecole des Haute Etudes of France, in his book "The Cultural Grammar of Koreans."

"It is because traditional Korean religions lack the tension between this life and the afterlife, while other religions formed a theory to connect the two somehow," Jung explains. He argues that the experience of hunger and poverty during Japanese colonization and the Korean War as well as the emphasis on development during the 1970s strengthened this tendency.
This resulted in Koreans` limited knowledge of death and their strong pursuit of wealth.

"Koreans pursue goals such as living a long life, entering first-class schools or companies and marrying a family of good standing," says Jung.

The problem is that many Koreans choose to give up their lives easily when they fail to achieve these goals. Many suicide victims leave notes lamenting how they failed in exams or in businesses, or received plastic surgery that went wrong.

"It is even impossible to count how many women killed themselves because of plastic surgery," says Oh. "Suicide caused by plastic surgery aftereffects will not decrease unless society stops the trend that encourages 'plastic beauty'," he warns.

Lack of social safety net
While ranking first in its suicide rate, Korea`s policies to prevent suicide are considered to be seriously flawed.

The basic step in coping with suicides would be to understand the current situation thoroughly. It seems, however, the government is not even capable of pinning down the exact number of suicides committed.

The statistics reported by the National Police Agency and that of the National Statistical Office do not correlate. The NSO announced that 10,688 suicides were committed in 2006 but the NPA reported 12,968. A discrepancy of around 3,000 is found every year between the two reports.

"There is a difference because the NSO makes their report based on death certificates, but the police use their own investigation sources," explained an official at the Ministry of Health, Welfare and Family Affairs. Some point out families of suicide victims are reluctant to write "suicide" on death certificates.

But experts say both reasons are unacceptable, considering that policies enacted based on either of the reports are woefully inadequate. "This shows how negligent the country is about death - which proudly presents itself as one of the 10 strongest countries in the world," said Hong Geum-ae, chairwoman of the NGO Monitoring Committee of Inspection of the Administration.

"The suicide index is a very sensitive matter to the public. The government should quickly find an alternative plan."

Moreover, experts say that there are many more suicides committed every year than recorded in the report by the police, since many unnatural deaths are classified as having unknown causes. "Over 15 percent of so-called unnatural deaths are likely to be suicides," said Han Gil-ro, a forensic pathologist.

Many analysts criticize the government`s efforts to prevent suicide as being insufficient. "They only mention vague assignments and no specific solutions at all," retorted Oh. He was referring to the "National Strategy of Suicide Prevention in Korea - The Second Five Year National Plan" of the Ministry for Health, Welfare, and Family Affairs.

Oh said that the Korean Association for Suicide Prevention was also unable to perform effectively. "They receive a budget of 500 million won every year, but it is clearly not enough," he said, adding that other countries such as Australia invest much more in preventing suicides.

Many blame the lack of a social safety net for the majority of suicides. Over 35 percent of suicides in Korea are committed by the elderly who are over 60 years of age. The senior suicide rate increased four-fold within 10 years.

"Elderly suicide increased because more seniors are suffering from disease and loneliness," explained an NSO official. Experts remark that a solid social welfare system to help them both physically and mentally would have saved many lives.

This is also the case for the young suicides. According to the NSO, suicide was the biggest cause of death among people in their 20s and 30s in 2007. Most of them were worried about employment. Policymakers have been discussing the issue of youth unemployment for decades, but had they realized it was a matter of life and death to the persons concerned, they may have been bolder in their initiatives.

While the government ponders the issue, the number of people attempting suicide is increasing by the day. In a survey done by the Korean Association for Suicide Prevention among 1,000 Koreans in 2005, 33.4 percent answered "yes" when asked "Have you ever considered committing suicide?" In another recent survey done by a consulting group, 40 percent of unemployed young people said that they had considered killing themselves more than once.

"These kinds of suicides can no longer be regarded as only personal problems," says professor Oh. "A systematical resolution is essential." (27 Oct 2008) ◦

Saturday, October 18, 2008

South Korea's Economy: Half Finished

South Korea's story to date has in big part been the story of what is sometimes called a “developmental state”—that is, one that uses formidable powers to direct and regulate the economy to achieve growth above all else.

The first “Miracle on the Han” worked because the developmental state, after 1961, mostly got things right. Or, rather, it got them right until it got them very wrong, resulting in the 1997 financial crisis. By then, the economy and the way it was financed had become far too complex for traditional guidance, and the state’s sense of omnipotence had blinded it to the need for structural reform. The recovery from crisis accomplished only half the structural reforms South Korea needs. There will be no second miracle unless Mr Lee accomplishes the other half.

Now that he has recovered his poise after the beef fiasco, his supporters argue that Mr Lee is just the man for the job. Under him, says Sakong Il, chairman of the president’s National Competitiveness Council, restrictions will be lifted to augment the country’s low stock of foreign investment. Small businesses will be boosted when the government cuts through red tape and lowers the minimum capital requirement for start-ups to just 100 won, from 50m won now. And rules for investment will be eased in the Seoul metropolitan area, which businesses much prefer to the investment zones in the middle of nowhere promoted by Roh Moo-hyun, the previous president. The council plans to submit 147 laws to the National Assembly this autumn, with the aim, Mr Sakong says, of raising South Korea’s standing in the World Bank’s comparisons of national competitiveness from 30th to 15th.

All this is welcome, but it is not enough. Mr Lee, as a former chaebol executive, will need to prove that he is friendly to markets, not simply to business. “When critics say the chaebol are too big, I don’t know what they mean,” says Mr Sakong. “Bigness itself is not badness; what matters more is whether the actions companies take are legitimate or not.” That is fine as far as it goes. One test for Mr Lee will be whether he and the courts continue to treat the misdemeanours of chaebol bosses lightly. An even more telling one will be whether minority shareholders will be able to seek redress against chaebol trampling on their rights.

Old habits die hard
Traces of the developmental state persist. Although Kang Man-soo, the finance minister, blames heavy taxes, subsidies and regulation for a decline in South Korea’s investment rate, he also promises “a very ambitious plan” of subsidies and incentives for boosting internet businesses such as computer gaming. Known as “e-sports”, this has emerged out of nowhere and become a huge spectator sport, employing 25,000 people in Seoul and spawning nearly 100 game-engineering “academies”.

It is an example of Korean entrepreneurial energies let loose. The government’s proposals seem to represent an old-fashioned instinct to back winners.

Both the country’s patterns of energy use and its attitude towards the environment point more towards the past than the future. Randall Jones, an economist at the OECD, notes that South Korea uses 1.5 times as much energy for every unit of GDP as does Japan. For a country that imports all its hydrocarbons, energy efficiency will, the government says, be pushed to the top of the agenda. As well as promoting a more efficient industry, that will mean weaning Koreans off their gas-guzzlers and improving mass transit.

Seoul’s air, once famously noxious, is much improved, but South Korea lags at conservation. The developmental state is also a construction state, and too often the government seems to feel that nature untrammelled is a chance wasted. Two-fifths of the country’s rich mudflats, or about 1,600 square kilometres, mainly on the peninsula’s west coast, have been “reclaimed”. That has dire consequences not only for fishermen but for seabirds and rare waders too. Almost invariably the government and the construction companies trump environmental interests.

Just as South Korea’s economy is something of a half-way house, so is its democracy. The beef protests seemed to reflect this. Only a short time after Mr Lee had been voted into office, the protesters bringing downtown Seoul to a halt argued that theirs was a more representative kind of politics. That was clearly nonsense. Yet the nation’s political establishment hardly helped its case when the National Assembly was incapable of convening.

South Korea’s labour disputes can also be ascribed to an immature democracy. Workers’ rights were suppressed during years of military dictatorship. Unions have since made up for lost time, and even illegal strikes are tolerated at some of the big chaebol. Yet the strikes do not reflect an unbridgeable divide between capital and labour: rather, nearly all South Koreans are capitalists, and many of the strikers had voted for Mr Lee. Clear leadership from him could do much to put the country’s labour relations on a more stable footing.

The sense of something half-finished colours South Korea’s diplomacy too. Mr Lee has reiterated that foreign policy rests on his country’s military alliance with the United States, which he now calls a “strategic alliance”.

South Korea has already sent troops to Iraq and Afghanistan in support of American-led reconstruction, and Mr Lee says that in future it will spend more on aid and contribute more to peacekeeping and antiterrorism operations. This reinvigorated alliance, the president’s foreign-policy advisers explain, will not only boost South Korea’s global standing but also provide leverage with tricky neighbours, notably Japan and China, where relations are bedevilled by land and history.

That is probably wishful thinking. For no matter what efforts South Korea makes on the global stage, it is still a shrimp among whales in its own region, and even there the power of its American godfather may decline in relative terms. Only the unification of a divided peninsula might bring South Korea the standing it craves. And given the fearsome problems North Korea would carry with it, even that is far from guaranteed.


South Korea's Chaebol (conglomerates): Companies OK; Leaders Behaving Badly

The rapid international rise of companies such as Samsung Electronics and LGE underlines a sea change in South Korea’s chaebol in just a decade. Before the Asian financial crisis the leading 50-odd chaebol were heavily indebted. With the help of cheap credit they had been able to get into any business that took their—or the government’s—fancy. After the crisis, about half the chaebol went to the wall; at the time, Daewoo’s collapse was the biggest corporate bankruptcy in history. The remainder were forced to shed hundreds of businesses or divisions in order to keep afloat and concentrate on what they did best. Those that learned the lesson have done very, very well.

Many of the changes have gone deep. After the crisis, foreign investors were welcomed, and now around half of the shares of Samsung Electronics and LGE are foreign-owned. South Korea made a vigorous attempt to improve corporate governance, increasing the rights of minority shareholders, boosting the role of outside directors, punishing improper disclosure and requiring the chaebol to publish consolidated financial statements. Shareholders may now, at least in theory, pursue class-action suits against the country’s biggest companies.

The previous two progressive administrations, less enamoured of big business than the current one, also took aim at the dominance of the biggest chaebol and their controlling families. By putting a ceiling on shareholdings in other companies held by chaebol-related firms, the Korea Fair Trade Commission (KFTC) hoped to cut through the rat’s nest of cross-shareholdings through which the founding families typically exercise control. The KFTC argued that the complex structures discouraged transparency, disadvantaged minority shareholders and raised the risk that bankruptcy in an affiliate might bring down the whole group.

In practice the new rules were hardly draconian. Exemptions were made for chaebol that had good internal monitoring systems or that formed a holding-company structure. Moreover, no South Korean government appears able to resist the temptation to use the chaebol for policy ends. Some of the biggest ones were exempted from the ceilings on outside shareholdings because they were giving support to Roh Moo-hyun’s favourite initiatives, such as investing in sectors designated as “growth engines”, promising to help build the “enterprise cities” that Mr Roh hoped would spread growth to the regions, or even attempting to do business with North Korea. As a result, the founding families of large business groups, using circular chains of shareholdings, continue to exercise control even though, says the OECD, they hold an average of only 6% of their group’s shares.

In almost any other OECD country this would be a scandal. In South Korea such foibles are too easily tolerated. Moreover, the chaebol’s ruling class displays an extraordinary degree of delinquent behaviour, and only rarely does it suffer the consequences, as it did in the case of Kim Woo-choong and Daewoo’s collapse.

A roster of recent misdemeanours illustrates the point. Last year Kim Seung-youn, the chairman of Hanwha, an explosives, construction and insurance group, confessed to going to a bar and, helped by his goons, beating up the staff. He said it was in retaliation for his own son having been hurt in a scuffle. Last year, too, the chairman of Hyundai Motor (and son of Hyundai’s founder), the world’s fifth-biggest carmaker, was convicted of embezzling $90m from his company. In 2003 the head of SK Group, a telecoms, oil-refining and construction conglomerate, was convicted of illegal share swaps designed to keep the group in family control. All three men were pardoned by President Lee Myung-bak on South Korea’s national day in August. Only Mr Kim served any time in jail.

The biggest case concerns the Samsung Group, South Korea’s largest, and its recent chairman, 66-year-old Lee Gun-hee. Samsung has long been accused of corrupt practices: Mr Lee was convicted of political bribery in the 1990s, though escaped without penalties. In April he was charged with tax evasion and breach of trust. But more serious allegations of bribery were dropped—even though he had been fingered by Samsung’s former chief lawyer, who spoke of a huge slush fund.

Mr Lee has also been charged with transferring control to his 40-year-old son and heir, Jay Y. Lee, by arranging for Samsung affiliates to sell shares to the younger Mr Lee at artificially low prices. After the charges he resigned, on live television, “to take legal and moral responsibility”. Yet though Mr Lee technically faces a life sentence, few believe he will spend much, if any, time in jail. Nine other Samsung officials have been charged, but none has been detained—partly, the government says, out of concern that the economy might be harmed. Although Mr Lee is no longer chairman, Samsung executives in private talk as though he were still running the group.

How do the chaebol families get away with it? Many of them grew from black markets, smuggling and other rackets that thrived after the Korean war in the early 1950s, thanks to vast amounts of American aid and military spending, and to the policies of import substitution favoured by South Korea’s strongman, Syngman Rhee. When Park Chung-hee seized power in 1961, the junta marched many of the racketeers through Seoul wearing dunce caps and placards with slogans such as “I am a corrupt swine”. As Mr Cumings recounts, it was Lee Gun-hee’s father, Lee Byung-chol, who proposed to Park that the swine seek foreign capital and equipment to launch the South Korean economy. Park called in ten of the leading businessmen and agreed not to jail them if they invested their “fines” in new industries that would sell to foreign markets.
The rest is history. To this day chaebol families are more admired for their economic contribution than reviled for their criminal propensities, which are often viewed as the foibles of a ruling aristocracy. The chaebol families are the closest thing South Koreans have to royalty. The clans intermarry and their shenanigans fill the gossip pages, as well as providing much of the inspiration for the television soap operas of the “Korean wave”—yet another South Korean export hit.


South's Korea's Export Juggernaut

JUST as South Korea, in historical terms, sees itself as a little thing among overbearing powers, so many of its businessmen and policymakers now feel that the country’s export machine, the thumping heart of the economy, is being squeezed by two giants. On one side is Japan, whose high technology and sophisticated production give it an edge in exports. On the other is China, whose low wages allow it to compete ruthlessly on cost, even as it learns to make ever more complex products. What, South Koreans wonder, is their economy’s place in Asia’s future?

They may be overreacting. Certainly, China’s rise up the production chain has been swift and, in some cases, ferocious; and the South Korean won has been the strongest of the region’s currencies since Asian growth took off earlier this decade, even if it has softened somewhat this year. Yet South Korea has responded admirably to increased competition and a stronger currency, notching up double-digit export growth for the past five years. It is now the world’s tenth-biggest exporter, and apart from a cyclical slump in Asian export growth that appears to be caused by America’s and Europe’s sharply slowing economies, there is plenty of reason to think that its success can continue for a while.

To date, China has proved a boon for South Korea’s exports. Having overtaken America in 2003 to become South Korea’s largest trade partner, it runs a bilateral trade deficit thanks to large imports of capital equipment and parts from South Korea. This growing bilateral trade reflects the knitting-together of production networks all over Asia, centred on China. China’s share of South Korea’s total exports of unfinished goods—that is, parts—rose from just 1% in 1992 to 27% in 2004, according to the IMF. Now China’s bilateral deficit is narrowing as South Korea imports more intermediate goods from there. Yet much of this is the result of South Korean investment in China.

South Korean manufacturers are still improving their own competitiveness. Partly thanks to modest wage growth, labour productivity in manufacturing has grown by an average of 10% a year since 2002. Indeed, the stronger won appears merely to be the flip side of that productivity growth. Currency strength, certainly, is squeezing profits in some areas, notably for small- and medium-sized businesses that are less efficient than larger firms, as well as for the big carmakers.

South Korean exports have not only grown but become more sophisticated as production has shifted out of low-value-added goods such as textiles that rely mainly on cheap labour. Korea’s spending on research and development is equivalent to nearly 3% of GDP a year, one of the highest rates among developed economies. According to the IMF, high-value-added products—things like cars, consumer electronics and top-of-the-range ships—now make up half of Korea’s exports, up from a quarter in 1990.

South Korea today is more of a whale than a shrimp in several global industries. In memory chips it is home to the world’s biggest maker of flash memory (Samsung Electronics) and the two biggest makers of DRAM chips (Samsung and Hynix). It has the third-largest steelmaker (POSCO), the fifth-largest carmaker (Hyundai Motor), and the world’s three biggest shipbuilders (Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, or DSME). It is a leading producer of mobile handsets and of LCD screens for televisions, computers and much more.

Heavy industry, as Shaun Cochran of CLSA, a brokerage, puts it, is the country’s “sweet spot”. Take shipbuilding. As Hyundai’s founder, Chong Ju-yung, was boasting posthumously in those television advertisements this summer, there was no shipbuilding industry in South Korea until the 1960s. When the country’s dictator, Park Chung-hee, summoned Chong and told him to produce oil tankers, for which there was a sudden demand, Chong went straight to Greece and scooped up two contracts to build 260,000-tonne tankers, promising his customers delivery within two years, sooner than anyone else. He had neglected to mention that at that moment he lacked even a shipyard. He then waved the order in front of Barclays Bank, which lent him enough money to build a modern yard. No one in South Korea knew how to do that, so Chong dispatched 60 engineers to Scotland to learn. The ships were delivered before the deadline. This famous story, concedes Bruce Cumings of the University of Chicago in a refreshingly revisionist modern history, “Korea’s Place in the Sun”, may be apocryphal in its details, yet it has a strong whiff of truth about it.

Korea’s three big shipbuilders are thriving. Competing fiercely against each other, though by unwritten agreement not for staff, their order books are nearly full up to 2013. South Korea has two-fifths of the world market in new ships (which account for 8% of its exports), whereas China and Japan have to make do with a quarter-share each.

Seen from a helicopter, the vast DSME yard at Okpo Kojé island, near the south-eastern industrial port of Busan, looks impressive: great walls of steel rise up from the dry docks as enormous gantries offer up bows and other hull sections to assemble the world’s biggest container ships, liquefied natural gas (LNG) carriers and giant floating depots for storing and processing offshore oil and gas. On the ground, all notions of human scale are lost.

DSME’s chief executive, Nam Sang-tae, says that China is not a chief competitor, despite the state aid from which its shipbuilding industry has benefited. It cannot match South Korea for prompt delivery, and although Chinese shipyards offer low costs, they turn out relatively low-tech vessels, such as bulk carriers and run-of-the-mill oil tankers. South Korean yards are more interested in building, say, high-tech LNG carriers, which keep their cargo at -163ºC.

A new type which Daewoo Shipbuilding was the first to build regasifies the methane before it is piped ashore. The design and manufacture of deep-sea rigs, much in demand now that many oil and gasfields on the world’s continental shelves have been exploited, is even more challenging than building advanced ships, and offers higher profit margins; indeed DSME wants to operate as well as build specialised offshore oil rigs because oil companies pay such lucrative fees.

All the South Korean shipbuilders throw a lot of money at research and development. Each has a large design institute, and they generously support university engineering faculties.

Mr Nam is also sanguine about the effect of shipping’s notorious boom-and-bust cycles on his business. Patterns of global logistics are changing, he says, spurred by a growth in world trade and a China-led hunger for resources, so more ships are needed overall, not just new kinds. Climate change, Mr Nam says, offers further opportunities. The potential viability of Arctic sea routes in future is prompting a demand for vessels strengthened to withstand ice. Another growth area is “winterising” oil rigs to cope with drilling in cold climates. Pressure for cleaner transport also helps (bunker fuel used by most of the world’s shipping is filthy).

Okpo is a company town where DSME has its own hospital, cinemas and international school for the families of overseas clients who come to keep an eye on their ships under construction. There are dormitories for single young men and women respectively, one on each side of the bay. Internet forums host thriving dating and matchmaking services, and newly married couples get to move out of the dormitories into their own flats. The town has an income per person of over $30,000, the second-highest in the country.

Iron constitution
Daewoo Shipbuilding was nationalised when the Daewoo chaebol of which it formed a part continued to pile up debts even when the financial crisis was over, entering new businesses with what turned out to be criminal insouciance. Kim Woo-choong, the chaebol’s founder, eventually admitted to accounting fraud and embezzlement worth over $30 billion, and in 2006 was sentenced to ten years in jail before being pardoned. Yet the company’s shipbuilding arm has thrived.

The government has floated a minority of DSME’s shares on the stockmarket. Later this year it is due to sell the controlling stake to one of four prospective buyers. Among the bidders is POSCO, the shipbuilder’s main steel supplier, which itself was started from scratch by the state in the late 1960s, using $120m of war reparations paid after Japan and South Korea normalised their relations. Foreign investors and development experts in Washington, DC, had given warning that a dirt-poor country like South Korea should not aim for self-sufficiency in steel. Yet the company, which was privatised after the 1997 financial crisis, has become a symbol of national pride. POSCO fed the country’s industrial beast and is now, by several measures, the world’s most efficient steel producer.

South Korea’s industrial structure is unusual, says POSCO’s boss, Lee Ku-taek. Its steel consumption per person is the fourth-highest in the world, yet most of the steel eventually goes overseas: nearly 100% in the case of POSCO’s shipbuilding clients, and 60% in the case of Korean carmakers. The steelmaker also serves South Korean construction companies abroad, for example in Dubai. Its customers’ eagerness to conquer fiercely competitive markets overseas may have kept POSCO lean. “Steel’s competitiveness here has made South Korea what it is,” says Mr Lee, “and I’m hugely proud of that.”

Now that he is hoping to buy DSME he sees the chance to double the shipbuilder’s value, which the stockmarket currently puts at $6 billion, by concentrating on complex products such as oil rigs. In shipbuilding, Mr Lee points out, the less you need to weld, the more you save. POSCO, he says, can tailor plates to specific ships, making the product much cheaper.

After two decades of building up its domestic market, says Mr Lee, POSCO will spend the next two decades establishing a powerful presence overseas, through greenfield sites and acquisitions, including in mines that can secure the company’s supply of ore. It will be following the example of South Korea’s consumer-electronics companies, which sometimes used almost military methods for their push overseas. At LG Electronics (LGE) they tell a story of a country manager who was dropped into Algeria during the civil war when other multinationals kept away, put off by the risk. When he emerged several years later, he had built up a multimillion dollar franchise.

The country’s biggest successes in consumer electronics are LGE and Samsung Electronics. Only a decade ago consumers abroad hardly knew them, and if they did it was as makers of cheap knock-offs of classier brands, notably Sony. Today they have annual sales of $43 billion and $92 billion respectively, along with a reputation for making hip and sophisticated mobile handsets, MP3 players, televisions, digital cameras and more. LGE, for instance, is the world’s largest maker of plasma televisions; Samsung has recently overtaken Motorola to become the second-biggest maker of mobile phones. Samsung’s stockmarket capitalisation, at over $80 billion, has raced past Sony’s and is second only to Apple among consumer-electronics companies. Samsung Electronics now makes the televisions on which Sony sticks its name badge.

All we need is love
Dermot Boden, LGE’s new chief marketing officer, explains that much still needs to be done to realise the company’s global ambitions, but his appointment, as a non-Korean, indicates the direction in which the best South Korean companies are going. South Korean companies, like Japanese ones, tend to recruit managers internally, rewarding length of service and often putting generalists into positions calling for special expertise. Exceptionally, LGE this year brought five overseas specialists to form part of the 20-strong top team of executives, among them Mr Boden, an Irishman who had earned a reputation for building consumer-goods brands.

Branding, says Mr Boden, is what LGE needs now. The company has superb products and offers excellent service. (It needs to in South Korea, where impatient customers put down the phone if it is not answered within ten seconds.) Yet emotional attachment to LGE’s products, Mr Boden points out, remains low. Products come and go: a new mobile-phone model, for instance, is typically on sale for only about six months. It is a brand that encourages the customer to keep coming back—and if he likes LG mobile phones, he might consider buying, say, an LG television. Samsung has already gone down this road, raising its profile by sponsoring the Olympics and Chelsea football team.

North and South Korea: The Odd Couple

AT THE heart of North-East Asia sits a failed state with the worst human-rights record on Earth. The regime maintains its grip by putting one in 20 of its population in military uniform. One in 40 has spent time in the gulag. Mobile phones and the internet are forbidden, except for the elite, and radio and television sets are made to tune only to government stations.

Unauthorised travel within the country is banned, at least in principle. Food shortages are chronic, and a decade ago the regime’s malign neglect created a famine that killed between 600,000 and 1m people. The famine still casts a long shadow, and not just through malnutrition and stunted growth; recent studies of refugees have pieced together a picture of a population that, in wide swathes, remains traumatised—and there are fears that famine conditions might be returning.

Now fresh uncertainties have arisen with reports that North Korea’s dictator, Kim Jong Il, may be seriously ill. That has underlined how little the outside world knows about North Korea. What to do about this failed state, which happens also to possess the material for nuclear bombs, is likely to be the region’s single biggest challenge over the coming years.

Slap next to all this sits the epitome of globalisation’s success, whose men on average are three inches (7cm) taller than their poorer neighbours. Half a century ago South Korea’s economy was on a par with Upper Volta’s. Today its citizens have an average income per person of $20,000. They enjoy the highest penetration of broadband internet on Earth, along with a popular culture of television shows and music that has become a highly bankable Asian export known as the “Korean wave”.

South Korea’s success is often called the “miracle on the Han”, after the river that runs through the 23m-strong capital, Seoul. Yet a more obvious explanation is the sweat and the tears of a people with a passion for work and self-improvement, coupled with generally enlightened economic policies since the 1960s—often in the face of what is now known as the “Washington consensus”. As well as a modern economy, this impassioned people has also fashioned a constitutional democracy out of a military dictatorship, again with sweat and tears and not a little blood.

The regime in the north tries hard to keep its citizens in the dark about the south’s success, and in South Korea six decades of separation have done much to weaken the blood ties which, in both states’ official rhetoric, are supposedly unbreakable. Reunification of the peninsula remains a hallowed goal on either side. Yet for most people in the south, North Korea is not just another country but another planet. Some 10,000 North Korean defectors now live in the south, but despite efforts by the government and others they live mostly on the fringes, despised by many South Koreans and ill-qualified for decent jobs. “The Crossing”, a film with a star cast released in Seoul this summer, authentically recreates everyday life in the north and explores why its citizens are driven to leave their homeland. Yet it was quickly eased out at the box office. South Korea is ill-prepared, psychologically, politically and economically, for the unification presumed to follow the eventual collapse of the north.

The cost of such a collapse scarcely bears thinking about—and South Koreans for the most part are trying their best not to do so. The task would make West Germany’s absorption of East Germany look like a doddle. South Korea is merely a middle-income country, with only a minimal social safety net to offer its own people, let alone abject North Koreans, who are perhaps 15 times poorer than their southern counterparts (whereas East Germans were two or three times poorer than West Germans at the time of unification).

So unification, if and when it comes, will require South Korea to field huge resources, however much help it might get from international institutions. That is a good reason to start building them up now. Yet there are also plenty of pressing home-grown reasons for more economic growth. The most important of these is a dramatic plunge in fertility. Today’s birth rate is extraordinarily low, and heading lower. This is an Asia-wide trend, but South Korea’s has fallen more than most. The total fertility rate of South Korean women (ie, the average number of births they can expect) has dropped to just 1.26 (see chart 1), down from 4.5 in 1970 and 1.5 in 2000. That is roughly half the rate at which a population replaces itself. In other words, the child-bearing generation 25 years from now will be roughly half the size of the current one. Even Japan, famous for its dearth of children, has a higher fertility rate, at 1.3.

For South Korean women, as for those elsewhere in Asia, this appears to be a good thing, offering them greater security and more autonomy than ever before within a Confucian family structure that has historically been hierarchical and male-dominated. Even better, South Korea’s mortality rate has also fallen steeply, and people can now expect to live 30 years longer than they did at the start of the country’s modernisation in 1960.

Yet the fall in the fertility rate may reflect dissatisfactions too: notably, over the difficulties faced by women who want both to work and to raise a family. Almost everyone still gets married in South Korea. In other words, the fertility rate is falling because more women are postponing marriage to nearer the end of their reproductive lives. That is partly because the burden of raising children still falls heavily on women, whereas men are consumed with work, which in South Korea, as in Japan, entails long hours and drinking sessions late into the night.

Also as in Japan, companies, despite some improvement, still discriminate heavily against women, especially those with children. Just one-third of South Korean women go back to work after having children, half the OECD average. The World Economic Forum’s ranking of sex equality puts South Korea 97th out of 128 countries. This represents a huge economic and social waste, and not only because South Korean women are better educated, on average, than their men.

Either way, the profound consequences for the economy, the government’s finances and the nation’s social structure have barely begun to sink in; nor has the impact on families. Nicholas Eberstadt, a demographer at the American Enterprise Institute, puts it with only mild exaggeration: changing fertility patterns mean that “2,500 years of East Asian family tradition stand to come to an end with the region’s rising generation.” What will it do to people if many, perhaps most, of them will no longer have brothers, sisters, uncles, aunts or even cousins? As Mr Eberstadt points out, when family structures atrophy—even in a country such as South Korea where children are treated as fondly as they are in Italy—sturdy institutional alternatives will quickly need to be found to take on the role now played by family networks.

As the South Korean population ages, the country’s high savings rate is almost bound to decline, which will have an effect on both what the economy can invest and what the government can raise in taxes. As it is, the country’s national pension scheme and a long-term-care scheme for the old are only two decades old, and their funding structure is not geared to South Korea’s expected demographic transformation over the coming quarter-century, which will involve a rapidly ageing society, a shrinking workforce and a population in absolute decline.


Tuesday, October 14, 2008

Korean Star's Suicide Reignites Debate on Web Regulation

SEOUL — Choi Jin-sil, a movie star, was the closest thing South Korea had to a national sweetheart.

So when Ms. Choi, 39, was found dead in her apartment on Oct. 2 in what the police concluded was a suicide, her grief-stricken homeland sought an answer to why the actress had chosen to end her life.

The police, the media and members of Parliament immediately pointed fingers at the Internet. Malicious online rumors led to Ms. Choi's suicide, the police said, after studying memos found at her home and interviewing friends and relatives.

Those online accusations claimed that Ms. Choi, who once won a government medal for her savings habits, was a loan shark. They asserted that a fellow actor, Ahn Jae-hwan, was driven to suicide because Ms. Choi had relentlessly pressed him to repay a $2 million debt.

Public outrage over Ms. Choi's suicide gave ammunition to the government of President Lee Myung-bak, which has long sought to regulate cyberspace, a major avenue for antigovernment protests in South Korea.

Earlier this year, the Lee government was reeling after weeks of protests against beef imports from the United States. Vicious antigovernment postings and online rumors on the dangers of lifting the ban on American beef fueled the political upheaval, which forced the entire cabinet to resign.

In a monthlong crackdown on online defamation, 900 agents from the government's Cyber Terror Response Center are scouring blogs and online discussion boards to identify and arrest those who "habitually post slander and instigate cyber bullying."

Hong Joon-pyo, floor leader of the governing Grand National Party, commented, "Internet space in our country has become the wall of a public toilet."

In the National Assembly, Ms. Choi's suicide set the country's rival parties on a collision course over how to regulate the Web. The governing party is promoting a law to punish online insults; the opposition parties accuse the government of trying to "rule cyberspace with martial law."

The opposition says that cyberspace violence is already dealt with under existing laws against slander and public insults. But the government says that a tougher, separate law is necessary to punish online abuse, which inflicts quicker and wider damage on victims.

To battle online harassment, the government's Communications Commission last year ordered Web portals with more than 300,000 visitors a day to require its users to submit their names and matching Social Security numbers before posting comments.

The police reported 10,028 cases of online libel last year, up from 3,667 reported in 2004.
Harassment in cyberspace has been blamed for a string of highly publicized suicides. Ms. Choi made headlines when she married a baseball player, Cho Sung Min, in 2000. But tabloids and Web bloggers were relentless in criticizing her when the marriage soured and she fought for custody of her two children.

TV producers and commercial sponsors dropped her. The general sentiment was that her career was over.

But in 2005, she made a comeback with a hugely popular soap opera called "My Rosy Life." In it, she dropped her cute-girl image and played a jilted wife who throws a kick at her errant husband, but reconciles with him when she learns she has terminal cancer.

This year, she broke another taboo by successfully petitioning a court to change the surname of her two children to her own.

But in an interview with MBC-TV in July, which was broadcast after her death, she said she "dreaded" the Internet, where posters had insulted her for being a single, divorced mother. The police said she had been taking antidepressants since her divorce.

In South Korea, volunteer counselors troll the Internet to discourage people from using the Web to trade tips on how to commit suicide and, in some cases, how to form suicide pacts.
"We have seen a sudden rise in copycat suicides following a celebrity death," said Jeon Jun-hee, an official at the Seoul Metropolitan Mental Health Center, which runs a suicide prevention hot line. Mr. Jeon said the hot line had received 60 calls a day, or twice the usual number, since Ms. Choi's suicide.