10 Major Trends in Korea for 2008

http://www.ikjournal.com/
Samsung Economic Research Institute
Han Chang-Soo

In 2008, under a change in national leadership, Korea is expected to embark on major transitions in almost every sector, from politics to the economy and society. The victory of the conservative Grand National Party (GNP) in the December presidential election means a more pro-business administration for the first time in ten years. The overarching economic principle of the new administration will be "growth" rather than "equality and income distribution" as witnessed in recent years.

The administration hopes to maximize the economy's growth potential and job creation by stimulating corporate investment and market competition. However, political resistance to policy changes on top of ongoing social needs and demands will present a challenge in navigating a change in course.

Trend #1: Shifts in Economic Policy Line: Pro-Growth

Stressing pragmatism, President-elect Lee Myung-Bak wants to shift the economic focus back to growth. It is his goal to advance Korea to leading country status by building on the results of industrialization (in the 1970s) and democratization (in the late 1990s), and fortifying growth engines. "It is now time for Korea to become an advanced nation following its establishment (in 1948), industrialization and democratization. ...I am determined to create new development engines based on creativity," said Lee said in his victory speech.

Lee's administration will break away with the equality- and distribution-centered policy line of the last ten years under the liberal governments and try to "realize welfare through growth." Previous administrations attempted to enhance economic efficiency by implementing structural reforms and by introducing global standards over the past decade, but ended up undermining the Korean economy's vitality and native strengths: brisk corporate investment coupled with diligence a challenging spirit, all of which had driven national economic growth. As a result, the average annual economic growth rate fell from 7.7 percent in the 1980s to 6.3 percent in the 1990s and to 4.4 percent between 1997 and 2007.

The new administration plans to implement a market-orientated policy line to achieve its top economic priorities: higher growth and more jobs. Lee's "747 Public Pledge" during his election campaign calls for an annual average of 7.0 percent economic growth, US$40,000 of per-capita income, and Korea becoming one of the world's top seven economies. Along the way, it is envisioned that three million new jobs will be created during his five-year term.

To this end, his administration will choose pragmatic policy designed to invigorate market functions. It is highly likely that it will strive to recognize certain companies as core growth engines and improve corporate investment through deregulation. Prime targets for deregulation are the limits on the shareholdings of large conglomerates in their subsidiary companies, rules governing merger and acquisition (M&A) and the separation between the financial sector and non-financial actors (i.e., the regulation prohibiting an industrial company from owning a commercial bank).

Trend #2: Job Creation through Support for SMEs

Stronger competitiveness through supporting small and medium-sized enterprises (SMEs) and job creation will be the new administration's bywords. It aims to generate 500,000 jobs by fostering 50,000 innovative SMEs over the next five years. According to the government, innovative SMEs are:

* Venture companies

* The so-called "Innobiz" type of company, that is, government-designated SMEs that have operated for over three years, demonstrated technological prowess and growth potential

* SMEs that have proven themselves to be managerially innovative

Their potential of these two latter types of company to hire workers is estimated to be 2.6 times greater than ordinary SMEs.

SME competitiveness was also a key concern of previous administrations since they account for 88.1 percent (as of 2005) of total employment, according to the Korea Federation of Small and Medium Business.

The "People's Government" under the Kim Dae-Jung administration focused on nurturing venture companies in order to overcome the 1997 financial crisis, while the outgoing "Participatory Government" under President Roh Moo-Hyun introduced its "Comprehensive Measures [relating to technology, workforce, capital and markets] to Strengthen the Competitiveness of SMEs" in 2004, which contrasted with traditional protective policies toward the sector.

The new administration will promote a more advanced "growth stage-based strategy for fostering SMEs" than that of the Participatory government, which tried to nurture such companies simply by providing financial support. Specifically, the new administration will pursue concrete measures tailored to each type of innovative SME. Venture companies will be fostered with a focus on foundation; Innobiz SMEs will be nurtured in such a way to achieve higher growth; and the progress of managerially innovative SMEs will be bolstered through marketing and organizational innovation.

Trend #3: Prolonged Volatility in Financial Markets

The United States and Korean housing markets will weigh heavily on financial markets. In the U.S., the turmoil triggered by the subprime mortgage debacle will last through 2008 as a record number of homeowners face the end of their low introductory lending-rate period and a reset to a higher rate.

This could create a giant wave of foreclosures and crimp vital consumer spending in the U.S. economy. On a bigger scale, banks, forced into huge write-downs because of toxic securitized mortgages, are limiting commercial lending and non-financial concerns are feeling the effects of the housing industry recession on their own earnings.

The turbulence will raise one of the major questions of 2008: will the slowing U.S. economy fall into a recession and, if so, how will the global economy be affected? Jittery investors have been quick to exit stock markets, fearing a global slowdown. Therefore, the volatility of the U.S. stock market (and consequently the Korean stock market) is expected to continue at least several more months.

For example, following the second round of subprime mortgage woes in August 2007, foreigners sold securities on Korean bourses worth 21.9 trillion won in net terms, i.e., 80.5 percent of the securities that were net sold on an annual average in 2007. If the housing slump in Korea continues with an increasing number of unsold new houses and the recent liquidity squeeze persists, more and more nonperforming loans related to real estate are likely. Project financing (PF) loans offered by saving banks may be a case in point. The proportion of saving banks-issued PF loans jumped from 5.7 percent in June 2006 to 14.0 percent in March 2007 and has since remained at the same high level. Should interest rates keep rising and the housing market stays weak, even home-equity loans (largely with adjustable interest rates) are feared to go sour. The value of home-equity loans stood at 283.6 trillion won as of the end of September 2007, 94 percent of which were of the adjustable-rate variety. A one-percentage point increase in interest rates on home-equity loans is anticipated to add 550,000 won annually to the amount each borrower must repay.

Trend #4: Start of a "Big Bang" in the Financial Industry

The introduction of the Capital Market Consolidation Law (due to take effect in February 2009) promises to bring fundamental changes to the financial industry. Securities firms will be permitted to deal with all financial businesses except for banking and insurance businesses. An assortment of financial products will be based on the principle of "negative-listing" (meaning everything will be allowed unless prohibited specifically in the law), bringing down barriers between financial businesses and ushering in unlimited competition across virtually all types of institution within the sector.

Therefore, securities firms looking to expand the scope of their opportunities will likely seek to bulk their capital size through merger and acquisition or by acquiring asset management companies. In terms of the total assets, Korea's top three securities firms currently account for only one one-hundredth of the top three global investment banks. However, after the anticipated wave of such M&As, the domestic securities business will likely augment its weight relative to the financial industry as a whole.

Banks and insurance providers, as well, will make every effort to improve their competitiveness in the run up to the Capital Market Consolidation Law taking effect. It is envisioned that financial holding companies, mostly set up by commercial banks, will acquire or establish securities firms. Those already in possession of securities firms will enlarge departments related to investment banking and recruit more professionals.

Through the Ministry of Finance and Economy (MOFE), the government is also exploring ways to encourage M&A among financial institutions so that they can grow in size and cover operations of a broader scope. For instance, the ministry will provide tax incentives by, say, reducing the tax burden associated with M&As, lift regulations on private equity funds and allow hedge funds to merge with and acquire domestic or foreign financial institutions.

Trend #5: Full-Blown Convergence between Broadcasting and Communications and between Wired and Wireless Communications

SK Telecom's acquisition of Hanaro Telecom (wired telecom provider) from the AIG/Newbridge consortium announced in December 2007 is leading the Korean telecommunication market into a new competitive phase. KT (wired telecom provider) is considering merging with its wireless telecom subsidiary KTF while LG Dacom (wired telecom provider) plans to list its subsidiary LG Powercomm (and Internet service provider) on the Korea Stock Exchange and subsequently merge with it. The government has also developed policy measures to facilitate convergence between broadcasting and communications and between wired and wireless communications by consolidating the number of designated business lines and streamlining regulatory organizations.

For example, the number of business lines was reduced in December 2007 from the previous eight, which included local/long-distance/international calls, Internet access, VoIP (voice over Internet protocol) and telex, down to three, namely transmission, frequency provision and the leasing service of telecommunications circuit facilities

Meanwhile, separate regulatory organizations responsible for communications and broadcasting were integrated into the Committee to Promote Broadcasting/Communications Convergence under the Office of Prime Minister in July 2006. An integrated regulatory organization to govern this matter is expected to emerge later.

As a result of such convergence, the communications industry will develop a new competitive structure. The industry at present is primarily driven by competition among the top three wireless telecom service providers and the top three wired service providers. However, on the assumption that KT and SKT will maintain the dominant positions in the markets for wired and wireless communication services, respectively, the industry will be led by the top two comprehensive (wired plus wireless) service providers (KT and SKT) followed by one smaller provider (LG).

Trend #6: Hypercompetition Boundary Collapse among Markets and Industries

Competition in the future will not be affected by conventional barriers among industries, technologies, distribution and markets. As consumer needs become more complicated and technological barriers lower, some "gray market" companies will emerge. That is, new types of enterprises that are not illegal, but rather defy conventional competition rules and existing market demarcation.

For example, distributors may vie more intensely to secure new distribution channels. Also, in the electronics market, originally separate markets may overlap with one another as digital convergence products are developed. In fact, this phenomenon is already evident. Designer clothes, which were once only handled by specialty stores, are now sold by discount outlets or overseas purchase agents at reasonable prices. Also, the fast growth of satellite-based automobile navigation has prompted multimedia companies to combine their products with global positioning capabilities in order to gain a beachhead in this burgeoning market.

Trend #7: Multicultural and Globalized Families and Society

Korea is expected to welcome progressively more foreigners and foreign cultures. An increasing inflow of foreign workers and immigrants by international marriage brought the number of foreigners residing in Korea above the one-million mark as of August 2007. Over 50 foreign communities across the country exert multicultural influence on Korean society.

The Internet and cable TV facilitate the inflow of foreign cultural content and members of the younger generation increasingly go abroad and to experience other cultures. U.S. and Japanese dramas claim huge, enthusiastic audiences, resulting in the creation of some 1,400 Internet clubs that further increase the viewership of the shows. Moreover, domestic TV shows help familiarize Koreans with foreign culture by increasingly featuring more foreigners and by covering diverse themes. This has even given birth to a new term, "media nomadism," which refers to the phenomenon whereby the media does not stick to conventional forms or traditions, but rather encompasses a variety of cultures.

Trend #8: Shifts in Education Policy Direction Valuing Excellence over Equality

The incoming government plans to trim the size and power of the Ministry of Education and Human Resource Development and merge it with the science and technology ministry. The current egalitarianism-based education policy will be scrapped. Local governments and universities will be given greater autonomy and parents and students will have more options.

More than one hundred new independent private high schools are to be established to encourage competition for higher quality education and dampen the urge to enroll in after-school private academies. Such private high schools do not depend on state subsidies and therefore operate with full autonomy.

On the contentious issue of university admissions policy, universities will likely have more leeway in deciding on how to use the grading system in scoring the national academic achievement examination for university entrance, and how much high school records should be reflected in the admissions system.

In addition, the new administration will establish college systems that will make domestic colleges or universities internationally competitive in research capability. It will lay the groundwork for global research-centered universities by giving financial support toward research according to the research competitiveness of applicant universities. It will consolidate various and scattered R&D related policies of the Ministry of Science and Technology and the Ministry of Education and Human Resources Development and thus enhance the efficiency of R&D budget execution.

Trend #9: National Assembly Elections and Shifts in the Political Landscape

The 18th elections for the National Assembly scheduled for April 9th 2008 are likely to revolve around two key issues: on the one hand, the need of the GNP, the new ruling party, to secure more than half the seats within the legislature; and on the other hand, the need by the opposition to check the power of the same ruling party. At present, the GNP is expected to win a significant number of seats, but perhaps not as many as party leaders hope if voters think more checks and balances are needed in the National Assembly. Any early errors by the new administration, lackluster GNP candidates or doubts about the Lee administration's ability may result in a more mixed political landscape.

Voters in the Seoul metropolitan area will play a decisive role in the elections and consequently in the rearrangement of regionalism in politics. After the local elections of 2006, economic concerns, not regionalism, became the overriding voter concern, ultimately leading to the return of the conservative GNP to power. Unless major changes occur, a new political landscape may emerge characterized by a huge ruling party supported by voters in the Seoul metropolitan area and the Gyeongsang Provinces, plus several smaller parties that draw support from the Jeolla or Chungcheong provinces.

Trend #10: More Moderate Pace of Improvement in the Inter-Korean Relationship

Given the uncertainty about whether North Korea will proceed with its promised denuclearization, the new administration is very likely to insist on this issue as the top priority for better inter-Korean relations. It will focus on "mutual engagement" rather than "unilateral engagement." Thus, any further assistance to the North will be expected to hinge on the North's dismantling of its nuclear program. However, it will likely adopt a flexible support policy toward the North even before denuclearization occurs should there be concrete signs the country is progressing in this direction.

North Korea is currently in denial about its uranium enrichment program and is expected to declare a plutonium stock of less than the internationally suspected 50 kilograms. Even if the North makes an exact declaration about the state of its nuclear program, it is highly unlikely that negotiations on nuclear dismantlement in the second half of 2008 will proceed smoothly. However, considering that the North needs to leave room for negotiations with the next U.S. administration, which will commence in January 2009, it will likely refrain from extreme action such as a second nuclear test. ◦

10 Major Trends in Korea for 2008

Korean Management Practices at Hyundai USA

BusinessWeek
by David Welch, David Kiley and Moon Ihlwan
http://www.businessweek.com/magazine/content/08_11/b4075048450463.htm

The Korean carmaker and its Kia subsidiary are trying to move upscale in the U.S.—but culture clashes, management turmoil, and strategic discord are making for a bumpy ride.

On the morning of Monday, Feb. 4, about 20 of the top executives at the Irvine (Calif.) headquarters of Kia Motors America left their warm offices to stand outside in near-freezing cold. They were awaiting the arrival of Byung Mo Ahn, the president of Kia Motors. The group organized itself into a receiving line and stayed in formation for more than 15 minutes until Ahn arrived in a chauffeur-driven Kia Amanti sedan.

Although some of the executives were shivering, it would have been bad form to return inside: Standing to greet top brass is customary at Hyundai Motor, Kia's Korean parent. After spending a full week in Irvine, Ahn performed another ritual that has become common at the company: sacking the American leadership team. On Feb. 8 he axed Len Hunt, president and CEO of Kia Motors America, and Ian Beavis, marketing vice-president.

It marked the fourth shakeup in three years for Kia's American operation. The U.S. unit of Hyundai, meanwhile, has churned through four top executives in five years. Many of the departures have come at awkward times. Hunt and Beavis got the news at the airport as they were about to fly from Irvine to an annual dealer meeting in San Francisco. According to several sources, Hunt's predecessor, Peter Butterfield, was dismissed during a dinner meeting with dealers at the Bellagio Hotel in Las Vegas—between the entrée and dessert. The companies declined to comment on any of these executive departures.

The management shakeups at the American divisions of Hyundai and Kia—two once-separate manufacturers that are now essentially run as one company—come at a critical period. Both brands, which were originally marketed to American consumers as utilitarian econoboxes, are trying to move upscale and sell sedans that can compete with Cadillac and BMW. They are also banking on rapid growth in the U.S. Next year, for example, Kia is opening a plant in Georgia that was built on the optimistic assumption that the company could sell at least 370,000 cars in the U.S. annually. But sales momentum has been slowing. Kia sold 305,000 cars in America in 2007, 13% shy of its target of 350,000. Given their aggressive growth plans, both Hyundai and Kia "need North American auto expertise," says James N. Hall, president of 2953 Analytics, an auto industry consultancy near Detroit.

The problem is that the companies keep booting out American talent. And many of the American executives who do stay find parent Hyundai Motor's corporate culture to be suffocating. According to several current and former managers, Hyundai Chairman Chung Mong Koo, Kia's Ahn, and other top executives run the companies in a far more authoritarian style than do most American CEOs. The critics say his team micromanages details, rarely listens to advice from local managers, and displays little tolerance for disagreement. "It's a very feudal approach to management," says Bob Martin, a former sales executive who left Hyundai in 2005 to become a consultant at CarLab, a Santa Ana (Calif.) consulting firm. "There's a king, he rules, and everyone curries his favor. It's very militaristic."

"PUSHING ALL THE TIME"
While Chung's top-down management style might rub some Americans the wrong way, his long-term track record in the U.S. is impressive. Under his leadership, Hyundai has nearly doubled sales in the country since 2000, to 467,000 cars last year. Kia has posted almost identical growth.

Chung, who was convicted of embezzlement in Korea last year but had his prison sentence suspended, has won praise for creating a highly disciplined company. When quality complaints started to plague Hyundai during the 1990s, he ordered engineers to attack the problem. By 2004, Hyundai had soared up the rankings in quality surveys. Unlike Detroit's Big Three, Hyundai and Kia have fewer management layers to hold up decisions. "I can see where Americans would feel uncomfortable," says Alice Amsden, a professor of political economy at the Massachusetts Institute of Technology who has written books about Korea and other developing Asian economies. "American management is used to a different style. But Hyundai deserves a lot of credit."

Both Hyundai and Kia, speaking through representatives at their American units, said that all of the American managers who have left the companies in recent years were treated fairly. Even some of the executives who have departed praise the companies' management culture. "Being aggressive doesn't make them bad," says Robert Cosmai, who was CEO of Hyundai's American unit for two years before getting fired in January, 2006.

Boldness is part of Hyundai Motor's DNA. Like many of Korea's early corporate patriarchs, founder Chung Ju Yung had a simple strategy: Build factories first, worry about sales later. Starting with a small construction company in 1947, he moved into autos, shipbuilding, and other industries. Hyundai became one of the most successful Korean chaebols, family-controlled conglomerates with close ties to the government. But it was broken up into several pieces in the late 1990s in the wake of the Asian financial crisis. Last year, the global revenues of Hyundai and Kia grew 7%, to $63.5billion.

Chung Ju Yung's heirs continue to run Hyundai Motor, and his business philosophy still prevails. In America, the two companies often establish sales targets based on what their auto plants can produce—a persistent source of tension with local managers. Several past executives say that Hyundai and Kia have set unhealthily aggressive sales goals that are causing inventory to pile up. Hyundai has about 32,000 Sonata sedans parked in lots around its Montgomery (Ala.) plant with no orders from dealers. "The production-oriented style of pushing all the time won't work anymore," says Kim Ki Chan, professor of auto economics at Catholic University of Korea.

One consequence of this philosophy is that both Hyundai and Kia have been forced to sell more cars to rental fleets—a practice that tends to make brands lose cachet with buyers. But consumer psychology is something that Hyundai Motor has never mastered, says consultant Hall. At bottom, it has always had the mindset of a manufacturer, not a marketer. Many of the products made by Chung Ju Yung's original conglomerate, such as locomotive engines and tanks, were sold to business. Hyundai Motor's leadership team "lacks marketing savvy," says Yoo Young Kwon, a Seoul-based auto analyst at Prudential Investment & Securities (PRU). "What they need in the U.S. is to let American executives implement marketing strategy in a sustainable way."

But handing over the reins to American marketers is not something that seems to come naturally to Hyundai Motor. After walking through the receiving line on that Monday morning in February, Kia CEO Ahn spent the day criticizing the company's advertising. The brand has marketed itself as sporty and fun as opposed to the more serious Hyundai. In one of the meetings, Ahn said he hated an ad depicting a Kia dealer doing an impression of the film Flashdance, dancing wildly as the jingle "He's a maniac, maniac, and he's selling like he's never sold before" plays. Ahn halted the spots and said Kia's message should lose the campy humor.

HEAVY HANDLERS
Four days later, Kia America CEO Hunt and marketing vice-president Beavis lost their jobs. The firings came as a surprise to the Kia dealers gathered in San Franciso's Moscone Center. Some say they're worried that the brand's marketing message will become diffuse. "It doesn't inspire a lot of confidence," says Ed Tonkin, a Portland (Ore.) Kia dealer who opened one of the brand's original U.S. stores. "The danger is that every time you get a new person, they will go with different marketing and advertising."

Since the meeting, Ahn has taken over Hunt's old office and expanded it. He has tried to mollify dealers with offers of increased corporate support. Kia and Hyundai are also making a greater effort to improve the morale of disgruntled American executives. Kia spokesman Alex Fedorak says many of them get training from a Korean culture coach.

Cross-cultural outreach is long overdue. Several Americans expressed resentment at the so-called coordinators, the Korean overseers whose job it is to keep an eye on American managers. Culled from the ranks of up-and-coming stars in Seoul, they sit alongside American managers, monitoring decision-making and results. Both Hyundai and Kia have about a dozen coordinators. They must agree to major decisions—and sometimes smaller ones, such as whether to award vacations to dealers who hit sales goals. Japanese automakers also have coordinators in their U.S. operations, but they play more of an advisory role while the American executives have free reign to make major decisions.

Mark Barnes, chief operating officer at Volkswagen Group of America (VLKAY), who worked as a sales executive at Hyundai Motor America until 2006, says the coordinators applied pressure to achieve targets. "If you were subpar, they would ask what you're going to do to get your numbers up," Barnes says. During some conference calls, he adds, the coordinators would speak Korean to managers in Seoul, all but shutting out the Americans.

Kia spokesman Fedorak says the coordinators serve a valuable purpose: bringing the corporate vision from Seoul to America, then relaying the needs of the local market back to headquarters. Since few American employees speak Korean, the coordinators also act as translators. While acknowledging that Kia has a Confucian-influenced corporate culture in which "father knows best," he said this was not the main source of conflict with American executives. Instead, he attributed the tension to Korean managers' greater comfort with "stretch goals."

At the moment, the stretch goal that is stressing out American executives at Hyundai Motor is the company's insistence on trying to move into the low end of the luxury business. For years, executives in the U.S. have been telling their counterparts in Seoul that the two brands are not strong enough to sell for much above the price range of $12,000 to $25,000. But their warnings have been ignored. Chung believes that going upscale is essential for Hyundai and Kia. The weak dollar has hurt profits, and concessions made to the Korean unions are eroding the company's cost advantage. So both Hyundai and Kia have launched a slate of vehicles priced near or above $30,000. In 2005, for example, Kia released the Amanti (Ahn's limo) with a mandate to sell 20,000 a year.

The company didn't come close to hitting that number, selling just 5,500 of the sedans, priced between $25,000 and $30,000, last year. Still, nobody expects Chung to heed the advice of some American managers and pull back. "The top-down management style hasn't changed at Hyundai," says Lee Hang Koo, auto industry specialist at the Korea Institute for Industrial Economics & Trade. "This is bound to lead to cultural clashes with Americans. We've seen management churn in the past, and there's no reason to believe it will stop." ◦

Korean Management Practices at Hyundai USA

New South Korean President is Struggling Early

Just sworn in, Lee Myung-bak already seems out in the cold

His thunder stolen internationally by the arrival of the New York Philharmonic in Pyongyang, Lee Myung-bak was sworn in as South Korea's 17th president on February 25th. In freezing weather in Seoul, Mr Lee pleaded for support. The audience, mostly from his Grand National Party (GNP), dutifully applauded—but with little enthusiasm. The president, elected last December, has made a poor start to his five-year term.

Mr Lee, cleared this month of any wrongdoing in a failed investment scheme, nevertheless faces public suspicion over the past business dealings that made him a multimillionaire. And some of his nominees for cabinet posts are already under clouds. Three of his ministerial choices—for sex equality, “unification” (ie, dealings with North Korea) and the environment—have resigned over criticism of their property dealings. This is a highly sensitive issue in Seoul, where many cannot afford to buy their own homes. Some of his nominees' children are foreign citizens. One was thus able to dodge the mandatory military service. This has raised hackles. Most South Koreans cannot afford to send their children abroad to acquire foreign passports.

Most economists think Mr Lee's bold promise of 7% annual growth is optimistic. His plan to build a canal system on the peninsula has united a coalition of civic and political groups in opposition. And his call for a “pragmatic not ideological'' relationship with North Korea has perturbed American leaders. In addition, Mr Lee has had to scale back his plans to trim the bureaucracy. Instead of 13 government ministries there will be 15, down from 18 under his predecessor, Roh Moo-hyun.

The president's difficulties are compounded by his shallow political base. In a pun on the name of a famous actress, South Koreans call it “Ko So Young”. “Ko” refers to his alma mater, Korea University, which has supplied him with prospective ministers and aides; “So” to the church he attends; and “Young” to the south-east of the Korean peninsula, which voted for him in huge numbers largely because Mr Roh is widely loathed in the region.

Even within the GNP, Mr Lee has few allies. Party heavyweights have long viewed him as an upstart without their own conservative convictions. Mr Lee is indeed a pragmatist. His landslide victory in December owed much to his success during his time as Seoul's mayor in solving practical problems, such as his reorganisation of the capital's traffic system.

Park Geun-hye, whom Mr Lee defeated to become the GNP's presidential candidate thanks to its system of open primaries, still commands more support within the party. She is engaged in a fierce struggle with him to have her nominees chosen as the GNP candidates at April's legislative elections. If she wins, or the GNP loses the election, the new president's legislative programme could be stymied.

Mr Lee is a somewhat remote and cold figure. He now needs to make himself popular. But both the economic and political climates on the peninsula seem to be worsening. Even when the snow that blanketed Seoul within hours of his taking the oath of office thaws, South Koreans may not warm to him.

◦

New South Korean President is Struggling Early

SKT and Citibank Partner to Offer new Mobile Banking Applications

SK Telecom said Thursday that it will set up a joint venture with Citigroup to sell mobile banking (m-banking) and payment solutions in North America and Asia.

The two firms will invest $8 million each to launch Mobile Money Venture, which will be based in San Francisco. The joint venture plans to provide various mobile money transaction services, such as SK Telecom's Moneta service in Korea, from the second half of this year in major American cities and Hong Kong.

"We are exploring a new mobile era with Citi, a global financial services provider,'' said So Jin-woo, president of Global Biz Company, SK Telecom. "With our expertise in telecom and mobile finance, SK Telecom is proud to provide our advanced technology to customers worldwide and deliver the next-generation mobile banking technology.''

SK Telecom will be developing the mobile banking software and hardware systems for Citibank customers in Hong Kong and major cities in the United States first. "This is not an exclusive deal, so we will be able to sell the platform to other banks and mobile carriers in other countries later on,'' said SK Telecom spokeswoman Cindy Kang.

After testing the mobile banking system, the firm will then move onto mobile payment and electronic coupon services, Kang said. The joint venture will be run by Steven Kietz, who oversaw e-commerce and direct banking initiatives at Citi.Mobile commerce is gaining popularity all over the world, especially in the Asian region. Most services enables customers to check their balance, pay taxes and utility bills and transfer money by accessing the banks' online service.

More complicated ones such as SK Telecom's Moneta provides a system where people can pay at shops, restaurants, on buses and subways by swiping their mobile phone. Often called the "electronic wallet,'' such a phone payment system uses a chip, which is inserted in the handset and electronic readers.

Three Korean mobile firms ― SK Telecom, KTF and LG Telecom ― and a number of commercial banks have been actively developing the mobile commerce services, hoping phones will someday replace wallets and ATM machines. But competition between mobile operators and banks for the initiative of the business has caused delays in the deployment of the services, said SK Telecom's Kang, adding that the SK Telecom-Citi venture will not have such problems.

http://www.investkorea.org/InvestKoreaWar/work/ik/eng/nr/nr_01_read.jsp?no=608300001&l_unit=90202&bno=803070010&page=1&sort_num=3765 ◦

SKT and Citibank Partner to Offer new Mobile Banking Applications

South Korea's First Astronaut

An artificial intelligence expert lost the chance to be South Korea's first citizen in space after reading and removing manuals from Russia's cosmonaut training center without authorization, the government said Monday.

Instead, a female bioengineer will conduct scientific experiments on a Russian voyage to the International Space Station next month, the South Korean Ministry of Education, Science and Technology said.

Russia's Federal Space Agency asked for the change last month, saying Ko San - the original choice - repeatedly violated regulations at the training center near Moscow, Lee Sang-mok, a senior ministry official, told a news conference.
He was replaced by Yi So-yeon, a 29-year-old with a doctorate in bioengineering who had been South Korea's second choice for the mission.

Russian authorities said Ko took his training manual out of the center without permission and sent it to his home in South Korea in September, Lee said. Ko later returned the manual, explaining he accidentally sent it home together with other personal belongings, Lee added.
In February, Ko again broke the rules by getting what was believed to be a manual used by space pilots from the center through a Russian colleague - material he was not supposed to read, Lee said. Ko had signed the center's instructions on the rules.

"The Russian space agency has stressed that a minor mistake and disobedience can cause serious consequences," Lee told reporters.

Lee said he believed the materials in question were not classified.

The state-run Korea Aerospace Research Institute - which employs Ko - has rebuked him, both verbally and in writing, Lee said.

The institute offered an apology to Russia both times, he said. The institute has no plan to take further disciplinary measures.

Anatoly Perminov, chief of the space agency, said in a statement on its Web site Monday that the change was because Ko "violated the code of conduct for cosmonauts," adding that the substitution would cause no complications for the mission.

Yi is scheduled to work aboard the space station for about 10 days with five other cosmonauts, including an American woman, according to Lee's ministry.

The Soyuz spacecraft is scheduled to lift off from a space center in Baikonur, Kazakhstan, on April 8, the statement said.

Ko, 31, will remain at the training center in Star City near Moscow and train with Yi, Lee said.
The mission will make South Korea the world's 36th country to send an astronaut into space, said ministry official Kim Ki-seok.

South Korea plans to complete its first space center by the end of next year as part of a program to lay the technological and scientific groundwork for space exploration in coming decades.
Since 1992, South Korea has had 11 satellites launched, mostly for space and ocean observation and communications. ◦

South Korea's First Astronaut

The Seoul of World Design

The Korean capital, soon to host the Design Olympiad, is funding projects to promote style in Korean brands—and help keep growth on track

Korea's economy has long been one of Asia's success stories, but pessimists fret for the future as Korea is sandwiched between fast-growing China and longtime rival Japan. Could a government-backed plan to raise Seoul's standing as a city focused on design help keep its growth on track?

Seoul Mayor Oh Se Hoon certainly thinks so. Oh, leader of a city home to nearly a quarter of the country's population of 48 million, is convinced Korea can stand out from its larger neighbors by establishing the capital as a international design center.

The 47-year-old mayor says thinking about design will have numerous benefits. At an individual level he believes cultural benefits can enrich the daily lives of work-obsessed Koreans. Just as important, a renewed creativity can help the economy.

"Design is everything," declares Oh.

The hyperbole isn't pure talk. Since taking office in July, 2006, Oh has set about turning Seoul into a global design hub with a slew of initiatives. He quickly established a new design division headed by a vice-mayor and initiated design competitions aimed at improving the city's looks. He has also begun offering training and seminar courses for young designers. The effort will kick into high gear in October when the city hosts the first Seoul Design Olympiad. It has also commissioned international "starchitect" Zaha Hadid to design the $98 million Dongdaemun Design Park.

Seoul Named 2010 World Design Capital
Oh's ambition got a huge boost last October when the city was designated as the World Design Capital in 2010. The title is bestowed biennially by the International Council of Societies of Industrial Design (ICSID), which represents some 150,000 designers from scores of countries.
These combined efforts, Oh reckons, will help increase the size of Korea's design market—measured by the total of revenues by design houses and investments in design by ordinary companies—to $15 billion in less than 10 years, from $7.4 billion last year. "In coming years we'll see aspects of design in our everyday life," predicts Lee Kun Pyo, president of Korea Society of Design Science and an acolyte of Oh.

Understandably, some find the challenge daunting. After all, Seoul isn't alone in seeking to boost its global standing through design. Hong Kong, Shanghai, Tokyo, and Yokohama all hold ambitions to be design centers. Then there's global competition from cities like London, Paris, Milan and New York, with many decades as leading arbiters of design. Yet Oh and design industry leaders insist there's big potential in Korea. For one, Seoul beat some 20 rivals, including Singapore and Dubai, to be named ICSID's first World Design Capital to be chosen through competition. (Torino, the first city to win the award, was named as pilot.)

Better Design Boosting Korean Blue Chips
Perhaps more important, Korean companies have also made great strides in recent years in improving brands through design. Companies like Samsung Electronics, LG Electronics, and SK Telecom (SKM) boast leading designers in the fields of digital displays, handsets, and mobile products and services, garnering international design awards along the way.

The fruits of their efforts are reflected in the improved global standing of Korea's blue chips. Last year Samsung overtook Motorola (MOT) to become the world's second-largest cell-phone maker (BusinessWeek.com, 12/16/07) after Nokia (NOK).

Samsung also beat all Japanese rivals to become the No. 1 flat-TV brand, and LG consolidated its position as No. 5 in handsets and No. 4 in flat TVs last year. "In the TV market, design will be a critical differentiator," Simon Kang, president in charge of LG's digital display unit told BusinessWeek earlier this year.

Promise from the Next Generation
The argument is straightforward: In a world awash with digital and high-definition TVs boasting super picture quality, it takes more than technological superiority to win business. Consumers may consider the purchase of a flat-screen TV as much for its look as a piece of furniture as for its technogical capabilities (BusinessWeek.com, 1/16/08).

Korea also has a remarkably large number of wannabe designers. In Seoul alone about 11,000 students are majoring in design at 18 universities, while another 2,600 students in 51 graduate schools attended design programs in 2007. Recognizing this potential talent, Japanese auto companies, including Nissan (NSANY), have begun hiring young Korean designers. "When I first saw the sketches that Korean students were drawing, I was utterly shocked. Their design is very emotional and powerful," Shiro Nakamura, Nissan's chief creative officer, said last year.

The city government has set aside $180 million to finance projects ahead of Seoul becoming the first World Design Capital, part of which will go to sprucing up Seoul's streets, buildings, parks, and the Han River running through the city. Big business, sensing an opportunity, will lend a helping hand by dispatching senior designers to help out on projects. Cha Kang Heui, chief designer at LG's handset division, reckons the overall effect could echo the impact of the Seoul Olympics in 1988. "Just as the Olympics often serve as a coming-of-age party for a developing country, design could provide momentum for Seoul," he says.

All Eyes on Seoul This October
For Seoul mayor Oh, though, the highlight of the design drive will be the Design Olympiad in October. Oh plans to invite top designers from fashion, graphics, and other different design fields. He's counting on attracting 2 million people to the 21-day event featuring competitions, exhibitions, live performances, and light shows. If that doesn't whet the world's appetite for Korean design, perhaps nothing will. "I want people around the globe to say, 'If you want to check out the latest in design trends, go to Seoul,'" says Oh.

For more, see BusinessWeek's slide show.

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The Seoul of World Design

Rise in the Price of Gold is Bad Luck for Korea's Babies

Thirty-four years ago, each of the guests at Moon Sang Soo's first birthday party brought the customary baby present: a 24-karat gold ring.

When Moon was accepted to college, his parents had 20 of these rings, each weighing one don (3.75 grams, or an eighth of an ounce), melted down and recast as a miniature crown, which he now proudly displays in his living room.

But in December, at his own son's first birthday party, only half of Moon's 50 or so guests brought a ring. The others presented the baby with cash, slipping it into his parents' sleeves.

Gold is the traditional Korean gift to wish a baby good health and fortune in life, but with the world price of gold soaring to more than twice the level of just three years ago, that custom is breaking down. Guests at first birthday parties are resorting to alternatives. Some parents who do receive gold in their baby's name are even reselling it as soon as they can.

Gold has been a marker of many life passages in South Korea. Gifts of gold jewelry and watches used to be almost obligatory at weddings. Companies often awarded their employees with gold medals and gave them gold key chains when they retired. It was assumed that gold could be turned into cash in case of emergency.

As the country modernized, other items came into play as gifts. But the tradition of baby rings, valued not just for their monetary value but auspiciousness, has persisted. Most households have from 5 to 20 rings, or more, stashed away for each child, and resistance to selling them remains high.

"People gave us the rings to wish my children longevity," said Joo Sae Hoon, 37, a marketing director at an online bookstore who has two children, aged 7 and 11. "So I wouldn't feel comfortable cashing them in. Maybe I will have them made into necklaces when my children turn 20."

Attaining one's first birthday was a major cause for celebration when South Korea was poor and infant mortality rates were much higher. The gold rings were cherished as talismans safeguarding the children as they were growing up.

Moon said he preferred the gifts of gold to the cash at his son's birthday in December. The gold, he explained, was more likely to end up in his son's hands.

"It's less liquid than cash," he said. "So I can keep myself from spending it."

But the trend toward cash in place of rings seems likely to continue given rising gold prices, which in January surged past the 1980 record of $850 an ounce and are now hovering around $950. Rings that cost about 50,000 won, or $60 to $70, about three years ago have been priced at more than 100,000 won since the beginning of this year.

"A couple of months ago, I paid 95,000 won for a baby gold ring. I thought it was too expensive," said Lee Yon Jeong, a journalist.

Jewelers have been hit hard. According to the Korea Jewelry Association, sales of baby rings are down by half since the typical cost rose above 100,000 won.

"Customers keep coming in to buy baby rings," said Yoon Jae Hee, owner of Kobo Jewelry in central Seoul. "But once they find out that they cost 130,000 won, they hesitate."

"They might buy a ring half the standard size," he said. "Or they resort to cheaper accessories."
Gold jewelers have been trying to lure customers with lightweight baby necklaces or bracelets with bells - supposed to prevent a baby from going missing.

And several jewelers say that now more people are selling gold than buying it.

People have been bringing in graduation rings, lucky charms, key chains, mismatched earrings. A few have even started selling their baby's gold rings.

"The other day a woman pushing a child in a stroller sold us three," Yoon said. "As she did so, she murmured, 'Sorry, son.' "

He said he gave the woman 91,000 won for each ring.

Still, Cha Min Gyu, public relations manager of the Korea Jewelry Association, said he doubts the custom of giving babies gold rings will disappear completely.

"Families will never give up gold rings for their own precious children," Cha said. "In Korea, gold will always be a symbol of health, wealth and prosperity."

Judging by the current level of baby ring production, Cha said he believes that about 40 percent of guests are still bringing gold rings to first-birthday parties. "Otherwise the baby ring jewelers would be out of business by now," he said.

Moon, who received a crown made from his gold baby rings when he was accepted to college, says that once his own son reaches that point, he'll sell the 27 rings presented to his son in December to pay the first semester's tuition.

"For the rest of his higher education," Moon said, "he can support himself."

http://www.iht.com/articles/2008/02/28/asia/gold.php ◦

Rise in the Price of Gold is Bad Luck for Korea's Babies

Koreans stay at home and go to school

SEOUL: You can spend thousands of dollars and endless hours in crowded lecture halls to gain a South Korean real estate agent's certificate.

Or you could study for the license in the comfort of your own room with a broadband connection to a television for a fraction of the cost.

For companies selling interactive television over the Internet, soaring demand in Asia for high-quality education for children, as well as demand from people looking to change careers, offers a potentially lucrative market and the chance to lure customers away from cable television and the computer.

South Korea, where children spend hours studying in a gruelling battle to enter the top schools that can guarantee a job at the big conglomerates, is at the vanguard of educational television over the Internet in Asia.

Tuition is expensive, with spending on after-school tutoring estimated to be the equivalent of 2.6 percent of the country's gross domestic product.

Private tutors, who are highly sought after, can earn a salary similar to a banker's pay.

South Korean companies, like KT, which plan this year to upgrade their Internet-powered television services to full Internet protocol television, known as IPTV, are spearheading the move.

KT says online education for children ranks among the most successful programs on its "MegaTV" system, which also offers after-school tutoring and adult education courses.

"The response is strong for kids' programs in which they learn by playing games and solving puzzles using a remote control," said Yang Jae Geon, KT's director of media.

Young Choi, an analyst at Mirae Asset Securities in Seoul, said educational programs generated about 20 percent of IPTV revenue.

"Education is one area they can make users pay extra money," Young said. "The key is to increase the portion of paid programs."

Young said he expected IPTV use in South Korea to rise to five million subscribers by the end of 2009 from an estimated three million at the end of 2008. The overall market for IPTV could reach more than 55 million worldwide by the end of 2011, from an estimated 10 million last year, according to the research firm Ovum.

IPTV, with its immediacy, interactive features and easily navigable menus, bypasses the process of having to start up a computer and surf the Internet.

Across Asia, quality education is in constant demand and short supply. Students often fight for places at the best schools, workers pin their hopes on English skills to lift their careers and parents look for new ways to teach their youngsters.

"Game content and educational programs have big potential because both target a very important group of people - that's the young generation," said Rocky Li, marketing director at BesTV, the IPTV unit of Shanghai Media Group.

Most IPTV companies have focused on popular television shows and sports events for growth. In Europe, operators like BT in Britain gained market share by offering customers free access to digital terrestrial television. PCCW of Hong Kong has the exclusive right to broadcast popular English Premier League soccer.

But operators, many of which are fixed-line carriers muscling in on broadcasters' territory, hope that IPTV's interactive features give them an edge in the potentially lucrative teaching market.

On IPTV, lectures can be repeated at any time and they allow students to take quizzes or pose questions in real time.

In China, where history and geography programs are already offered, education is set to become the fastest-growing part of BesTV's business, Lee said, referring to the IPTV unit of Shanghai Media Group.

"In traditional TV, it's difficult to find these programs," Lee said, because of inconvenient times and limited slots. He expects overall IPTV users in China to reach two million by the end of 2008 from 600,000 now.

IPTV companies are also trying to add popular video games, from simple board games and racing to multiplayer online games, to attract computer users away from their computers.

But some analysts say a television in the living room is not the best platform for interactive programming.

"TV is something shared by the entire family," said Suran Seong, a senior analyst at Ovum. "Some parents are not comfortable with the idea of kids studying in front of a TV."

On the financial side, operators will also need to strike the right balance between subscription fees and payments to content holders.

"Big players will remain hesitant until IPTV starts to make money," said Lee Sun Kyoung, an analyst at Goodmorning Shinhan Securities. "Operators, on the other hand, are under pressure to keep fees low to expand the market."

http://www.iht.com/bin/printfriendly.php?id=10435696 ◦

Koreans stay at home and go to school

New York Philharmonic Plays Arirang in North Korea (Feb 2008)

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New York Philharmonic Plays Arirang in North Korea (Feb 2008)

Is President Lee South Korea’s Sarkozy?

Lee wants to save his country by nudging it right and toward the U.S.—but his people may not cooperate.

The congregation at Somang Presbyterian, a Seoul megachurch, has very fond memories of the parishioner who became South Korea's president on Monday. Lee Myung-bak, now 66, joined the church back in 1977, when he was the young head of Hyundai's construction company, and he didn't take long to leave his mark. Shortly after he arrived, Lee took charge of a project to build a massive new sanctuary for the fast-growing congregation. Within a year it was completed, and Somang's 70,000 members haven't forgotten.

Many are now pulling for Lee as he takes the country's helm this week and tries to steer its once mighty, now faltering, economy back on track. "We think he can get it done," says church manager Chung Jung Mook. "We'll be praying for him."

That's good news for Lee, who will need all the help he can get—divine intervention included. A cosmopolitan, business-friendly ex-CEO who's an unabashed friend of Washington, Lee will face formidable challenges as he tries to return South Korea to the upper ranks of the world economy. In an exclusive interview with NEWSWEEK last week, Lee emphasized his determination to strengthen South Korea's business fundamentals and external ties. After 10 years of leftist rule marked by skyrocketing social spending, weak economic growth and strained relations with the United States, Lee thinks he has the solution: to court foreign investment, make nice with old allies and step up English-language education—a plan he bills as "Global Korea"—while dramatically cutting taxes, spending and regulation.

But is South Korea really ready for a Sarkozy-style pragmatist who embraces Washington, the English language and big business while opposing what Park Myung Ho, a political scientist at Seoul's Dongguk University, calls the "liberal idealism" of his predecessors? For one thing, the country has a profoundly ambivalent attitude toward the rest of the world. Its export-driven economic miracle ensured the country's fate was inextricably linked to other nations'. Koreans, moreover, think nothing of sending their kids to summer camp in the U.S. or college in France. But there's also a deeply ingrained historical sense of humiliation by the foreign powers that repeatedly invaded and colonized Korea throughout its history. Small wonder, then, that the national psyche tends to swing violently between cosmopolitanism and xenophobia.

Sure enough, Lee's agenda ran into trouble before he was even inaugurated. Environmentalists and the powerful Korea Confederation of Trade Unions have blasted his pro-globalization proposals, which they see as a threat to national pride and an attempt to push a U.S.-style neoliberalism that emphasizes development over all else. To underscore his commitment to Global Korea, Lee has gone so far as to offer to bring foreigners into his cabinet—but this move, too, has drawn fire from nationalists. Recent turbulence in world financial markets hasn't helped, either, forcing Lee to back off campaign pledges to deliver growth levels not seen here for years. Still, in the interview last week, the then president-elect stressed that he hasn't lost the faith.

"We achieved [economic] development through globalization," he said, and further internationalizing remains the country's best shot at recovery.

On the surface, South Korea seems primed for such an approach. Lee, a former Hyundai president and Seoul mayor, won the election by a landslide in December. Many Koreans blamed the country's recent economic stagnation on the policies of his predecessors, Roh Moo Hyun and Kim Dae Jung, who emulated the Northern European social model, raising the welfare budget by an average of 18 percent a year. The public sector mushroomed, taxes soared and private enterprise struggled under increased regulations. Roh in particular emphasized redistributing wealth to Korea's have-nots, and his pro-labor, anticonglomerate stance discouraged investment. Last year, an Organization for Economic Cooperation and Development report warned that South Korea's economy remains "relatively isolated" and noted that foreign direct investment had been falling steadily since 2005. Economic growth slowed from 7 percent in 2002 to 5 percent last year— a rate that feels like a recession in South Korea—and youth unemployment hit the double digits (having doubled in five years). Economically speaking, the Kim-Roh era represented "10 lost years," says Gong Sung Jin, a lawmaker in Lee's Grand National Party.

Lee hopes to fix this by closing or merging overgrown government agencies, cutting corporate and property taxes and slashing regulation. He's dreamed up a huge nationwide canal project linking rivers in the north and south that would facilitate cargo transport, spur tourism in the hinterlands and create new jobs. He's also courted investment from local and foreign business leaders. In January, Lee wowed an assembly of U.S. and European investors in Seoul by treating them to a slick PowerPoint overview of his reform plans—accompanied by a commentary in fluent English. (Roh, whose formal education didn't extend beyond high school, spoke only Korean—and a notoriously coarse version of it at that.) Lee has surrounded himself with foreign-educated scholars and globetrotting business executives and even named a British banker co-chair of a special committee on national competitiveness. Sagong Il, the committee's other co-chair and a former Finance minister, says Lee wants to make the sort of changes that reformers aspire to in the United States, Germany and France.

Like France's President Nicolas Sarkozy, Lee is also determined to improve ties with the United States, which were badly damaged under Roh. Roh sought greater independence from Korea's traditional ally while pursuing reconciliation with the North. Relations with the White House grew especially strained over Kim Jong Il's illicit nuclear-weapons program: Washington favored sticks (such as sanctions), while Seoul insisted on carrots (greater aid for Pyongyang). Now, says Lee, the North won't enjoy any more largesse without first making decisive progress on the nuclear issue. "The South and North should seek joint prosperity while maintaining peace," says Lee. "[But] we cannot seek that kind of relationship, and unification, if the North keeps its nuclear weapons." It's a shift that could well bring Seoul and Washington back into synchrony.

Lee has made it clear in other ways that Washington, not Pyongyang, will remain Seoul's best friend; he says that South Korea would never have boomed or become a democracy without American help. His affection hasn't gone unnoticed: the U.S. House of Representatives recently passed a resolution congratulating him on his election (a first for a Korean leader). To further his vision of a Global Korea, meanwhile, Lee has come up with a revolutionary English-education plan, under which thousands of English teachers would be hired to make average Koreans fluent in the language.

But these ambitious projects have run into stiff opposition, which could increase now that he's taken office. Part of the problem is that Lee's mandate was never as clear as it seemed. True, he won twice as many votes as his liberal opponent, Chung Dong Young, who carried the progressive torch for the term-limited Roh. But that margin may have been mostly the result of the chaotic and confrontational Roh's unpopularity (he had a single-digit approval rating by the end of his term). "People didn't like [Roh]," says Prof. Hahm Sung Deuk of Korea University. "[But] a substantial number of people disapprove of Lee's policies." To further complicate matters, Lee won't be able to ram through reforms without solid support in Parliament—and for the moment, it remains dominated by the liberal opposition. This means Lee may have to place many of his initiatives on hold until the legislative elections in April. That will leave plenty of time for his opponents to throw wrenches into the works. His enemies are numerous and not confined to the left: a new right-wing party founded by Lee Hoi Chang, a former Lee associate who is even more conservative, could siphon crucial votes and jeopardize Lee's chances of winning a legislative majority.

While the president's approval rating is still high thanks to the honeymoon effect, it dropped from the mid-80s to the mid-70s in recent weeks due to a series of entirely avoidable missteps. His English education program was roundly criticized as unreasonably ambitious (at one point, the plans included starting to conduct many high-school classes nationwide in English) and an affront to Korean pride. His decision to reform the machinery of government before taking office triggered a row with the opposition that could slow confirmation for his cabinet. Liberal groups like the opposition United Democratic Party have accused him of planning to pursue harsh U.S.-style, winner-take-all economic policies. Arguing that Korea's welfare spending (measured as a portion of the total budget) is still just half that of countries like Sweden, they've contested his proposed cuts and his canal project, which critics charge is ecologically dangerous. The new president "is obsessed with development," says Song Young Gil, an opposition lawmaker. "Our time needs different values, such as welfare, culture and the environment."

And in a country where 48 percent of those in their 20s and 30s voice anti-American sentiment (according to a Seoul National University poll), Lee's pro-Washington stance and his hawkishness toward the North seem likely to run into serious trouble. The past few years have seen a nationalistic backlash against foreign investors who swooped in after the 1997 financial crisis, scooping up troubled assets at rock-bottom prices. Of course, the angry Korean reaction to these "vultures" overlooked the fact that they helped many local firms, such as Daewoo Motors, avoid bankruptcy. Yet tempers remain high.

Another potential problem: Lee's relative lack of political experience. His only stint as a national policymaker—unless you count his four years as Seoul's mayor—was a single term as a junior member of Parliament back in the 1990s. Critics warn that as president, Lee will find it much harder to exercise the kind of CEO leadership he practiced at Hyundai and in city hall. "There's a big difference between governing a city and governing a country," argues Hahm, who says that Lee's distaste for the grubby give-and-take of day-to-day politics could prove crippling if he tries to rule by command.

But don't count the president out just yet. Lee's biography reveals a serious talent for getting things done under the most adverse circumstances. In 1965, as a poor youngster from the sticks who had paid for college by collecting garbage, he joined Hyundai as a construction manager, building roads in Thailand. Twelve years later he was a rich man and president of the huge conglomerate—earning him the nicknames "Korea's most successful salaryman" and "the bulldozer." Lee Choon Lim, the president's old boss at Hyundai, remembers him as a "workaholic determined to fight poverty." Later, as mayor of Seoul between 2002 and 2006, Lee showed remarkable sensitivity to concerns such as environmentalism. His biggest achievement was not to build, but to tear down an elevated highway—Seoul's main traffic artery—in order to uncover a stream beneath, restoring nature to the urban core. The project has turned out to be a huge success, with the river becoming a beloved Seoul landmark. Even his most ardent supporters will concede, though, that that's still a far cry from managing the world's 11th largest economy and a volatile country with a seriously prickly sense of national pride. Yes, Lee has won all his big battles so far—but his toughest campaign is just beginning.

http://www.newsweek.com/id/114681 ◦

Is President Lee South Korea’s Sarkozy?

Tackling the English Divide in South Korea

The incoming government will seek to phase in English-language content courses for upper primary school graders to curb soaring household spending on private education.

Lee Kyung-sook, chairwoman of the presidential transition team said Wednesday that her advisors have been reviewing possible English training programs for teachers and other options to make this happen.

A Samsung Economic Research Institute (SERI) report found Koreans spent approximately 14 trillion won annually on private English tutoring, almost half of the entire household spending on private education, which has grown rapidly over the past decade.

A National Statistical Office (NSO) report showed that annual household spending on private education during the incumbent Roh Moo-hyun administration totaled 21 trillion won. Experts said that the actual figure is much larger than that.

Chairwoman Lee stated the new government views this problem as serious.

She said the surging household spending on English education is "not an educational problem but a social one."

Korea is struggling to cope with an English divide between children from wealthy parents and those from lower-income families.

In the presidential campaign, President-elect Lee pointed out that the vicious circle of poverty could come a result of the English divide.

He pledged to strengthen English education in public schools so that high school graduates will be able to speak English fluently.

The team said it had reviewed training programs for 3,000 Korean teachers and the setting up of a qualification system for native-English speakers and after school programs at elementary schools.

David Francis, a former team leader of an English immersion program at Young Hoon Elementary School in Seoul, told The Korea Times that the transition team needs to work on the details of these programs.

Francis said effective English-content courses need to include two core conditions ― qualified native-speaking educators and small class sizes.

"Daily language instruction should begin at grade one elementary, no later. During language instruction time the traditional classroom of forty students needs to be split up into at least two or if possible three smaller groups," he said.

Francis has taught literature, the humanities, and language in five countries including Singapore and Indonesia over the last fourteen years before joining Young Hoon Elementary School.

Andy Jackson, who teaches American Government at the Lakeland College bridge program at Ansan College, said English-language content courses would have to be taught as part of a program, rather than on an ad hoc basis, to be effective.

"The program would have to include a year of English immersion (with a test-out option) before content courses begin," he said.

The question is if strengthening the training program for English teachers in public schools will help achieve the policy goal.

A KBS survey in 2005 showed that 272 middle and high school teachers' average score on the Test of English for International Communication (TOEIC) was 718 out of 990.

According to KBS, these teachers had completed a 6-month long English language program before the survey.

The average TOEIC score of the teachers was slightly higher than the English requirement for college graduate job applicants at companies, which is 700.

This result indicates the training program for English teachers may be of little help in achieving the transition team's goal.

http://www.koreatimes.co.kr/www/news/nation/2008/01/113_17811.html ◦

Tackling the English Divide in South Korea

Economic Freedom - South Korea only ranked #41

Are the world's impoverished masses destined to live lives of permanent misery unless rich countries transfer wealth for spending on education and infrastructure?

You might think so if your gurus on development economics earn their bread and butter "lending" at the World Bank. Education and infrastructure "investment" are two of the Bank's favorite development themes.

Yet the evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs.

Empirical support for this view is presented again this year in The Heritage Foundation/The Wall Street Journal Index of Economic Freedom, released today. In its 14th edition, the annual survey grades countries on a combination of factors including property rights protection, tax rates, government intervention in the economy, monetary, fiscal and trade policy, and business freedom.

The nearby table shows the 2008 rankings but doesn't tell the whole story. The Index also reports that the freest 20% of the world's economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.

The 2008 Index finds that while global economic liberty did not expand this year, it also did not contract. The average freedom score for the 157 countries ranked is nearly the same as last year, which was the second highest since the Index's inception. This is somewhat of an achievement considering the rising protectionist and anti-immigration sentiment in the U.S., the uncertainty created by spiking global energy prices, Al Gore's highly effective fear mongering about global warming, and the continuing threat of the Islamic jihad.

Former British colonies in Asia took three of the top five places this year. But half of the top 20 freest economies in the world are in Europe. Of the five regions surveyed, Europe is the most free, continuing to advance this year with tax cuts and other business-friendly reforms. The only other region to score above the world average this year is the Americas, which is helped by strong performers like the U.S., Canada, Chile and El Salvador. At the other end of the scale Argentina, Bolivia, Haiti, Venezuela and Cuba dragged down the regional average.

Although overall global economic liberty did not expand, there were a few stars. Egypt was the most improved economy in the world, implementing major changes to its tax policies and business regulation environment and jumping to number 85 from 127th place last year. Mauritius was the second-best performer, moving into the top 20 from No. 34 last year. Trade liberalization and improved fiscal policies, including a flat tax, made Mongolia the third-best performer, and put it in the category of "moderately free" economies.

Three essays in the 2008 Index help illustrate why economic liberty matters to human progress. In "Economic Fluidity: A Crucial Dimension of Economic Freedom," Carl Schramm, president of the Kaufmann Foundation, explains that growth-driving innovation results not only from sound macroeconomic policy, but also from dynamism at the micro level.

Most important is the interaction between "institutional, organizational and individual elements of an economy," which gives rise to "the entrepreneurial energy and the speed of economic evolution." Such "fluidity," he writes, "facilitates the exchange and networking of knowledge across boundaries. This fosters both innovation and its propagation through entrepreneurship."

Mr. Schramm's essay illuminates why successful economies cannot be centrally planned. Fluidity, he writes, resembles "the idea of the 'the edge of chaos,' the estuary region where rigid order and random chaos meet and generate high levels of adaptation, complexity and creativity." It is "ideas on the margins, challenging the status quo, that lift the trajectory of an economy's performance." Try that in Cuba.

In "Narrowing the Economic Gap in the 21st Century," Stephen Parente, associate professor of economics at the University of Illinois at Urbana-Champaign, debunks several World Bank myths by showing that it is not the resources -- land, workforce and capital -- of an economy that play the most important role in explaining higher income countries. Instead it is "the efficiency at which a society uses its resources to produce goods and services."

Mr. Parente cites the microeconomic research of McKinsey Global Institute, which estimates that modern industry in India could take a huge bite out of its productivity gap with U.S. competitors by simply upgrading production techniques. India doesn't need another multilateral education project. It needs to tap into knowledge already available in successful economies -- the information and technology is out there. The trouble is that it is unavailable in many countries like India, because government barriers and constraints to limit competition make access difficult or impossible.

French journalist Guy Sorman's "Globalization is Making the World a Better Place" is a treatise on "one of the most powerful and positive forces ever to have arisen in the history of mankind." It fosters economic development, moves countries from tyranny to democracy, sends information and knowledge to the most remote corners of the globe, reinforces the rule of law, and enriches culture. International commerce in post-World War II Europe, he reminds us, wasn't invented by diplomats, but by entrepreneurs who wanted to end centuries of strife on their continent and build a peaceful union based on commerce.

Today's entrepreneurs, across the globe, have similar aspirations and abilities. If only the politicians would let them be free.

http://online.wsj.com/article/SB120036519907490279.html?mod=opinion_main_commentaries

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Economic Freedom - South Korea only ranked #41

Samsung Electronics Sales Top $100 Billion

By Kim Yoo-chul
Staff Reporter
The Korea Times

Despite lingering woes in the chip industry, Samsung Electronics posted more than $100 billion in global sales last year on the back of brisk movements in liquid crystal displays and mobile handsets.

Samsung said Tuesday it made $103.4 billion or 96.1 trillion won in sales including those from overseas operations last year, for the first time ever.

At home, Samsung posted 7.42 trillion won in net profit on sales of 63.17 trillion won.

Nevertheless, the global tech giant failed to overcome the glut in the chip industry in the fourth quarter.

Samsung reported a 6.6 percent drop in fourth-quarter earnings following losses from computer memory chip sales. The company earned 2.21 trillion won ($2.36 billion) in the Oct.-Dec. period, compared with 2.36 trillion won a year earlier. Revenue jumped 11.4 percent year-on-year to 17.47 trillion won.

Operating profit fell 13.1 percent to 1.78 trillion won. The company's operating profit margin in the memory chip business, once the company's cash cow, remained at 9 percent.

"Profits at our semiconductor division are expected to decline in the first quarter," said Chu Woo-sik, executive vice president of Samsung Electronics in charge of investor relations. "We will activate our capital spending in the memory business this year."

Samsung, which produces diverse electronics goods including LCDs, mobile handsets and semiconductors, was the second to report quarterly earnings among tech companies. On Monday, LG.Philips LCD, another flat-panel maker, said its fourth-quarter earnings reached 760 billion won, a turnaround from a loss of 174 billion won.

In the past decades, DRAMs have been the main growth engine for the world's largest computer-memory chip manufacturer but ever-declining product prices sparked by an industry-wide oversupply forced global players to reduce prices.

Samsung is worried that memory prices will likely remain weak until the second quarter of this year as investment made over the past two years by manufacturers will start to translate into more products on the market.

Against this backdrop, LCDs and mobile handsets were a savior for Samsung. Samsung reported its sales of LCD panels jumped 11 percent to 4.46 trillion won from three months earlier. Its operating profit improved 37 percent to 0.92 trillion won.

Stabilizing panel prices mainly drove the strong performance. At the end of last year, the price of a 17-inch LCD panel, one of the most favorable displays for TVs and computers, stood at $134, up from $123 a year earlier, according to an industrial consulting firm DisplayBank.

Samsung sold a record 46.3 million phones in the fourth quarter. The company, which recently overtook Motorola to become the world's No. 2 handset maker, expects to sell 200 million handsets this year. ◦

Samsung Electronics Sales Top $100 Billion

A New City in South Korea

Forty miles Southwest of Central Seoul, South Korea, thousands of construction workers swarm across a 1,500-acre pile of mud. Fifteen towers rise out of the dirt. A handful of paved avenues intersect the ruts of dump trucks, bulldozers and backhoes. It's work on a colossal order, the site of a planned 50 million square feet of office space, 35 million of residential, 4 million of retail, 5 million of hotels and 10 million of parks and greenswards.

Rome wasn't built in a day, and New Songdo City won't be complete until 2014, at the earliest. By then, perhaps 65,000 people will live, and 300,000 will work, in this fabricated-from-scratch urb. There will be an international school (already half-built), a hospital, museums, a convention center, a golf course overseen by Jack Nicklaus, a giant mall designed by Daniel Libeskind and a 65-story office tower. Songdo is being pitched as a digitally linked and model green city. Total estimated cost: $30 billion. That doesn't include the $10 billion the Seoul government is kicking in for infrastructure, like a 7-mile bridge (half-completed) with a suspension span to link Songdo with Incheon International Airport. "Unless you've been to Dubai or China," says Christopher Niehaus, vice chairman of Morgan Stanley Real Estate, which has an 8.75% interest in the venture, "it's hard to grasp the scale of this thing."

Hard to fathom, too, that behind this megaproject is a little-known Manhattan developer called Gale International, with a 70% stake in Songdo. Founded 22 years ago by Stanley Gale, the privately held developer has scraped out improbable deals in the past. In 2001 it spent $350 million in a frumpy Boston market to build the first office tower on spec there in more than a decade; after leasing the building for three years Gale sold the 36-story One Lincoln tower for $705 million in 2004, at the time the largest real estate deal in Boston's history. Last year it unloaded most of its portfolio to the REITMack-Cali Realty Corp. for $545 million. What's left: a piece of the $1 billion complex in Florham Park, N.J. of training grounds for the New York Jets, plus residential and commercial properties, and two Boston projects, one to develop Seaport Square ($3 billion), the other to develop One Franklin Street ($700 million), site of the old downtown Filene's.

Gale has never attempted anything like Songdo. "This isn't about one building," says John Hynes III, Gale's partner and chief executive. "This is about master planning a whole new city, and that will get anyone's blood flowing."

Brazil's new city Brasília was something of a flop, as was suburban Columbia, Md. Will it be different this time?

Since it signed on six years ago, Gale has battled intractable bureaucrats, a greedy Korean partner, hidebound ideas of urban planning and a public long wary of foreign investors. There have been commercial hurdles: Gale has so far nailed not a single blue-chip tenant. And physical challenges, too. Because the land underneath Songdo didn't exist, the government of Incheon dumped 110 million cubic yards of dredged sand and mountain rubble into the Yellow Sea. To support the skyscrapers, engineers called for 7-foot-diameter concrete piles to be drilled through 23 feet of landfill, 108 feet of seabed and 56 feet of bedrock.

Gale and Hynes arrived in South Korea serendipitously, without prior experience in Asia. Firmly planted in New York City, Gale, 57, had real estate roots going back to his paternal grandfather, Daniel, who became a broker in 1922 (the Daniel Gale Agency is now part of Sotheby's). Hynes, 49, opened Gale's Boston office in 1999 after spending 20 years brokering leases. A co-captain on Harvard's hockey team, Hynes comes from blue-blooded stock. His grandfather, John B. Hynes, was Boston's mayor from 1950 to 1960; the city's convention center bears his name. Hynes' father anchored Boston TV newscasts for decades.

The road to Songdo ran through the International Monetary Fund. As part of a $58 billion bailout, following the Asian currency crisis of the late 1990s, the bank insisted that South Korea increase its foreign reserves and seek outside investment--a requirement that collided with a longstanding law that barred non-nationals from owning Korean soil. (That law changed in 2003.) Seoul agreed to appoint a foreign developer for Songdo. In 2001 project officials selected Jay Kim, a Korean-American and former senior scientist of nuclear power plant design at Westinghouse, to approach U.S. developers. Kim, who lives in Pasadena, Calif., came to the U.S. 50 years ago after his family was separated in the Korean War. (If his brother is alive, he's somewhere in North Korea.) Kim found that few American companies wanted anything to do with a risky venture abroad. "Most developers were making a ton of money right here," Gale says. Kim dug up Gale when reading an Internet article about One Lincoln tower. Hynes agreed to meet Kim for a 20-minute cup of coffee in Boston. That afternoon Hynes agreed to fly to Korea. Two days later he called from Incheon: "Stan, you've got to get over here. These guys are serious. This is for real."

Gale hired Kohn Pedersen Fox Architects to design the city. (Among its projects: the Mohegan Sun Casino and the Shanghai World Financial Center.) The plans proved to be a little difficult because the landfill didn't yet exist. "The zoning back then was high-tide, low-tide," Hynes laughs. Gale spent two years and $10 million investigating the viability of the project. By the time it submitted the master plan in 2002, Gale had persuaded Morgan Stanley to join as a minority partner for $350 million in cash. That investment has so far secured $4 billion in loans from Korean banks, which Gale has used to buy land and build. It will borrow in chunks and eventually blow through $20 billion in loans at interest rates of 7% to 8%, retiring the debt as it sells property and splitting the profits with small shareholders, like Morgan Stanley and Lehman Brothers, and large ones like 30% owner Posco, the $25 billion (sales) Korean steel and construction giant.

The Incheon government agreed to sell the initial 100-acre parcel for $50 million in cash plus a promise from Gale to build a $150 million convention center and donate it to the city. Under the original deal, the government was going to pay for the center but extracted the freebie in return for expedited condo approvals. The convention center may well become Songdo's signature for its arching, multipeaked structure that evokes Sydney's opera house. But for Gale the building would prove to be the first of many hiccups.

The developer offered to build a 100-acre park and donate it to the city--if it got permits to build an underground parking garage, a nature center and an art museum. These, Gale figured, would provide cash flow to service debt on the park buildings. But municipal officials first okayed, then backed off the deal. After a year of haggling, Gale finally got approval for its plans.

Gale has also sparred with its Korean partner. It all started after the first sale of apartments in May 2005. The application line stretched for 2 miles, as Gale drew 170,000 qualified offers for 2,200 units. They sold out in one day for $1 billion. Posco--due 30% of the construction jobs, some commercial, some residential--cheekily asserted that going forward it would build all residential projects, trying to avoid holding equity in the riskier office buildings, of which it was obliged to front 30%. Gale said no but invited Posco to be part of the competitive bidding for the remaining 70% of residential. "They should win those bids," says Hynes. "But are they happy with that? No. They wanted the sure thing." Such accommodation would have wrecked Gale's business. It depends on netting 20% on residential projects in order to have enough cash to reinvest in office space. Posco says it's abiding by all its agreements.

Add to that some hostility from the Korean press, which has pegged Gale as a slash-and-burn opportunist, a typical American capitalist. Dallas' Lone Star Capital faced government charges of stock-price manipulation after it bought 71% of Korea Exchange Bank for a cheap $1.2 billion in 2003 following unrest in Korean credit markets. The Seoul government later blocked a May 2006 sale of that stake for $7 billion. "There is a desperate effort in Korea right now to compare us to Lone Star," Hynes says, "but we couldn't be any more different."

Some Koreans view the whole project with skepticism. "I think it's too early to say whether it will be successful or not, but initial opinions here aren't favorable," says Sohn Hyun-duck, economics editor at the Maeil Business Newspaper, Korea's vanguard publication. Gale has come under fire for building lucrative residential units before commercial lease buildings. Koreans want to see commercial space built and filled with big international companies with cachet.

So does Gale, even though it has only one such potential customer, United Technologies, the industrial conglomerate. Helping with introductions was Christine Todd Whitman, the onetime New Jersey governor and chief of the Environmental Protection Agency, who sits on the Songdo International Advisory Board and is a director at United Technologies. "No decisions have been made," says a United Technologies spokesman. Hynes says Gale is in discussions with Boeing and Microsoft, as well as Samsung Life, Shinhan Bank and Korean Air, among others.

Songdo will be one of the world's greenest cities. Wastewater from sinks and showers will be recycled for irrigation and toilet flushing, requiring two sets of pressurized waterlines in each apartment and office. Gearless elevator systems from Otis will use 75% less energy than standard ones; its elevators have flat polyurethane-coated steel belts that require no lubrication. United Technologies' Otis will debut its ReGen drive, which draws energy from a fully loaded descending elevator or a lightly loaded ascending car and converts it to electricity.

Another goal: to make Songdo the largest so-called ubiquitous city, where wireless networks and radio-frequency identification will link all information systems--every laptop, stoplight, cell phone, TV and toaster. Residents, it's hoped, will be able to time their commute out the door with the changing walk signals on the street 50 stories below. The buildings' heating and air patterns will adjust as weather changes.

"Seven more years," muses Hynes. "It's a marathon, but we're hitting some milestones now." That's making a virtue of necessity. The last American who tried for a quick conquest of Incheon was Douglas MacArthur, in 1950.

◦

A New City in South Korea

To save, South Koreans use credit cards

By Choe Sang-Hun
International Herald Tribune

Whenever Park Kyung Jin goes shopping, she methodically reviews which of her many credit cards to pull out. Not that the 28-year-old office worker is a shopaholic; rather, like millions of other South Koreans, she knows this is an easy way to trim costs.

"You feel like a loser if you pay in cash," she said, noting the generous discounts South Korea's intensively competitive credit card companies offer as incentives to use their products.

Thanks to what began in the late 1990s as a government campaign to fight corruption, South Korea has become one of the world's most credit card-friendly countries. As part of its effort to fight the all-too-free flow of cash in the underground economy, the government encouraged consumers to use credit cards and threatened tax audits of enterprises that refused to accept them. It even gives income tax rebates to people who report their annual expenditures using credit cards.

The result is that last year nearly half the 454 trillion won, or $491 billion, in private consumption in South Korea was settled with credit cards, one of the highest ratios in the world, government officials said.

Although South Korea ranked just 34th in per capita income among countries in 2005, it ranked fifth in per capita credit card spending, according to the Bank of Korea, the country's central bank.

Paying electronically is easy in this technology-savvy, densely populated country. In 2005, for every million people, there were 403,000 electronic cash registers that allowed them to pay with credit and debit cards, Bank of Korea data show. In Japan, there were 10,765 such terminals for every million people. This means South Koreans can pay for virtually anything with credit cards: parking tickets, highway tolls, pizza deliveries, even a 2,000-won bill at a street-corner noodle shop.

With cards everywhere, the challenge to vendors is to stand out to attract consumers. Gasoline stations, bookstores, airlines, shopping malls, telephone companies, bakeries, amusement parks, KFC outlets - even hospitals - give discounts if a customer presents the right type of card.

The incentives are so many and so diverse that, Park said, "Here a credit card is not just a tool of payment, it's also a way of saving money."

For instance, when Park wanted to buy a knitwear shirt for her husband, she visited a department store run by the Hyundai conglomerate, because her Hyundai card gave her a 5 percent discount and she could pay in interest-free installments over three months.

On her way home from work, she often buys groceries at a store owned by the Lotte conglomerate, where her Lotte card gives her a 5 percent discount.

Elsewhere, she uses her Citibank card, which gives her two free miles on the South Korean airline Asiana for every 1,500 won she spends. With 30,000 miles, she hopes to get a round-trip ticket to Japan.

Card companies also give their cardholders "point cash," a small percentage of each settlement. This point money, saved in the cardholder's account, can be spent like cash. People use it to buy movie tickets, pay for gasoline, make political contributions or donate to the homeless.

Card companies can also deposit the point money in the customer's personal bank account, as happened to Park in October, when she received 50,000 won of point money saved on subway and bus fares she had paid by credit card.

For both card companies and retailers, point money has become an essential tool for attracting customers through partnerships. For each credit card, there are up to two million shops where the consumer can use the card and get point cash.

"In South Korea, for virtually any payment you make at retail shops, there is a way you can save money if you use a credit card," said Jeong Sang Ho, a vice president at Hyundai Card, which has six million cardholders and controls 13 percent of the country's credit settlement market."

South Korea is a tough place to be a card company. You have to keep coming up with creative new incentives to stay in competition."But," he added, "it's the best place to be a cardholder."

Hyundai Card, a joint venture between the South Korean automotive giant Hyundai Motor and General Electric of the United States, plans to expand into the United States, China and India. It hopes that some of the business models developed for the picky South Korean retail market - a graveyard for some of the most competitive global brands, like Wal-Mart, Nokia, Nestlé and Google - will help.

In one business model Hyundai Card is proud of, it lends point money, usually 500,000 won, for the purchase of a Hyundai car with a Hyundai card. The cardholder must pay the loan within three years using point cash accumulated through other purchases on the card.

"This ensures that the cardholder will continue to use our card," said Kang Byung Kyoo, a Hyundai Card executive.

Other card companies like Samsung and Shinhan make similar loans to people who buy electronics or newlyweds who purchase furniture.

When the South Korean began encouraging credit card use in the late 1990s, card companies established kiosks on the streets and even issued cards to college students, luring them with cash gifts.

In a country with 23 million economically active people, the number of credit cards surged to 105 million in 2002 from 42 million in 1998. The bubble burst a year later, when the number of defaulters soared 41 percent to 3.7 million. Some were driven to suicide.

After huge debt write-offs, mergers and tightening standards for issuing cards, the six leading credit card companies posted a combined 2.2 trillion won in profit last year, recovering from a 7.7 trillion won loss three years earlier.

Now there are an average four credit and other settlement cards for each economically active South Korean, compared with an average five for an American.

With such cards being a principal tool for attracting customers, virtually every retail chain in South Korea is issuing "membership cards," which look like credit cards and offer discounts but are not used for payment. The most popular are membership cards from SK Telecom and KTF, the two main cellphone companies in the country. They give discounts at thousands of restaurants and movie theaters. Increased used of a cellphone yields greater discounts.

So the wallet of Lee Ji Won, a 29-year-old office worker, is crowded with a dozen credit and membership cards, including one from her dermatologist.

"There are so many," she said, "you sometimes really need to study the manuals to figure out which card you should use at which place to get which benefits." ◦

To save, South Koreans use credit cards

Postcard: North Korea

By: Jenn Gearey

There were seven of us gathered in the Red Wall Hotel in Beijing—an Australian criminal lawyer for the insane, a Scottish lord living out his 007 fantasies, two communism-curious retired Italian mechanics, a retired Italian pilot who made a sport of traveling to the world's most inaccessible places and a young Italian accountant living in Austria. And me, the not-so-secret journalist from Canada who was surprised to even be invited. We had all signed up for a most peculiar adventure: we were going to North Korea. As tourists.

This was made possible by a little-known NGO based in Europe called the Korean Friendship Association, which has created "friendship" (a.k.a. tourism) delegations for foreigners who want to catch a glimpse behind the curtain of the Hermit Kingdom. Anyone can apply—anyone, that is, with a passport that isn't from the U.S., Japan or South Korea. I turned in my application in September, and two months later I was in Beijing, where I plunked down $4,000 in cash for the 10-day trip. The next day my fellow travelers and I received our visas and boarded a Soviet-era Tupolev plane belonging to Air Koryo, the national North Korean airline, for the two-hour flight to Pyongyang. We had no itinerary because our trip was considered "secret" information at that point. After landing, we were asked to hand over any cell phone, computer with GPS, radio and video camera—all forbidden from that moment forward.

Before we arrived at our government-run hotel (which had authentic North Korean touches like no heat or hot water despite the freezing temperatures), our minibus stopped at a statue of the deceased Great Leader Kim Il Sung, where we were told to bow and present flowers. Being a tourist in North Korea was going to be even more bizarre than we had thought.

Our tour guides were, of course, actually government minders. They led us through each day's treadmill tour of statues and museums dedicated to Dear Leaders past and present. But their real job was to keep an eye on us and to control the images we would take back home. For example, when we passed any sort of poverty still life—women washing dishes in the gutter, an old dirty truck piled high with cabbage—they either ordered us to put our cameras down or deleted our pictures after the fact. The guides also had an unsettling habit of taking pictures of us at every tour stop, for reasons they never quite explained. Every once in a while they let slip information that made it obvious they were electronically monitoring our hotel rooms and phone calls. All in a day's work for a North Korean tour guide.

How did we respond to Big Brother? Some among us were braver than others. The Austrian-based accountant tried to goad the guides into talking politics; the Italian retirees criticized the constant Kimilsungist propaganda, but only in Italian. After a while, I rebelled against the picture policing, even daring to sneak a snapshot of a grim military convoy with thousands of conscripts headed to points unknown.

Others on the tour just gave in. At a stop near the end of our trip, our Australian comrade wrote in a guest book, "Long live North Korea and good luck with the war against the United States."

If there was a highlight to all this strangeness, it was our visit to the demilitarized North--South Korean border. It was there, of all places, that we expected to be on a leash. But in fact, we were freer there than we had been anywhere else—permitted to take pictures of the soldiers on guard and given enough space by our minders that we could have even made a dash for the South Korean border. I don't know if tourists have ever defected from North Korea, but after more than a week of constant surveillance and ceaseless propaganda—basically, living like a member of its society—it didn't seem like such a bad idea.

◦

Postcard: North Korea