Koreans Love to Blame Foreign Speculators
You can easily find that Koreans based in Korea often blame foreign speculators for the volatility of Korean markets and assets in general. In the Korean press, you will be able to find not-so-subtle articles which suggest that foreigners are responsible wild gyrations in asset prices. Sometimes, the blame rises to a fever pitch, and political decisions get made which are totally unjustified when you apply internationally accepted norms. Not norms only accepted by the U.S., but by the global community as well. As Korea matures into a first-world country, these political decisions are not favorably received by the global community. The Seoul Gyopo Guide has pointed out, on multiple occasions, that the KEB debacle was completely unjustified, and motivated by political whim only. The reality is that over the past few years, Korea has benefited greatly from foreign speculators' movement of money around the world.
Korea Has Benefited a Great Deal Because the Yen is Strong
For those that have read the Seoul Gyopo Guide in the past, this headline is no surprise. Korea has feasted on one simple fact: the Japanese Yen is very strong, for a number of reasons, and that has made Japanese products too expensive in the international marketplace, and in many cases, has severely hurt Japanese company profitability. Toyota, Sony, you name it, they have been hurt by Japanese Yen strength. Who has benefited? Hyundai-Kia and Samsung Electronics (and others). We can debate this or that feature but the fact is that these products by Japanese and Korean companies are very competitive with each other. The reason that has occurred is because Korean companies have used their gains in the international marketplace to improve the quality of products produced. Those gains were the result of the fact that Korea's products were cheaper compared to Japanese products due to the JPY/KRW exchange rate. Twenty years ago, no one would compare a Sonata with an Accord. Today, that is very much the case. Korea has the strong Yen, in no small part, to thank for that.
Why is the Yen So Strong If Its Economy is in Decline?
There are a large number of reasons for this and too numerous to completely analyze here. However, here are a few. First, Japan has an economy where its debt, though very large, is largely owned by the Japanese. As a result, you don't have foreign investors selling Yen-denominated securities every time it is more clear that the Japanese debt burden is large. The ratings agencies have downgraded Japan recently. The Japanese Yen didn't move appreciably. Second, the stability of the debt, coupled with the stagnant Japanese economy, has led to the "Yen carry trade." It has allowed foreigners to convert into Yen, and then pay back the Japanese interest rate, which has remained close to zero because of the stagnant Japanese economy. So, when there is increased risk around the world, investors convert their currency into Yen. That is exactly what has occurred over the past week, and over much of the past few years, as governments around the world have borrowed money from foreign investors. Where has that not occurred? Japan. The result, the Yen, which should otherwise be weak, has remained strong relative to other global currencies, and the Korean Won.
The Korean Won / Japanese Yen FX Rate Hasn't Moved
In fact, the rate as of this writing is approximately 13.6. Before the financial crisis hit, that rate was around 8.0. Amazingly, the Korean Won has actually weakened compared to the Japanese Yen since the beginning of 2010. That has been to Korea's corporate benefit. The reason that there are so many more Japanese and Chinese tourists around Myung-Dong? Korea is cheap compared to their own markets.
Now, part of this is explained by the Bank of Korea's intentional policy. The BOK has a difficult task, because a weak Korean Won has caused increased inflation. For example a Korean Won can buy fewer imports because the import is priced in its own currency. It isn't all good news that the Korean Won has not strengthened greatly against foreign currencies. Nevertheless, the idea that foreign speculators are to blame is a misguided notion.
Conclusion
The Lost Seoul is qualified to write in-depth posts around this topic but is more interested in the central theme: Korea will have to deal with the effects of joining the elite nations of the world. Critics of the government and policy makers will need to take this into account before throwing out inaccurate statements and criticisms which no longer apply. The rules of competing on a global playing field, with and against competent, global competitors are not easy to manage, nor should they be. Old-fashioned thoughts and criticisms applied when Korean companies did not make world-class products. Old-fashioned criticism against the government don't work because while Korean products are world-class, the restraints of small population, small geographic size, and lack of natural resources are unique to Korea when compared to Germany, Japan, and the U.S. As a result, policy must take this into account, and critics must as well.
These are "high-quality" problems. A "high-quality" problem is one that occurs because Korea has successfully used the past few decades to make unprecedented progress on the global economic stage. Other "emerging market" countries have not had to deal with the same restraints that Korea has faced and overcome. Brazil? Enormous amounts of natural resources. China? 1.4 Billion people. India? 1.1 Billion people. Foreign speculators are not the root of the problem: the issue is that Korea faces unique challenges as it stares down Toyota, Siemens, and Ford on the global stage. Blaming foreign investors as wild speculators have actually created Yen appreciation, which has, and continues, to benefit Korea.
Showing posts with label China. Show all posts
Showing posts with label China. Show all posts
Friday, February 25, 2011
Wednesday, February 16, 2011
Not News, and No Analysis: Bloomberg Reports on N Korea-China Trade
Bloomberg Reports What Seoul Gyopo Guide's Readers Already Know
Today, Bloomberg, one of the world's most influential business news sources, reported that China has increased trade with North Korea. There is little doubt that increased trade between North Korea and China is a welcome development for North Korea. Readers of the Seoul Gyopo Guide have known that not only is the news welcome, but has also pointed out that increasing trade poses challenges to other countries, including South Korea.
What Conditions and What Price?
The eventual impact of these developments to all parties involved largely rests on two issues. The terms and conditions of these agreements, of course, is confidential. Most likely, it is the case that China has agreed to help develop North Korea's infrastructure necessary in order to extract the materials. As a result, the total benefits to North Korea may be multiple times larger than reported. Second, the question how is the price determined for the raw materials that China has purchased from North Korea? It has been rumored that China has extracted very favorable price terms from North Korea. Below market prices could potentially lead to competitive advantages for Chinese companies when compared to foreign competitors. Those competitors, increasingly, will be South Korean companies.
Conclusions
The Seoul Gyopo Guide has frequently stated that too often South Korea is subject to changes beyond its control. This is one of them. The notion of South Korea being a low-cost producer of almost anything is now virtually non-existent. Domestically, the cost of labor is uncompetitive on the world stage. In addition, the input prices of the products made by Korean companies is universally rising. Only by producing the world's best products will South Korea be able to survive over time. While this will not occur overnight, China's emergence and influence is making this a more urgent matter.
Today, Bloomberg, one of the world's most influential business news sources, reported that China has increased trade with North Korea. There is little doubt that increased trade between North Korea and China is a welcome development for North Korea. Readers of the Seoul Gyopo Guide have known that not only is the news welcome, but has also pointed out that increasing trade poses challenges to other countries, including South Korea.
What Conditions and What Price?
The eventual impact of these developments to all parties involved largely rests on two issues. The terms and conditions of these agreements, of course, is confidential. Most likely, it is the case that China has agreed to help develop North Korea's infrastructure necessary in order to extract the materials. As a result, the total benefits to North Korea may be multiple times larger than reported. Second, the question how is the price determined for the raw materials that China has purchased from North Korea? It has been rumored that China has extracted very favorable price terms from North Korea. Below market prices could potentially lead to competitive advantages for Chinese companies when compared to foreign competitors. Those competitors, increasingly, will be South Korean companies.
Conclusions
The Seoul Gyopo Guide has frequently stated that too often South Korea is subject to changes beyond its control. This is one of them. The notion of South Korea being a low-cost producer of almost anything is now virtually non-existent. Domestically, the cost of labor is uncompetitive on the world stage. In addition, the input prices of the products made by Korean companies is universally rising. Only by producing the world's best products will South Korea be able to survive over time. While this will not occur overnight, China's emergence and influence is making this a more urgent matter.
Tuesday, February 15, 2011
Rare Earths Trade War is a Potential Korean Disaster
Rare Earths Are Important to Korea's Economy
Rare earths are a group of rare elements. They are used in the manufacturing of technology products including smart phones and earphones. In the article, this very interesting table was included, which points out the uses of rare earths in the production of products.
If you look at the list, perhaps you will notice electronics, TVs/monitors, and catalytic converters. Did you ever hear of Samsung Electronics or Hyundai-Kia Motors? In other words, rare earths are important to some of the most important Korean industries.
Earlier, the Seoul Gyopo Guide pointed out that North Korean-Chinese cooperation on rare earths was a troubling development. Today, on Bloomberg.com, it was revealed that Australia blocked the Chinese takeover of an Australian company because Australia was concerned over the Chinese gaining further control of rare earths.
Conclusions
This issue will require constant attention. It is certainly on the radar screen of all of the largest Korean companies. Korea must secure rare earths sources, and given that China controls approximately 95% of these, it will make the South Korean-Chinese economic relationship more complex than ever. Already, China is challenging Korea in another important industry, shipbuilding.
You can easily conclude that a rare earths trade war has already broken out between the U.S. and China. Korea's economy is not as large nor as diverse as the U.S.', and as such, it must avoid the economic warfare and secure sources of rare earths critical to Korean industries. Not addressing this issue would be shortsighted at best, and a disaster at worst.
Rare earths are a group of rare elements. They are used in the manufacturing of technology products including smart phones and earphones. In the article, this very interesting table was included, which points out the uses of rare earths in the production of products.
United States Usage
(2008 data)Metallurgy & alloys Electronics Chemical Catalysts Phosphors for monitors, television, lighting Catalytic converters Glass polishing Permanent magnets Petroleum refining Other
Source: geology.com
If you look at the list, perhaps you will notice electronics, TVs/monitors, and catalytic converters. Did you ever hear of Samsung Electronics or Hyundai-Kia Motors? In other words, rare earths are important to some of the most important Korean industries.
Earlier, the Seoul Gyopo Guide pointed out that North Korean-Chinese cooperation on rare earths was a troubling development. Today, on Bloomberg.com, it was revealed that Australia blocked the Chinese takeover of an Australian company because Australia was concerned over the Chinese gaining further control of rare earths.
Conclusions
This issue will require constant attention. It is certainly on the radar screen of all of the largest Korean companies. Korea must secure rare earths sources, and given that China controls approximately 95% of these, it will make the South Korean-Chinese economic relationship more complex than ever. Already, China is challenging Korea in another important industry, shipbuilding.
You can easily conclude that a rare earths trade war has already broken out between the U.S. and China. Korea's economy is not as large nor as diverse as the U.S.', and as such, it must avoid the economic warfare and secure sources of rare earths critical to Korean industries. Not addressing this issue would be shortsighted at best, and a disaster at worst.
Sunday, February 6, 2011
North Korean-Chinese Agreement on Raw Materials is a Troubling Development (update 1)
Bloomberg Reported on North Korean-Chinese Rare Earths Deal
Readers of the Seoul Gyopo Guide knew this prior to Bloomberg's report, which was published on February 8th. Below, the Seoul Gyopo Guide's February 6th report and a quick analysis of the ramifications to the South Korean economy, and its potential effect on North-South Korean relations, is posted below.
It's No Secret: China's Economy's Growth Has Benefited South Korea
It is a well-known fact that the economic development of China has been very rapid, as it has grown at basically 8-10% per year for almost the past 30 years. The impact on the global economy has been enormous. The largest Korean companies, Samsung Electronics, Hyunda-Kia Motor Corporation, LG Electronics, Hyundai Heavy, SK Energy, POSCO, to name a few, have benefited \during this time. The revenues earned \by the largest Korean companies have funded research and development efforts which have yielded global market share gains versus its global competitors, including the Japanese. Globally, Korean companies are at least on par with their global competitors as measured by almost any measure. The Seoul Gyopo Guide has pointed out that the relatively weak Korean Won has also played a very strong role in this.
China's Growth Has Kept Down Global Inflation. For Now.
The reason that "inflation" on a global level has been subdued over the past 20 years has been largely due to the fact that China has absorbed much of the price pressures that would have otherwise occurred. As demand has increased in other parts of the world, China supplied cheap items at an almost-endless rate, it would seem. China has been able to do this because it is trying to transition 1.3 billion people out of its rural living into cities and a modernized economy. Doing this has been no small feat.
However, the slow-moving train of global inflation seems to be picking up steam around the world. Korea has also experienced this. As those same 1.3 billion people have gradually become wealthier, they have become consumers on their own as well. As the Chinese economic evolution continues, China will demand raw materials in order to continue it development.
The problem: the supply of raw materials is in question and the demand continues unabated. The result: inflation for raw materials of almost every type. China, once the great dampening force on global inflation, is becoming the great source of global inflation.
China's Delicate High-Wire Act
As a centrally planned economy, China has looked into the future, which means that its time horizon is more than 5 clicks on the internet. Its demand for raw materials, and energy resources, has been undeterred by almost any economic shock over the past 2 decades. Many in the financial markets would suggest that China has hoarded certain raw materials. It is understandable to see why. Take copper, for instance. Copper is the one metal which is absolutely essential for construction. Over the past 20 years, the price of copper has tripled, even with global output increasing by over 50% during that same time.
At a time that China is trying to grow its economy, it must also try to quell inflation. Inflation has historically been the reason that governments are thrown into turmoil. Many countries today are facing this as food shortages coupled with inflation have made the general populations...uneasy, to put it mildly. The Chinese Central Bank is playing a very delicate balancing act indeed.
Out of Singapore, this article appeared, and it can, almost all by itself, explain why China won't allow a war between Koreas, and why this can fundamentally change the nature of the North-South Korea relationship.
If True, North Korea's Raw Materials Reserves Are Enormous
According to the CIA, North Korea's GDP in 2009 was about $40 Billion. According to the AsiaNews site above,
Most recently, China has threatened to cease the export of minerals called 'rare earth' metals. The reason for this is that those rare earth metals, although used in very small quantities, are critical for technology manufacturing. It is yet another reason that the $6.3Trillion estimate may be too low, i.e. it will not take into account the potential for much higher prices of rare earth metals.
If True, North Korea's Raw Materials Reserves Are a Game Changer
Development of raw materials extraction could not come soon enough for the North Korean economy. How this develops will be interesting, and potentially can strongly affect the North-South Korean dialogue, as well as how Korea fits in the greater regional geopolitical structure.
Readers of the Seoul Gyopo Guide know that the writer believes that war on the Korean peninsula is unlikely at best. The bottom line is that there are too many parties who have too much to lose if there is a widespread war on the Korean peninsula, and the Korean people are unlikely to wage war with one another (self-defense is another, more complicated matter, and that is why President Lee has taken harsh, well-deserved criticism, for his administration's handling of recent events). Development of raw materials is critical to China, which further supports the Seoul Gyopo Guide's claims. There are other issues to consider. First, the Chinese are likely to strike exceptionally favorable terms from North Korea, given North Korea's economic woes. It is not hard to imagine that any agreement is tied to further economic assistance from China to North Korea. Second, the question will remain on where those revenues will go. If the revenues are diverted for military development, then this would be a source of funds that could be very dangerous to the North-South Korean standoff. Third, South Korea itself could be greatly disadvantaged compared to Chinese competitors. Already, China poses a threat to certain important Korean industries. A steady supply of raw materials at below-market prices would be a great advantage for China-based corporations. Any one of the three issues may prove to be a flashpoint: the combination of all three is particularly intriguing.
Conclusions
South Korea, too frequently, is a mere spectator to large, transformational changes in the global economy. Most of this is not due to anything that the South Korean government has done. South Korea remains small geographically, without many raw materials resources of its own, and with a relatively small population. These limitations make South Korea's rapid economic development even more amazing in many ways, especially in light of the fact that there has been continual, competent competition from foreign-based companies (ever hear of Toyota or Sony?). Until now, South Korean economic and monetary policy have provided a shield for South Korean industries which has allowed these industries to become global leaders. However, it is a story yet uncompleted because Korea is not China, and the fact that such a large economy has levers that can be used to disadvantage South Korea is troubling. This will not happen overnight, and how raw materials are developed in North Korea is still yet to be determined. Nevertheless, the potential effects of North Korean-Chinese cooperation on the development of sorely-needed raw materials could be enormous.
Clearly, this post needs to be expanded greatly, and will be expanded in upcoming updates.
Please "Like" this post and/or follow me on Twitter.
Readers of the Seoul Gyopo Guide knew this prior to Bloomberg's report, which was published on February 8th. Below, the Seoul Gyopo Guide's February 6th report and a quick analysis of the ramifications to the South Korean economy, and its potential effect on North-South Korean relations, is posted below.
It's No Secret: China's Economy's Growth Has Benefited South Korea
It is a well-known fact that the economic development of China has been very rapid, as it has grown at basically 8-10% per year for almost the past 30 years. The impact on the global economy has been enormous. The largest Korean companies, Samsung Electronics, Hyunda-Kia Motor Corporation, LG Electronics, Hyundai Heavy, SK Energy, POSCO, to name a few, have benefited \during this time. The revenues earned \by the largest Korean companies have funded research and development efforts which have yielded global market share gains versus its global competitors, including the Japanese. Globally, Korean companies are at least on par with their global competitors as measured by almost any measure. The Seoul Gyopo Guide has pointed out that the relatively weak Korean Won has also played a very strong role in this.
China's Growth Has Kept Down Global Inflation. For Now.
The reason that "inflation" on a global level has been subdued over the past 20 years has been largely due to the fact that China has absorbed much of the price pressures that would have otherwise occurred. As demand has increased in other parts of the world, China supplied cheap items at an almost-endless rate, it would seem. China has been able to do this because it is trying to transition 1.3 billion people out of its rural living into cities and a modernized economy. Doing this has been no small feat.
However, the slow-moving train of global inflation seems to be picking up steam around the world. Korea has also experienced this. As those same 1.3 billion people have gradually become wealthier, they have become consumers on their own as well. As the Chinese economic evolution continues, China will demand raw materials in order to continue it development.
The problem: the supply of raw materials is in question and the demand continues unabated. The result: inflation for raw materials of almost every type. China, once the great dampening force on global inflation, is becoming the great source of global inflation.
China's Delicate High-Wire Act
As a centrally planned economy, China has looked into the future, which means that its time horizon is more than 5 clicks on the internet. Its demand for raw materials, and energy resources, has been undeterred by almost any economic shock over the past 2 decades. Many in the financial markets would suggest that China has hoarded certain raw materials. It is understandable to see why. Take copper, for instance. Copper is the one metal which is absolutely essential for construction. Over the past 20 years, the price of copper has tripled, even with global output increasing by over 50% during that same time.
At a time that China is trying to grow its economy, it must also try to quell inflation. Inflation has historically been the reason that governments are thrown into turmoil. Many countries today are facing this as food shortages coupled with inflation have made the general populations...uneasy, to put it mildly. The Chinese Central Bank is playing a very delicate balancing act indeed.
Out of Singapore, this article appeared, and it can, almost all by itself, explain why China won't allow a war between Koreas, and why this can fundamentally change the nature of the North-South Korea relationship.
If True, North Korea's Raw Materials Reserves Are Enormous
According to the CIA, North Korea's GDP in 2009 was about $40 Billion. According to the AsiaNews site above,
South Korea estimates the total value of mineral deposits in North Korea at 6.3 trillion dollars.
"The agreement contains a specific list of mines to be developed...including gold, anthracite coal and rare earth mineral mines," Yonhap quoted a source familiar with North Korean affairs as saying.Well, how much is $6.3 trillion dollars? Let's say there are 25 million people in North Korea. That is $252,000 per person. This is not to say that North Korean citizens will instantly become $252,000 wealthier (yes, I have received this type of email). It simply gives you an idea of how much money that is, and its effect on the relatively small North Korean economy. This is actually a HUGE understatement of the potential effect because of the associated infrastructure that will need to be built in order to extract those raw materials. This has occured in the past, as reported in the Washington Post in 2008.
Most recently, China has threatened to cease the export of minerals called 'rare earth' metals. The reason for this is that those rare earth metals, although used in very small quantities, are critical for technology manufacturing. It is yet another reason that the $6.3Trillion estimate may be too low, i.e. it will not take into account the potential for much higher prices of rare earth metals.
If True, North Korea's Raw Materials Reserves Are a Game Changer
Development of raw materials extraction could not come soon enough for the North Korean economy. How this develops will be interesting, and potentially can strongly affect the North-South Korean dialogue, as well as how Korea fits in the greater regional geopolitical structure.
Readers of the Seoul Gyopo Guide know that the writer believes that war on the Korean peninsula is unlikely at best. The bottom line is that there are too many parties who have too much to lose if there is a widespread war on the Korean peninsula, and the Korean people are unlikely to wage war with one another (self-defense is another, more complicated matter, and that is why President Lee has taken harsh, well-deserved criticism, for his administration's handling of recent events). Development of raw materials is critical to China, which further supports the Seoul Gyopo Guide's claims. There are other issues to consider. First, the Chinese are likely to strike exceptionally favorable terms from North Korea, given North Korea's economic woes. It is not hard to imagine that any agreement is tied to further economic assistance from China to North Korea. Second, the question will remain on where those revenues will go. If the revenues are diverted for military development, then this would be a source of funds that could be very dangerous to the North-South Korean standoff. Third, South Korea itself could be greatly disadvantaged compared to Chinese competitors. Already, China poses a threat to certain important Korean industries. A steady supply of raw materials at below-market prices would be a great advantage for China-based corporations. Any one of the three issues may prove to be a flashpoint: the combination of all three is particularly intriguing.
Conclusions
South Korea, too frequently, is a mere spectator to large, transformational changes in the global economy. Most of this is not due to anything that the South Korean government has done. South Korea remains small geographically, without many raw materials resources of its own, and with a relatively small population. These limitations make South Korea's rapid economic development even more amazing in many ways, especially in light of the fact that there has been continual, competent competition from foreign-based companies (ever hear of Toyota or Sony?). Until now, South Korean economic and monetary policy have provided a shield for South Korean industries which has allowed these industries to become global leaders. However, it is a story yet uncompleted because Korea is not China, and the fact that such a large economy has levers that can be used to disadvantage South Korea is troubling. This will not happen overnight, and how raw materials are developed in North Korea is still yet to be determined. Nevertheless, the potential effects of North Korean-Chinese cooperation on the development of sorely-needed raw materials could be enormous.
Clearly, this post needs to be expanded greatly, and will be expanded in upcoming updates.
Please "Like" this post and/or follow me on Twitter.
Friday, January 14, 2011
China Overtakes Korea in Shipbuilding: A Scary Precedent for "Korea Inc"
China Passes Korea for the Global Lead in Shipbuilding
Yesterday, this brief clip appear on Yonhap's website: Actually, this is not news to Korea shipbuilders nor steel companies, whose largest customers include the largest Korean shipbuilders (such as Hyundai Heavy).
The notion that Chinese industry will grow, and rapidly, is not new. Shanghai has replaced Singapore as the world's busiest port. Joint jentures are widespread between Korea and China. Autos, electronics, logistics: these are just a few of the Korea's most important industries and China needs precisely this type of technology. In fact, China's need for this technology is so great, it almost cannot afford for a wider Korean conflict. On November 27, The Lost Seoul twitted the following, "Just because we don't understand Mandarin doesn't make the Chinese stupid." The point: China has much a much bigger fish to fry than to let a war between North and South Korea begin. It would jeopardize the technology transfer critical to China's economic growth.
It's Not That Simple, Of Course
For Korea, this represents a double-edged sword. Korea must understand (and it does) that it depends on the Chinese marketplace. Close geographically, and with many Koreans and Chinese sharing a common, albeit distant heritage, it is an intuitively attractive notion that the two countries should forge close economic ties. When combined with the historic idea that the Japanese and Chinese people have a long-standing mistrust of one another, China and Korea seem like logical partners in many ways.
China requires Korean technology. Korea requires the size and breadth of the Chinese marketplace. How long this symbiotic relationship lasts is an open-ended question. No one can tell how quickly the Chinese will acquire the technology needed to be self-sufficient. In other areas, China has surpassed expectations. For example, China's initial flight of a stealth bomber has caught the U.S. by surprise.
The Shipbuilding Case as a Dangerous Precedent
It appears that Korea will need to extend its technological lead in every industry. Shipbuilding is, relatively speaking, an industry which does not require exceptionally high levels of technical knowledge. The largest input, steel, is also a relatively easy to produce, assuming that there is a steady supply of iron which can be refined. For Posco et al, the challenge is immediate. Posco and other Korean steel producers will have no choice but to sell to the Chinese and reduce their reliance on Korean shipbuilders. Korean shipbuilders will need to secure orders from non-Chinese clients. These are not easy tasks. Other industries vital to Korea, such as automobile manufacturing, and consumer electronics will face the identical challenges that Korean shipbuilders and steel producers currently face. So while Korea's leading corporations, such as Hyundai Motors and Samsung Electronics, enjoy leadership roles in their respective industries, the shipbuilding case serves as a dangerous precedent from which important lessons must be learned.
Admittedly, it may be that the Chinese marketplace is so large that it does not matter. It may be that Korean manufacturers and newly-developed Chinese corporations will be able to peacefully co-exist. This has not been the case in other similar situations. Sony and Samsung used to have joint ventures with one another. Much of those cooperative arrangements have now ended. It is almost inconceivable that the Chinese do not try the same tactics in the future. How "Korea Inc" addresses this issue will be a key determinant of its place in the global economic order.
Yesterday, this brief clip appear on Yonhap's website: Actually, this is not news to Korea shipbuilders nor steel companies, whose largest customers include the largest Korean shipbuilders (such as Hyundai Heavy).
The notion that Chinese industry will grow, and rapidly, is not new. Shanghai has replaced Singapore as the world's busiest port. Joint jentures are widespread between Korea and China. Autos, electronics, logistics: these are just a few of the Korea's most important industries and China needs precisely this type of technology. In fact, China's need for this technology is so great, it almost cannot afford for a wider Korean conflict. On November 27, The Lost Seoul twitted the following, "Just because we don't understand Mandarin doesn't make the Chinese stupid." The point: China has much a much bigger fish to fry than to let a war between North and South Korea begin. It would jeopardize the technology transfer critical to China's economic growth.
It's Not That Simple, Of Course
For Korea, this represents a double-edged sword. Korea must understand (and it does) that it depends on the Chinese marketplace. Close geographically, and with many Koreans and Chinese sharing a common, albeit distant heritage, it is an intuitively attractive notion that the two countries should forge close economic ties. When combined with the historic idea that the Japanese and Chinese people have a long-standing mistrust of one another, China and Korea seem like logical partners in many ways.
China requires Korean technology. Korea requires the size and breadth of the Chinese marketplace. How long this symbiotic relationship lasts is an open-ended question. No one can tell how quickly the Chinese will acquire the technology needed to be self-sufficient. In other areas, China has surpassed expectations. For example, China's initial flight of a stealth bomber has caught the U.S. by surprise.
The Shipbuilding Case as a Dangerous Precedent
It appears that Korea will need to extend its technological lead in every industry. Shipbuilding is, relatively speaking, an industry which does not require exceptionally high levels of technical knowledge. The largest input, steel, is also a relatively easy to produce, assuming that there is a steady supply of iron which can be refined. For Posco et al, the challenge is immediate. Posco and other Korean steel producers will have no choice but to sell to the Chinese and reduce their reliance on Korean shipbuilders. Korean shipbuilders will need to secure orders from non-Chinese clients. These are not easy tasks. Other industries vital to Korea, such as automobile manufacturing, and consumer electronics will face the identical challenges that Korean shipbuilders and steel producers currently face. So while Korea's leading corporations, such as Hyundai Motors and Samsung Electronics, enjoy leadership roles in their respective industries, the shipbuilding case serves as a dangerous precedent from which important lessons must be learned.
Admittedly, it may be that the Chinese marketplace is so large that it does not matter. It may be that Korean manufacturers and newly-developed Chinese corporations will be able to peacefully co-exist. This has not been the case in other similar situations. Sony and Samsung used to have joint ventures with one another. Much of those cooperative arrangements have now ended. It is almost inconceivable that the Chinese do not try the same tactics in the future. How "Korea Inc" addresses this issue will be a key determinant of its place in the global economic order.
Wednesday, January 5, 2011
Studying Japanese? Stop Wasting Your Time. Now.
The Seoul Gyopo Guide is meant for many things, and here are the most important.
a. Inform non-Koreans about brilliant Korea, and the amazing things that have been, are being, and will be accomplished by Korea.
b. Help native Koreans understand how to adapt to a world outside Korea, which will be necessary in order for Korea to continue its ascent.
c. Point out how Korea's legal and social structure must evolve to match its economic development.
One bias amongst Koreans that has existed as a result of the oddest combination of animus and envy, combined with convenience, is Koreans' continual study of the Japanese language. This is a complete waste of time. The Seoul Gyopo Guide has suggested, almost begged, native Koreans to stop this. English is much more important, and you can make the case for Mandarin. The many reasons are summarized here.
More evidence continues, and will continue to flow in steadily. Here is today's evidence from Japan's Kyodo News.
"In a multiple response question asking executive to list negative factors affecting the economy, 75 companies referred to the yen, 58 cited the future course of the U.S. economy, and 31 noted the weakening effects of economic stimulus."
This perfectly coincides with all of the Seoul Gyopo Guide's previous posts regarding the inevitable Japanese decline. There is a phrase called "The Lost Decade" in Japan. That is is an untruth. We are in the third lost decade for Japan.
The Lost Seoul acknowledges that there are similarities between the Japanese and Korean language, which makes Japanese a convenient language to study from an academic perspective. However, unless you are employed to specifically cater to Japanese tourists, or conduct business with Japanese corporations, it is a fact that Japan is in inevitable decline. Only a full-out war between North Korea and South Korea can stop that now, and in that case, it wouldn't really matter, would it?
a. Inform non-Koreans about brilliant Korea, and the amazing things that have been, are being, and will be accomplished by Korea.
b. Help native Koreans understand how to adapt to a world outside Korea, which will be necessary in order for Korea to continue its ascent.
c. Point out how Korea's legal and social structure must evolve to match its economic development.
One bias amongst Koreans that has existed as a result of the oddest combination of animus and envy, combined with convenience, is Koreans' continual study of the Japanese language. This is a complete waste of time. The Seoul Gyopo Guide has suggested, almost begged, native Koreans to stop this. English is much more important, and you can make the case for Mandarin. The many reasons are summarized here.
More evidence continues, and will continue to flow in steadily. Here is today's evidence from Japan's Kyodo News.
"In a multiple response question asking executive to list negative factors affecting the economy, 75 companies referred to the yen, 58 cited the future course of the U.S. economy, and 31 noted the weakening effects of economic stimulus."
This perfectly coincides with all of the Seoul Gyopo Guide's previous posts regarding the inevitable Japanese decline. There is a phrase called "The Lost Decade" in Japan. That is is an untruth. We are in the third lost decade for Japan.
The Lost Seoul acknowledges that there are similarities between the Japanese and Korean language, which makes Japanese a convenient language to study from an academic perspective. However, unless you are employed to specifically cater to Japanese tourists, or conduct business with Japanese corporations, it is a fact that Japan is in inevitable decline. Only a full-out war between North Korea and South Korea can stop that now, and in that case, it wouldn't really matter, would it?
Sunday, November 28, 2010
Political Science Experts Are Frothing at the Mouth: The Korean Conflict Takes Center Stage
Political Science Experts Are Frothing at the Mouth: The Korean Conflict Takes Center Stage
It has been the opinion of the Seoul Gyopo Guide that war on the Korean peninsula was, is, and will be highly unlikely. The bottom line is that Korea isn't the appropriate forum for a war, given South Korea's position in the world economy: it is the U.S.' 7th largest trade partner, and China relies on South Korea for the technology transfer necessary in a large number of industries in order to continue the economic development of the world's most populous nation. Nevertheless, it is still a fact that anything can happen, and this post examines some of those scenarios.
Is this China's handiwork?
Although this is unlikely, it has been suggested by some that China is behind the North Korean provocations. If in fact this were the case, then the chance that this is actually a precursor to an all-out military conflict drops to nearly zero. The reason? China relies on South Korea in two ways. First, China is a large exporter of consumer goods to South Korea. The products range from agricultural products, seafood products, to everyday goods. Second, Korean companies are enormous investors in China. If you go to Beijing, you will see that all of the largest conglomerates (e.g. Samsung, LG, SK) have satellite headquarters there. Hyundai Motors has joint ventures in China, where Chinese companies are "learning" from their Korean counterparts. In short, the idea that China would support a military conflict would jeopardize, in part, Chinese economic development. While the idea that the Chinese military is provoking skirmishes throughout the region in order to flex its muscles may be true, the Seoul Gyopo Guide believes that these priorities are subordinate to the importance of economic development. In November 30th's UK newspapers The Financial Times and The Guardian, it has been reported via Wikileaks that the PRC has been frustrated with North Korea, and not in collaboration with it.
Does the North Korean Military Approve of Kim Jong-Un?
It is well-known that military conflicts have occurred throughout history when the parties misunderstand the rules of engagement. Now, rules of engagement means all of the different levels of engagement, i.e. political, economic and military. One could postulate that as the transition of power in North Korea occurs, that some party, like the North Korean military, could choose to take matters into its own hands, and ignite a military conflict. This is the one scenario which could actually be realized and must be closely monitored. Surely, leaders of all parties are aware of global history, and are watching this transition of power carefully. A great deal of resources have been used by NATO during the Cold War in order to prevent an "accidental war" resulting either from misunderstanding at any level. The reason? During the Cuban Missile Crisis and subsequent release of documents from the Kremlin, it is clear to us now that the world was much closer to the brink of a catastrophe than originally thought. That history does not repeat itself must be the highest priority on the Korean peninsula.
Greater Leverage During Negotiations? Most Probably.
There were supposed to be new negotiations amongst parties regarding the North Korean nuclear weapons program. At the same time, a new nuclear facility in North Korea has been revealed. To make each of these matters worse, there is no sign of respite from the seemingly endless economic decline of North Korea. The bottom line is that North Korea needs more leverage when sitting at a negotiation table. With little else to offer, North Korea has had almost no other choice than to use provocation in order to wrench concessions from South Korea and the U.S. Its economy needs help, and needs it 20 years ago. Knowing that South Korea has too much to lose should there be a war, North Korea can squeeze aid and other concessions. As long as the North Korean nuclear program does not include the sale of sensitive nuclear technology to others, then it is political reality that at this point, there is little that can be done to dissuade North Korea from this path, given its dire economic needs. The North Korean ideological bluster and other manouvers? Most probably a smokescreen to increase its leverage to receive financial assistance, while maintaining its public stance to the world, and perhaps most importantly, its kool-aid drunken citizens.
But Still, Anything Can Happen...
While the Seoul Gyopo Guide continues to dismiss the ideas that war is anything other than a very low-probability event, it is true that anything can happen. It can happen by error. It can happen by miscalculation. It can happen even if the best intentions exist. So unfortunately, all parties will need to use financial and political resources that could be otherwise deployed. Given the economic and social problems that originally existed, and remain, that may be the largest price being paid at the moment (aside from the 2 South Koreans that were part of the South Korean Navy, and the innocents on Yeonpyong Island). The Seoul Gyopo Guide mourns their senseless loss.
It has been the opinion of the Seoul Gyopo Guide that war on the Korean peninsula was, is, and will be highly unlikely. The bottom line is that Korea isn't the appropriate forum for a war, given South Korea's position in the world economy: it is the U.S.' 7th largest trade partner, and China relies on South Korea for the technology transfer necessary in a large number of industries in order to continue the economic development of the world's most populous nation. Nevertheless, it is still a fact that anything can happen, and this post examines some of those scenarios.
Is this China's handiwork?
Although this is unlikely, it has been suggested by some that China is behind the North Korean provocations. If in fact this were the case, then the chance that this is actually a precursor to an all-out military conflict drops to nearly zero. The reason? China relies on South Korea in two ways. First, China is a large exporter of consumer goods to South Korea. The products range from agricultural products, seafood products, to everyday goods. Second, Korean companies are enormous investors in China. If you go to Beijing, you will see that all of the largest conglomerates (e.g. Samsung, LG, SK) have satellite headquarters there. Hyundai Motors has joint ventures in China, where Chinese companies are "learning" from their Korean counterparts. In short, the idea that China would support a military conflict would jeopardize, in part, Chinese economic development. While the idea that the Chinese military is provoking skirmishes throughout the region in order to flex its muscles may be true, the Seoul Gyopo Guide believes that these priorities are subordinate to the importance of economic development. In November 30th's UK newspapers The Financial Times and The Guardian, it has been reported via Wikileaks that the PRC has been frustrated with North Korea, and not in collaboration with it.
Does the North Korean Military Approve of Kim Jong-Un?
It is well-known that military conflicts have occurred throughout history when the parties misunderstand the rules of engagement. Now, rules of engagement means all of the different levels of engagement, i.e. political, economic and military. One could postulate that as the transition of power in North Korea occurs, that some party, like the North Korean military, could choose to take matters into its own hands, and ignite a military conflict. This is the one scenario which could actually be realized and must be closely monitored. Surely, leaders of all parties are aware of global history, and are watching this transition of power carefully. A great deal of resources have been used by NATO during the Cold War in order to prevent an "accidental war" resulting either from misunderstanding at any level. The reason? During the Cuban Missile Crisis and subsequent release of documents from the Kremlin, it is clear to us now that the world was much closer to the brink of a catastrophe than originally thought. That history does not repeat itself must be the highest priority on the Korean peninsula.
Greater Leverage During Negotiations? Most Probably.
There were supposed to be new negotiations amongst parties regarding the North Korean nuclear weapons program. At the same time, a new nuclear facility in North Korea has been revealed. To make each of these matters worse, there is no sign of respite from the seemingly endless economic decline of North Korea. The bottom line is that North Korea needs more leverage when sitting at a negotiation table. With little else to offer, North Korea has had almost no other choice than to use provocation in order to wrench concessions from South Korea and the U.S. Its economy needs help, and needs it 20 years ago. Knowing that South Korea has too much to lose should there be a war, North Korea can squeeze aid and other concessions. As long as the North Korean nuclear program does not include the sale of sensitive nuclear technology to others, then it is political reality that at this point, there is little that can be done to dissuade North Korea from this path, given its dire economic needs. The North Korean ideological bluster and other manouvers? Most probably a smokescreen to increase its leverage to receive financial assistance, while maintaining its public stance to the world, and perhaps most importantly, its kool-aid drunken citizens.
But Still, Anything Can Happen...
While the Seoul Gyopo Guide continues to dismiss the ideas that war is anything other than a very low-probability event, it is true that anything can happen. It can happen by error. It can happen by miscalculation. It can happen even if the best intentions exist. So unfortunately, all parties will need to use financial and political resources that could be otherwise deployed. Given the economic and social problems that originally existed, and remain, that may be the largest price being paid at the moment (aside from the 2 South Koreans that were part of the South Korean Navy, and the innocents on Yeonpyong Island). The Seoul Gyopo Guide mourns their senseless loss.
Thursday, November 4, 2010
Canada Blocks BHP's Bid for Potash Corp., Protectionism is Alive and Well, and Korea Should Learn the Rules
Canada Blocks BHP's Bid for Potash Corp., Protectionism is Alive and Well, and Korea Should Learn the Rules
A few hours ago, Canada prohibited Australia-based BHP Billiton Ltd's bid for Canada-based Potash Corporation. To some, this is a sign of protectionism against a foreign buyer of a "national treasure." To some, this will come as a suprise. The Lost Seoul doesn't think this is suprising, and that the international community's response to this decision will be muted.
This type of ruling has a long list of precedents, from a variety of different countries. In France, then Finance Minister Sarkozy publicly stated that investors could forget about trying to take over Alstom, the maker of high-speed and subway trains. In China, Coca-Cola had to cancel its plans to buy Huiyuan Juice after the Chinese commerce ministry blocked the deal on anti-trust grounds. In Canada, there was a point in time when it was speculated that jet-maker Bombardier was for sale but that Canada would not approve. In other words, blocking an M&A transaction due to the "national interest" is hardly a new concept.
In Korea, the most famous case involves Korea Exchange Bank (KEB). It was sold to a U.S.-based private equity firm Lone Star. However, once the economic recovery in the early 2000s took hold, Koreans complained about the sale to a foreign investor, and the court system attempted to block the transaction after it had been agreed upon by both the buyer and seller. In addition, it had cleared all regulatory scrutiny. It was only after the uproar occured that the legal challenges to this particular began.
There are two points here. First, the concept of protectionism in the "national interest" has superceded the rights of shareholders in the past. It has been done before, and it will certainly occur again in the future, particularly if the company is involved in the procurement of natural resources. Every nation is wary of China's increased economic power and its natural resource needs. Second, protectionism, even though it has a very unfavorable implication, does not result in an international halt of trade. It is most likely the case you have never heard of the Alstom or Bombardier cases.
Nevertheless, the Korean case stands out because the attempted blockage of this particular cross-border M&A transaction occurred after the approval had already been granted by governmental authorities. That is what has given Korea the "black eye" in that case, and if Korea would like to exercise its "national interest" rights in the future, Korea needs to do so in advance of final approval by the authorities, as has occured in Canada. Interestingly, there was another US private equity firm that extracted far better terms for the Long-Term Credit Bank of Japan. However, Japan did not try to formally block the deal. When Korea matches the global standard in financial transactions, then its arrival among leading economic powers will begin to take shape. Until international players believe that they understand the rules that Korea follows, there will remain the lack of respect that still exists as a result of the KEB situation. At least Canada announced its protectionist policy in advance. Like it or not, the world will have to tolerate Canada's decision, and soon it will be forgotten because it has blocked BHP's bid.
A few hours ago, Canada prohibited Australia-based BHP Billiton Ltd's bid for Canada-based Potash Corporation. To some, this is a sign of protectionism against a foreign buyer of a "national treasure." To some, this will come as a suprise. The Lost Seoul doesn't think this is suprising, and that the international community's response to this decision will be muted.
This type of ruling has a long list of precedents, from a variety of different countries. In France, then Finance Minister Sarkozy publicly stated that investors could forget about trying to take over Alstom, the maker of high-speed and subway trains. In China, Coca-Cola had to cancel its plans to buy Huiyuan Juice after the Chinese commerce ministry blocked the deal on anti-trust grounds. In Canada, there was a point in time when it was speculated that jet-maker Bombardier was for sale but that Canada would not approve. In other words, blocking an M&A transaction due to the "national interest" is hardly a new concept.
In Korea, the most famous case involves Korea Exchange Bank (KEB). It was sold to a U.S.-based private equity firm Lone Star. However, once the economic recovery in the early 2000s took hold, Koreans complained about the sale to a foreign investor, and the court system attempted to block the transaction after it had been agreed upon by both the buyer and seller. In addition, it had cleared all regulatory scrutiny. It was only after the uproar occured that the legal challenges to this particular began.
There are two points here. First, the concept of protectionism in the "national interest" has superceded the rights of shareholders in the past. It has been done before, and it will certainly occur again in the future, particularly if the company is involved in the procurement of natural resources. Every nation is wary of China's increased economic power and its natural resource needs. Second, protectionism, even though it has a very unfavorable implication, does not result in an international halt of trade. It is most likely the case you have never heard of the Alstom or Bombardier cases.
Nevertheless, the Korean case stands out because the attempted blockage of this particular cross-border M&A transaction occurred after the approval had already been granted by governmental authorities. That is what has given Korea the "black eye" in that case, and if Korea would like to exercise its "national interest" rights in the future, Korea needs to do so in advance of final approval by the authorities, as has occured in Canada. Interestingly, there was another US private equity firm that extracted far better terms for the Long-Term Credit Bank of Japan. However, Japan did not try to formally block the deal. When Korea matches the global standard in financial transactions, then its arrival among leading economic powers will begin to take shape. Until international players believe that they understand the rules that Korea follows, there will remain the lack of respect that still exists as a result of the KEB situation. At least Canada announced its protectionist policy in advance. Like it or not, the world will have to tolerate Canada's decision, and soon it will be forgotten because it has blocked BHP's bid.
Tuesday, November 2, 2010
The Fed Had A Shot to Get it Right By Mimicking Korea: Facing a Total Economic Collapse, KAMCO Saved Korea
Last week, this article appeared in the New York Times/Reuters Global Business Section which was suggesting that China follow Korea's path in order to increase the per capita GDP. It was quite complimentary regarding Korea's reaction to the economic crisis of 1997-1998.. It does point out that the linkages among the different subsidiaries within a single chaebol were indeed broken, and that led to a path where a sustained economic recovery could ensue.
Here is the quote:
South Korea, though, after nearly defaulting on its debts at the end of 1997, pulled itself together and resumed its march up the value chain.
The key reason is that Seoul embarked on far-reaching market changes. In particular, the government reduced the power of the chaebol, the sprawling debt-heavy conglomerates whose links to the state created the impression that they were too big to fail.
Close, but not quite.
There is no doubt that the tangled web of the related companies of the large conglomerates was larely unwoven. However, the conclusion that the government reduced the power of the chaebol isn't quite accurate. There are a number of reasons that this is an inadequate description of what actually occurred.
First, and by far the most important, fact is that bad assets, whose value was only worth a few percentage points of reported book value, were cordoned off into the Korea Asset Management Corporation. This included assets such as real estate, failed banks, and distressed companies. Those assets were then correctly valued by the marketplace (although in the Goldstar/KEB case, this has been a very long, drawn-out process), and sold in a controlled fashion. The analogy to KAMCO was the "good bank/bad bank" proposal that surfaced, and ultimately rejected, in the US during 2008.
Second, the untangling of the cross-holdings of the debt issued by the related companies of the chaebol was absolutely key. It wasn't that the influence of the chaebol was diminished per se. It was that the financial viability of performing assets was more indentifiable by the market and that capital naturally flowed to the most desirable, and now relatively tangle-free, companies. The best example of this was the Hyundai Group. Perhaps more important than Hyundai Auto, which was already well-known to the world at that time, was the fact that Hyundai Heavy, the largest Korean shipbuilder had an extremely complicated financial relationship with Hyundai Group. As a result, an investor of any sort, whether a lender or a shareholder, didn't quite know to where capital was allocated. Once the tangled web was unwoven, then capital correctly chose the "winners" and the market let the "losers" fail. Now, it did so with obvious governmental support at that time, but it did so nonetheless.
Third, the effect on Korean banks was that they too could report more accurately their exposure to specific Korean entities. This cannot be understated. In the Korean language, there is a saying which is loosely translated to "money turning around makes more money." In English we would say "you need to spend money to make money," or something like that. The cleansing of the balance sheets of Korean banks made it possible for lending to resume, and importantly, to resume to entities without the spectre of a debt and stock cross-holding nightmare.
Fourth, the article seems to minimize the dominance of the largest Korean chaebol. Perhaps that is the view of a foreigner who has not spent a long time in Korea with Korean natives. There have been, of course, gradual changes. Nevertheless, the dominance of the largest Chaebol remains. A viable explanation for the lack of a Korean "Steve Jobs" leader is that even if a pioneer had a vision, and a product that reflected that vision, that the business execution of that vision is made almost impossible because a chaebol would either buy that business before it grew into its own individual entity, or a chaebol would effectively crowd out the potential new competitor due to the dominant links to the retail chain, or that the visionary would thrown in the towel under the weight of potential competition and sell his/her idea too early to a large chaebol group. Currently, a very compelling argument can be made that the underemployment of the very highly-educated Korean college graduate population is the result of lack of entrepreneurship opportunities which are effectively squealched by the chaebol. Instead, Korean college graduates, faced with increased competition for few cherished jobs at the chaebol, instead opt for yet another degree to try to prove their worth to these dominant corporations. Whether that is intentional or not is not the issue: that it occurs is a fact. That creates a viscious circle where the next student wants to obtain yet another, more advanced degree. The result: enormous structural underemployment.
In short, yes, the NYT is accurate in that there have been large reforms in Korea since 1997-1998. However, the nature of those changes, and how they supported the Korean economic revival, are slightly off the mark. When history is written on Japan (over the past two decades), China, and the US during this period immediately following the financial crisis of 2007-2008, The Lost Seoul believes that sub-optimal growth occuring is because an opportunity was missed. Korea seized that opportunity by cleaning its own balance sheets as much as they could have been, and creating KAMCO. Then and only then could the improved global competitiveness of Korean products be fully recognized.
The Lost Seoul
Here is the quote:
South Korea, though, after nearly defaulting on its debts at the end of 1997, pulled itself together and resumed its march up the value chain.
The key reason is that Seoul embarked on far-reaching market changes. In particular, the government reduced the power of the chaebol, the sprawling debt-heavy conglomerates whose links to the state created the impression that they were too big to fail.
Close, but not quite.
There is no doubt that the tangled web of the related companies of the large conglomerates was larely unwoven. However, the conclusion that the government reduced the power of the chaebol isn't quite accurate. There are a number of reasons that this is an inadequate description of what actually occurred.
First, and by far the most important, fact is that bad assets, whose value was only worth a few percentage points of reported book value, were cordoned off into the Korea Asset Management Corporation. This included assets such as real estate, failed banks, and distressed companies. Those assets were then correctly valued by the marketplace (although in the Goldstar/KEB case, this has been a very long, drawn-out process), and sold in a controlled fashion. The analogy to KAMCO was the "good bank/bad bank" proposal that surfaced, and ultimately rejected, in the US during 2008.
Second, the untangling of the cross-holdings of the debt issued by the related companies of the chaebol was absolutely key. It wasn't that the influence of the chaebol was diminished per se. It was that the financial viability of performing assets was more indentifiable by the market and that capital naturally flowed to the most desirable, and now relatively tangle-free, companies. The best example of this was the Hyundai Group. Perhaps more important than Hyundai Auto, which was already well-known to the world at that time, was the fact that Hyundai Heavy, the largest Korean shipbuilder had an extremely complicated financial relationship with Hyundai Group. As a result, an investor of any sort, whether a lender or a shareholder, didn't quite know to where capital was allocated. Once the tangled web was unwoven, then capital correctly chose the "winners" and the market let the "losers" fail. Now, it did so with obvious governmental support at that time, but it did so nonetheless.
Third, the effect on Korean banks was that they too could report more accurately their exposure to specific Korean entities. This cannot be understated. In the Korean language, there is a saying which is loosely translated to "money turning around makes more money." In English we would say "you need to spend money to make money," or something like that. The cleansing of the balance sheets of Korean banks made it possible for lending to resume, and importantly, to resume to entities without the spectre of a debt and stock cross-holding nightmare.
Fourth, the article seems to minimize the dominance of the largest Korean chaebol. Perhaps that is the view of a foreigner who has not spent a long time in Korea with Korean natives. There have been, of course, gradual changes. Nevertheless, the dominance of the largest Chaebol remains. A viable explanation for the lack of a Korean "Steve Jobs" leader is that even if a pioneer had a vision, and a product that reflected that vision, that the business execution of that vision is made almost impossible because a chaebol would either buy that business before it grew into its own individual entity, or a chaebol would effectively crowd out the potential new competitor due to the dominant links to the retail chain, or that the visionary would thrown in the towel under the weight of potential competition and sell his/her idea too early to a large chaebol group. Currently, a very compelling argument can be made that the underemployment of the very highly-educated Korean college graduate population is the result of lack of entrepreneurship opportunities which are effectively squealched by the chaebol. Instead, Korean college graduates, faced with increased competition for few cherished jobs at the chaebol, instead opt for yet another degree to try to prove their worth to these dominant corporations. Whether that is intentional or not is not the issue: that it occurs is a fact. That creates a viscious circle where the next student wants to obtain yet another, more advanced degree. The result: enormous structural underemployment.
In short, yes, the NYT is accurate in that there have been large reforms in Korea since 1997-1998. However, the nature of those changes, and how they supported the Korean economic revival, are slightly off the mark. When history is written on Japan (over the past two decades), China, and the US during this period immediately following the financial crisis of 2007-2008, The Lost Seoul believes that sub-optimal growth occuring is because an opportunity was missed. Korea seized that opportunity by cleaning its own balance sheets as much as they could have been, and creating KAMCO. Then and only then could the improved global competitiveness of Korean products be fully recognized.
The Lost Seoul
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