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[News Focus] Seoul’s dream of becoming financial hub fades away

With Asian cities rushing to take Hong Kong’s title as regional financial center, Seoul seems to have no concrete plan in place

Office buildings in the financial district of Yeouido, Seoul (123rf)
Office buildings in the financial district of Yeouido, Seoul (123rf)

The goal of turning Seoul, South Korea’s capital city for more than 600 years, into Asia’s premier financial hub has long been a dream.

Recent reports on the exit of financiers from Hong Kong might point to a chance for Seoul to achieve its ambition of more than 15 years. But it is rarely mentioned in lists of potential Asian financial hubs. What is worse, authorities seem to have no concrete plan to join the already fierce competition among major cities in the region all wanting to take the mantle from Hong Kong.

While many raise questions over the government’s passive pursuit of its dream at what seems to be an opportune time, financial authorities have claimed that Seoul has long offered the kind of benefits that rivals such as Tokyo are introducing, and are further seeking ways to fulfill their goal. But they do not believe that now is the time to attract such players to the country.

“Even though some say that Hong Kong is losing its capability as global investment banking firms are reviewing whether to stay or leave, we think that they won’t leave, since the firms have already nestled in the region. It would be difficult for them to relocate now,” said a Financial Supervisory Service official of Financial Hub Korea.

With Hong Kong losing its luster amid China’s promulgation of the national security law, many financiers have considered exiting the market. To capture the big players, countries such as Japan, Singapore and the UK have suggested drastic incentives -- from short-term visa waivers and tax advice to free office space.

Since established financial centers such as London and Singapore are racing ahead to attract more firms who wish to relocate, Seoul needs more time to chase its dream, according to the official. The authorities will continuously push for the plan to be a financial hub in cooperation with the local government, but no additional schemes will be rolled out anytime soon.

Seoul’s plan of becoming a financial hub dates back to the Roh Moo-hyun administration in 2002. The road map was set the following year and the city was designated a financial center in January 2009 as part of the drive to lure big financial players from abroad.

Another official in charge of the international finance division at the Financial Services Commission said that seeing firms mulling an exit from Hong Kong as a chance to draw them in could create a “let’s fight” situation, which could lead the country to suffer a side blow in running battles between the US and China.

According to the official, the authorities planned incentives nearly 15 years ahead of the neighboring countries’ recent ideas to allure big players. Instead of throwing unprecedented offers, the local authorities will continue to push its original plan, saying the financial hub is a long-term initiative and requires more regulatory changes.

“It would be unfair to expect Seoul to take over Hong Kong’s position (as a financial hub). It is like comparing apples to oranges, and doesn’t make sense. The departure point is different between the two cities, considering even basic environments such as language and laws. We are trying but it is expected to take a longer time,” the FSC official said.

“Without fundamental changes in regulations and the labor standard law, it doesn’t look that easy (to be the financial center). To accelerate the plan, we (authorities) request earnestly that both the Ministry of Economy and Finance and the National Assembly to ensure tax benefits and revise the strict regulations.”

Market watchers agreed that restrained regulations and laws result in the lack of freedom for financial activities here.

Language and the size of the domestic economy also make the country a less attractive market for overseas financiers. Overall, it is likely that Singapore will be the next financial center in Asia, if Hong Kong loses its position.

“Singapore is most likely to emerge as the main Asian financial center. It has an English common law system that most companies and financial institutions prefer to make deals or resolve disputes under. Both Japan and Korea operate under civil law systems. Singaporeans also speak English, the language of global commerce and finance. Neither Seoul nor Tokyo can replicate this level of fluency quickly. English allows many foreigners to work locally,” said Asim Hussain, an analyst at KB Securities.

“Singapore’s main weakness is a small stock market. Korea’s stock market is two to three times bigger than Singapore’s, while Japan is even nine to 10 times bigger. However, the other major benefit Singapore offers is that it has many Mandarin speakers given its official language status. This enables Singaporeans to do more deals with Chinese firms and financial institutions.”

Some experts also picked Singapore as the next possible exit location for Hong Kong’s big players, agreeing on the matter such as the language barrier and policies that Seoul has. They further think that dreaming of being a financial hub is a crushed hope.

“It has been way more than 10 years since the city planned to be Asia’s financial hub, but what has it achieved so far? I think Seoul has to think better of its goal of achieving the hub spot. The city can never be like Singapore or Hong Kong,” Lee Min-hwan, a finance professor at Inha University said, while highlighting that its plan needs to be differentiated.”

Trying to follow exactly the same strategies as advanced markets would continuously let the city fall behind. Since we have our own strong points such as microfinance and information technology infrastructure, it would be better to enhance the market’s competitive power by exporting finance instead of importing, he added.

By Jie Ye-eun (yeeun@heraldcorp.com)
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