Seoul must rekindle its ambition to become financial hub

Global financial companies, feeling the pressure of China’s tightening communist grip, are leaving Hong Kong one after another, intensifying the competition to become the next “Asian financial hub” among cities like Singapore, Shanghai, and Tokyo.

South Korea’s former administrations have also promoted the strategy of becoming a financial hub, but global financial competitiveness has remained stagnant.

According to the Global Financial Centers Index (GFCI), which evaluates the financial competitiveness of 130 cities worldwide, Singapore recently ranked third after New York and London. Seoul climbed one step from last year’s 11th to 10th place. However, Seoul still lagged behind Hong Kong (4th) and Shanghai (7th) though it ranked higher than Tokyo (21st).

In 2003, the Roh Moo-hyun administration proposed the “Northeast Asia Financial Hub Strategy,” which aimed to attract the Asian headquarters of global financial companies to Seoul. Recently, the Seoul Metropolitan Government announced a plan to raise Seoul as one of the "Top 5 Global Financial Cities." However, no foreign financial companies have actually moved to Korea. If anything, it had some of the existing global financial companies leaving the country, such as Northern Trust and Macquarie Group. In contrast, Singapore is attracting global funds by offering tax haven-level tax benefits to corporate entities and strengthening ultra-high-net-worth individuals' asset management services to absorb the capital exiting Hong Kong.

Some reasons why Korea lags behind in the financial hub competition include institutional problems such as excessive regulations that have not been improved over 20 years and uncompetitive tax incentives. Banks have to lower their loan rates at the slightest warning from financial authorities, and CEOs are forced to bear criminal liabilities for financial accidents, which is far from the global standards required for international financial centers. While Korea’s successive governments have declared their ambition to promote overseas expansion and globalization of the country’s financial industry, there has been little change in the banks’ management, which relies 90% of their profits on interest rate margins, under the aegis of government regulations.

Still, there are opportunities. Focusing the country’s technological prowess on fintech industries combining high-level IT and finance will allow us to become a future-oriented financial center differentiated from traditional financial hubs. The attractiveness of assets such as the “K-culture,” a non-English asset that successfully appealed to the global audience, can also help attract foreign financial professionals. To this end, excessive regulations and unfavorable institutions that infringe upon the autonomy of the financial industry must be revamped. Korea must reignite its aspirations of becoming a financial hub as the country’s proud reputation as a “manufacturing powerhouse” is at peril.