Clouds are lifting over South Korea's economy and the national brain trust aims to ensure that the country enters the post-Covid era at the sprint. Photo: Asia Times /Andrew Salmon

SEOUL – South Korea is gearing up its economic and investment policies to better enable the country to surmount the challenges of the post-Covid era – and to seize the opportunities that era will generate.

This shifting tide was presented, in seminar format, by government officials and private sector players, to foreign reporters in Seoul on Friday.

The big-picture take-aways were in two major policy areas: The revamped “Korean New Deal” post-pandemic stimulus package, which has been up-funded and broken down into three “pillars,” and foreign direct investment stimulation.

Anglo-Saxon free-market capital fundamentalists may well cast an evil eye upon economic policies crafted by elite mandarins, then foisted upon the business sector by “Big Brother” Seoul.

But it would be a myopic gaze.

Bureaucratic heavy hitters

There is no question, historically, that prudent and strategic dirigiste economic management has massively enriched South Korea ; not to mention neighbors Japan and China. The civil service head shed that wrote and oversaw the implementation of these blueprints has, on the whole, been a national asset and enabler rather than a nuisance, or liability.

The country saw its first wave of SOE build and private-sector industrial growth from the 1960s-1980s, as an aggressive government, wielding five-year plans, state control of capital and policies that coerced and incentivized companies to export to the world, built a top-tier national infrastructure while incubating such leading conglomerates as Samsung, Hyundai and LG.

It saw a second growth surge via the embedding of national broadband internet and the adoption of the then-advanced CDMA mobile telecoms standard in the 1990s. Korea’s hyper-speed emplacement of digital infrastructure birthed highly competitive local telcos and internet portals, while also greasing the skids of export-focused online gaming and entertainment firms.

The most recent features that have arisen on the economic landscape have been a range of startups and “unicorns” (unlisted firms valued north of $1 billion), notably in the big-tech and platform spaces. These brave new companies have leveraged a broad range of policies aimed at assisting startups, while riding the wave of a national, early-adopter Korean mania for personal digital tech.

Big picture, 21st century Korea Inc. is a resilient and diversified econosphere, with core strengths in multiple future-centric sectors.

In Bloomberg’s 2021 innovation index, Korea won overall first place – it’s seventh first-place finish in that ranking in the last nine years. Bloomberg found Korea to be home to the world’s bubbliest patent activity, its number two for R&D intensity and its fourth most prominent location for clusters of high-tech density. It was also the globe’s second-best player for value-added manufacturing.

And regarding manufacturing: Korea boasts a beefy share in some of the world’s most future-focused sectors, noted Jung Jong-yung, director-general for investment policy at the Ministry of Trade, Industry and Energy during the seminar. It makes 78.1% of flexible OLED displays, 71.6% of DRAM memory semiconductors, and 34.7% of electric vehicle batteries, he said.

This year, the country has recalibrated and expanded its “Korean New Deal” stimulus package, and is adding new policy frameworks to bring in targeted overseas investment.

Samsung is the national flagship – but is hardly the only top-tier brand in Korea Inc’s industrial portfolio. Photo: AFP / Jung Yeon-je

‘Korean New Deal,’ redux

“Never let a crisis go to waste” is a mantra engraved on the hearts of senior Korean mandarins. In synch with that thinking, President Moon Jae-in announced the “Korean New Deal” in mid-2020, with the aim of using Covid-19 as a springboard to build back better.

 “In 2020 the Covid shock was an unprecedented economic crisis that was much worse than the 2008 global financial crisis,” said Lee Boe-ine, director-general for the Korean New Deal at the Ministry of Economy and Finance. The crisis “has bought about structural changes” he said, noting that broad risk trends – climate change, employment shock, economic shock – “will accelerate.”

Lee summarized three standout trends impacting the global economy before, during and after Covid.

Prior to Covid, the decline of conventional industries and spread of the 4th industrial revolution sped changes that have led to rising demand for non-contact practices and accelerated digitization. An ongoing re-evaluation of climate change has upgraded the urgency of mechanisms to slow or reverse it. And amid job mismatches and economic polarization, demands to enhance social safety nets are becoming strident for democratic governments everywhere.

The “Korea New Deal” was Seoul’s original response to these challenges. Aimed at spending a cool 160 trillion won ($135 billion) of tax-payers’ cash through 2025, it aimed to create 1.9 million jobs.

However, the plan has since been tweaked as new realities came down the pipe, Lee noted.

The “Korean New Deal 2.0,” formulated in July this year, breaks the package down to a trifecta: The “Digital New Deal,” the “Green New Deal,” and the “Human New Deal.” Even heftier bundles of cabbage have been hurled at it. The deal has expanded to 220 trillion won ($186 billion), and now hopes to create 2.5 million jobs.

The ‘New Deal’ is designed to add further sheen to South Korea. Photo: Asia Times / Andrew Salmon

One deal, three pillars

The “Digital New Deal” aims to strengthen the eco-system for “DNA” – that, is Data, Networks and AI. Included in this is the release to the public of 140,000 data sets, and the expanded integration of AI and 5G into all industries.

Policies will support ICT-integrated firms, including the metaverse and intelligent robots, while also pushing fundamental digital technologies including cloud computing, blockchain and the Internet of Things.

Online education and job training will receive government support, and a massive program of digitalizing the national infrastructure –  highways, ports and industrial complexes – will be undertaken.

The “Green New Deal” will establish a carbon neutrality foundation to assess and support industry, and promote carbon sinks. A smart grid will upgrade national energy management and promote renewables – areas where Korea has customarily been lagging. A nationwide program to renovate old buildings to promote energy efficiency will be undertaken, and smart, green initiatives will be embedded in schools.

The third arm, the “Human New Deal,” reflects the angry perceptions widespread across Korean society of class/wealth inequality. These perceptions are reflected in such notable recent pop culture icons as Oscar-winning movie “Parasite” and Netflix supershow, “Squid Game.”

Training in AI, software and green technologies will be provided to 120,000 individuals, and the extant national job training scheme will be restructured and updated. Financial aid will come on-tap for youth to fund currently fearsome expenses: housing and education. A universal employment insurance system will be set up, and policies will be enacted to mitigate the educational and care gaps in society.

But South Korea is not just relying on home-grown commerce. It is also seeking foreign capital.

President Moon Jae-in’s brain trust crafted the New Deal to put new wheels under the Korean economy, Photo: AFP

Luring FDI

Inbound foreign direct investment is bouncing back.

After a 10-year-high of $17.5 billion in 2018, the number fell to $13.4 billion in 2019 and $11.4 billion in 2020, the first year of Covid-19. It is now back to an upward trajectory, having recorded $11.7 billion for the first three quarters of 2021, said Jung Jong-yung, director-general for investment policy at the Ministry of Trade, Industry and Energy.

Proportionally, foreign investment in manufacturing has been falling for the last four years, as services take up a greater share of the FDI pie. But the major investors have not changed significantly over the last four years, with the EU (including the UK) being in first place, the US in second place, and Japan and Greater China investing greater or lesser amounts to take the third/fourth spots.

Jung cited Korea’s solid fundamentals and rich market for its success in luring capital. But Korea has also proffered a variety of orthodox incentives to lure foreign capital, Jung noted.

These include cash grants, property grants, rental assistance, tax breaks and investment ombudsmen who assist investors in resolving grievances. Last year, investment ombudsmen intervened in 350 cases – “It’s quite a well-functioning channel,” Jung said.

The country is now promoting new investment directions. Future policies are being crafted to support investors who meet ESG requirements, such as national carbon neutrality targets, or who support the stabilization of the global supply chain, such as semiconductor materials and equipment – strategic sectors for Korea Inc.

The guards have been removed from the Korean economy and FDI is now actively sought. Photo: Tom Coyner

Welcome to the FEZtival

Another strategy is regulatory enclaves – Free Economic Zones, or FEZs – where rules are relaxed and incentives offered to ease investment and business. These started taking shape in 2003 said Ahn Sung-il, director-general at the FEZ Planning Office at the Ministry of Trade, Industry and Energy. There are now nine FEZs nationwide.

Among them, perhaps the most famous is the Incheon FEZ, part of Seoul’s port/airport city of Incheon, which specializes in biopharmaceuticals, logistics and knowledge services. IFEZ is not simply a regulatory line on a map. It has a physical crown jewel: the futuristic smart city of Songdo, built off the coast of Incheon on reclaimed land.

The Busan Jinhae FEZ in the southeast, proximate to Japan, covers the country’s leading port, and specializes in integrated logistics, transport and machinery components.

And the Ulsan Free Economiz Zone, on the east coast, is overlaid on the so-called “Hyundai Town” of Ulsan, home to the auto and auto-parts plants of Hyundai Motor, as well as the colossal shipyard of Hyundai Heavy. Now, with emphasis on carbon neutrality this mighty factory city is going green.

The ministerial plan is for UFEZ to become Korea’s hydrogen energy hub, with both hydrogen power plants, and a hydrogen fuel cell research cluster developing the technologies to be used in tomorrow’s vehicles and vessels.

In South Korea’s semiconductor sector, it’s chips with everything. Photo: WikiMedia Commons.

Chips with everything

Of course critics – most notably, the afore-mentioned Anglo-Saxon free-market Taliban – like to say that Korea does not need FEZs, which have customarily been promoted within such tightly tethered economies as China. Instead, they fume, Korea as whole should take a chainsaw to red-tape and become a “national FEZ.”

In that, they may have a point.

Ulsan become the epi-center of the Hyundai empire decades before the concept of an FEZ had been dreamed up. And the crown jewel in Korea Inc’s crown, its semiconductor sector, has likewise expanded organically, thanks to executive suite nous, rather than as a result of a bureaucratic blueprint.

The sector, geographically, spreads from southern Seoul down to the next two provinces of the country, Ahn Ki-hyun, vice president of the Korea Semiconductor Industry Association, explained.

Clusters have sprouted up, providing plentiful cross-fertilization for the companies in the space, most notably Samsung and SK hynix. Different towns, districts and “venture valleys” are home to specific chunks of this giant industry: fabless companies, foundries, memory chip plants, packaging areas and an equipment and material sector.

Today, the chip sector accounts for 7.7% of Korean GDP, earning a cool $87 billion for the country’s companies in 2020. Korea is responsible for 18.4% of the total global market, 56.9% of its memory products, and 2.9% of non-memory, system semiconductors.

In other words, it is a fecund space for foreign investors. Ahn made clear: Korea is home to a closely clustered 16.5% of the world’s chip manufacturing base, and is in the heart of East Asia, where 73% of the world’s fabs are located.

Still, even in this super-competitive space, there is room for government investment promotion ploys.

The government will induce related firms with tax credits, Ahn noted. Support is also on-tap for water, waste water and electricity – and cheap electricity for industry is a core strength of South Korea. Moreover, the government is incentivizing R&D and training support, Ahn said.