SEOUL, July 18 (UPI) -- South Korea has unveiled a series of plans to transform itself into a logistics and business hub of Asia-Pacific in a bid to reduce its reliance on manufacturing in the face of the competitive challenge posed by China.
But South Korea seems to have a long way to go to assume the new economic role, now predominantly played by Singapore and Hong Kong and also coveted by Taiwan and Shanghai, as a recent preference poll indicated that foreign chief executives remain cool toward Seoul's campaign to attract the regional headquarters of multinational corporations.
This week, South Korea put forward another plan to make its western coastal area a financial hub linking Asia to Europe, the Americas and other parts of the globe.
Revealing a master plan, the Finance and Economy Ministry said it had decided to designate the reclaimed land site in Gimpo, just west of Seoul, as a special economic zone that will be turned into an international financial city.
The ministry promised to construct a high-rise international business center building in a site covering a space of about 10 million square feet. Breaking previous rules and practices, the government allowed the establishment of a "foreigners' complex," in which they can do business, live and relax, as in their home countries. Foreigners will be allowed to build and operate the skyscrapers, apartments, schools and hospitals.
The Education Ministry also decided to soften regulations to make it easier to set up foreigner-only schools in the zone to enable the children of foreign businesspeople to increase educational opportunities.
"This will mark the highlight of the government's programs to emerge as a regional logistics, tourism and commercial center within 5 to 10 years to compete with Hong Kong and Singapore," the finance ministry said in a statement.
The ministry has announced details on the creation of special economic zone in Yongjongdo, west of Seoul, which houses Incheon International Airport, to build a duty-free zone for an international transportation and distribution hub. Under the plan, neighboring Songdo would also be turned into high-tech and information technology complexes as well a business center for the Asia-Pacific headquarters of multinational firms.
The ministry is also considering declaring Busan and Gwangyang, the nation's two major port cities, as special economic zones in which foreign enterprises would be given a bevy of benefits and incentives. English, along with Korean, will be declared the official language of the zones in which people will be able to use major international currencies such as dollars, yen and euros.
South Korea has decided to provide a slew of tax incentives to lure more foreign investment in a bid to boost its credentials as an Asian-Pacific business hub. The ministry said it would waive corporate and income taxes for new foreign investors in the special economic zones for seven years, starting in January 2003.
Tax exemptions for foreign workers on allowances for expenses such as education and transportation would double to 40 percent of basic salary, cutting their total bill by 15 to 27 percent. A ministry official said the tax break package will approach the levels of Hong Kong and Singapore.
The government has lifted the ceilings on foreign investment in stocks and bonds and removed major restrictions on foreign currency trade, offering greater access to key industries. In the first half of this year, South Korea drew $4.8 billion in foreign direct investment, up 29.4 percent from a year ago. The commerce ministry has forecast 2002 foreign direct investment will rise up to $15 billion from $11.87 billion in 2001.
In an effort to entice multinational companies to establish its regional headquarters in its proposed zones, the government has eased restrictions on foreign exchange transactions, including more relaxed disclosure rules, to make the country's currency market similar to those of Singapore or Hong Kong.
"Improved infrastructure for foreigners will have a significant effect on inducing more foreign investment," said Kim Yong-hwan, an investment policymaker at the Ministry of Commerce, Industry and Energy.
Many economists and business leaders welcomed the government projects as an alternative development model for South Korea, which lacks natural resources, at a time when the country is facing grave challenges from China, thought to be an emerging economic powerhouse.
South Korea is increasingly being surpassed by China in key industrial sectors, such as electronics, steel, automobiles, textiles, petrochemicals and shipbuilding, according to a report which was jointly released this week by the Federation of Korean Industries and the Ministry of Commerce, Industry and Energy.
"The business hub project is necessary for Korea sandwiched between two giant countries of China and Japan," said Kim Sung-shik, an economist at the private LG Economic Research Institute. South Korea needs to keep one step ahead of China, he said.
Ye Choong-yeol, a researcher at the Korea Transport Institute, said South Korea is strategically situated along main international trunk lines that link East Asia with North America and Europe. "Northeast Asia comprises a market of 1.5 billion consumers. There are some 40 cities of over 1 million people within a 3 1/2-hour flight of Seoul," he said.
But the prospect looks less bright as a recent survey showed most foreign chief executive officers have a cautious attitude toward Seoul's business hub bid.
According to the poll conducted by the state-run Korea Trade-Investment Promotion Agency, none of 50 multinationals responding picked South Korea as an ideal place for their regional headquarters.
The survey showed South Korea ranks fourth among six regional candidates, with Hong Kong the predominant favorite followed by Singapore and Shanghai.
South Korea stands fourth, just ahead of Australia and Malaysia, because it earned poorly marks in the categories of English infrastructure, labor market flexibility, educational facilities for foreigners, bureaucracy and social transparency.
"The multidimensional scaling analysis, adopted in the KOTRA poll, found that Hong Kong and Singapore were neck and neck in offering the best conditions to host multinationals' regional headquarters," said Lim Sung-hun, a senior analyst at the KOTRA. Shanghai was credited with a clear advantage as the gateway to the vast Chinese market, he said.
"The poll suggested that Korea is confronted with the most urgent task of making improvements in bureaucracy, transparency in management and rigid labor market," Lim said.
Saying South Korea hosts only one multinational corporate headquarters, while Hong Kong has 944 and Singapore some 200, Joo Woo-jin, a Seoul National University professor, advised the government to take more drastic measures to become an Asia-Pacific hub.
