|The financial center on Yeouido, Seoul / gettyimagesbank|
By Kim Bo-eun
Attention is growing over Hong Kong's possible replacement as a financial hub of Asia, after the city has become increasingly unstable following China's implementation of the national security law and the U.S. revoking of Hong Kong's special trading status.
Singapore is rising as an attractive alternative, with financial firms and capital already flocking to the city, but Japan has been eager to promote Tokyo. Korea, meanwhile, has mostly remained idle. Busan has been seeking to attract financial firms from Hong Kong, but foreign firms in Korea state that neither Busan nor Seoul has what it takes to become a financial hub.
The government began a drive to foster a financial hub here in the early 2000s, but both Seoul and Busan's competitiveness as financial centers have remained lackluster for clear reasons. In this year's Global Financial Centers Index published by the London-based think tank Z/Yen in March, Seoul ranked 33th out of 108 cities and Busan 51th.
The index assesses the cities based on business environment, human capital, infrastructure, financial sector development and reputation through surveys.
Foreign firms point out first that Korea offers no tax incentives. The corporate tax rate stands at 25 percent, which is higher than Japan's 23 percent or Singapore's 17 percent. The Moon Jae-in administration in 2018 raised the maximum corporate tax rate to 25 percent from 22 percent, at a time other economies lowered their rates.
The tax issue has been brought up countless times over the years, but the government's response has always been that it cannot discriminate against local businesses by providing preferential treatment to foreign entities present in the financial hub.
Foreign companies here also complain about the inaccessibility of clear information on regulations which is crucial to conducting operations here.
"The government offers no comprehensive set of translated regulations, which makes it difficult for foreign firms to learn about the rules that need to be followed," an official of a foreign financial firm said.
This issue is related to another element needed for attracting foreign firms ― an English-speaking environment, which Hong Kong and Singapore have, but Korea does not.
Labor market rigidity and militant unions here are also a deterrent for foreign firms. One of the reasons Singapore is favored is based on its flexible labor market.
Foreign firms also face a certain level of anti-foreign sentiment, as they are annually criticized for "excessive" dividend payments. Korea has been referred to as "unwelcoming" and giving "unequal treatment" to foreign entities.
Finally, there is the North Korea risk. As long as South and North Korea remain divided, relations are unpredictable, which exposes Seoul to possible conflict with Pyongyang.
A high level of caution prevails in events such as missile launches by Pyongyang or even in cases such as the North's demolition of the inter-Korean liaison office in the city of Gaeseong last month.
"At the time North Korea made an artillery attack on the South's Yeonpyeong Island in 2010, foreign entities here were handing out emergency packages to employees and people were getting ready to leave," an official of a foreign bank said.
"While Koreans do not react to every move by the North, many foreigners here take such events extremely seriously."
The number of foreign firms here has remained more or less the same over the years, despite government efforts to attract more entities. Many have pulled out their operations due to regulatory barriers and the lack of incentives.