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The year 2022 has had its ups and downs. Steeply rising interest rates caused turmoil in the financial markets, while the successful launch of the nation's first domestically developed space rocket boosted hopes that Korea will join the world's space powers in the near future. Here are the top 10 news items in business and finance that made headlines in 2022.
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| Bank of Korea (BOK) Governor Rhee Chang-yong bangs a gavel during this year's final rate-setting meeting at the central bank's headquarters in downtown Seoul, Nov. 24. Yonhap |
Key rate hike increases household debt burden while banks benefit
The Bank of Korea (BOK) raised the key rate to 3.25 percent from 0.5 percent in slightly more than a year. Behind the hike is the global fight against inflation, triggered by stimulus measures to cope with the COVID-19 pandemic as well as energy crisis following the war in Ukraine. The U.S. Consumer Price Index (CPI) rose 9.1 percent from a year ago in June, which was the highest rise since 1981, and Korea also saw the highest level of inflation in more than two decades.
That prompted the U.S. Federal Reserve to end the era of the zero interest rate. Starting with a 0.25-percentage-point hike in March, it raised the key rate by 0.5 percentage point in May, taking a giant step of a 0.75-percentage-point hike in June, July, September and November. The BOK had to follow suit, raising its key rate successively in May, July, August, October and November. In July and October, the BOK took the unprecedented big step of a 0.5-percentage-point rate hike.
The steep rate hike dealt a blow to people who took out loans. The country's household debt had snowballed as more people invested in real estate, stocks and cryptocurrencies amid soaring asset prices fueled by ample liquidity, but they are suffering as the interest burden has doubled from a year ago, while asset prices have plummeted.
Meanwhile, the key rate hike enabled banks to reap record earnings. The aggregate net income of the country's four largest banking groups amounted to a record 13.85 trillion won in the first three quarters of this year.
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| Crown Prince Mohammed bin Salman of Saudi Arabia, right, talks with the heads of major Korean companies to discuss business cooperation in the kingdom at Lotte Hotel in downtown Seoul, Nov. 17. From left are Hanwha Solutions Vice Chairman Kim Dong-kwan, Hyundai Motor Group Chairman Chung Euisun, SK Group Chairman Chey Tae-won, Samsung Electronics Chairman Lee Jae-yong and Crown Prince Mohammed. Screenshot photo from Saudi Arabian state media SPA's homepage |
Saudi crown prince meets chaebol heads
On Nov. 17, the heads of Korea's top business groups gathered at Lotte Hotel Seoul to meet Saudi Arabia's Crown Prince Mohammed bin Salman and seek more business opportunities in the $500 billion NEOM smart city project in the Middle Eastern country.
The crown prince held a tea meeting for one and a half hours with the chiefs of Korea's eight major conglomerates ― Samsung Electronics Chairman Lee Jae-yong, SK Group Chairman Chey Tae-won, Hyundai Motor Group Chairman Chung Euisun, and Hanwha Solutions Vice Chairman Kim Dong-kwan, CJ Group Chairman Lee Jay-hyun, Doosan Group Chairman Park Jeong-won, DL Group Chairman Lee Hae-wook, and Hyundai Heavy Industries (HHI) Group CEO Chung Ki-sun.
NEOM is a mega project to build a smart city in an area 44 times the size of Seoul, and a wide range of business opportunities is expected to open up in areas such as urban infrastructure, information technology (IT), and energy.
Samsung chief pardoned, promoted to chairman
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| Samsung Electronics Chairman Lee Jae-yong |
The board of directors voted to appoint Lee as chairman to better ensure stability and improve decision-making processes. Lee, 54, received a presidential pardon in August. He was pardoned for bribing former President Park Geun-hye in 2017, but he still faces other charges for violating accounting rules and spreading false information to investors.
Lee faces a multitude of challenges as Samsung Electronics' operating profit declined 31.4 percent in the third quarter of this year, the first decline since 2019. During a luncheon with executives, Lee vowed to make bold investments in new technologies. He also stressed his focus on advanced chips, biopharmaceuticals, automotive and next-generation network technologies as future growth engines.
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| Stacks of containers are piled up at a port in Korea's southeastern city of Busan. / Yonhap |
Trade deficit likely for the first time since 2008
Korea is projected to suffer a trade deficit this year. It will be the first annual trade deficit since 2008 when the country sustained a $13.27 billion deficit in trade amid the global financial crisis. The trade deficit this year is estimated at around $48 billion, with some estimating it can surpass $50 billion.
Behind the deficit is surging global energy prices triggered by the war between Russia and Ukraine. The money Korea spends to import oil, gas, and coal has been snowballing by more than 70 percent from a year ago.
Exports, which contribute to half of Korea's economic growth, meanwhile, have been contracting by the double digits recently, amid a global economic slowdown. Korea's major export items such as semiconductors are suffering from sluggish demand, while an economic slowdown in China, Korea's biggest trading partner, worsened the situation.
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| An official at Hana Bank checks bundles of dollars at its headquarters in Seoul, Dec. 5. Yonhap |
Financial market in turmoil: Korean won and KOSPI tumble
The global interest rate hike to tame inflation led to financial market turmoil, where the won-dollar exchange rate soared, while the stock market collapsed. The aggressive key rate hike by the U.S. Fed led to the influx of global liquidity into the U.S. bond market. The dollar index, which represents the value of the greenback against a basket of six other currencies, surpassed 114 in September, the highest level since 2002. The won-dollar exchange rate, which stood at 1,188.8 won around the end of the last year, soared to 1,444.2 won in October.
As global liquidity pulled out of the Korean bourse, the main stock index, KOSPI, which closed at 2,988.77 on Jan. 3 this year, plunged 27.9 percent to 2155.49 at the end of September. Investor sentiment froze, and the daily transaction amount on the KOSPI fell to 4.8 trillion won on Dec. 19, falling below 5 trillion won for the first time in about three years. Investors' deposits in the stock market also contracted by around 40 percent, amid a pessimistic outlook on stocks.
The bond market also experienced turmoil, due to concerns over project financing loans sparked by Gangwon Province's refusal to redeem asset-backed commercial paper (ABCP) issued to finance the development of Legoland Korea. The government's decision to inject 50 trillion won to stabilize the bond market has somewhat mitigated the concerns, but a possible economic recession in 2023 is adding to uncertainties.
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| Hyundai Motor Group Executive Chair Chung Euisun, left, shakes hands with U.S. President Joe Biden after a briefing held at the Grand Hyatt Seoul in Seoul on May 22. Yonhap |
US IRA to pose challenge to Hyundai Motor, Kia
The U.S. Inflation Reduction Act, signed into law by American President Joe Biden in August, offers government tax credits of up to $7,500 to buyers of new EVs. The Biden administration began denying tax credits of up to $7,500 to buyers of EVs manufactured outside of North America, as stipulated in the act.
A portion of the tax credit ― $3,750 ― will be made available when EV makers use batteries made of at least 40-percent critical materials extracted or processed from the U.S. or countries that have free trade agreements with the U.S., or are recycled in North America. The percentage will increase in stages to 80 percent by 2027.
Hyundai Motor and Kia Corp. are scheduled to finish the construction of their Alabama and Georgia EV plants and begin production of EVs starting in 2025. The Korean government asked the U.S. government to delay the implementation of the IRA until 2025, but experts say the possibility of the U.S. accepting the request is low.
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| Korea's lunar exploration orbiter, the Danuri, is launched on a SpaceX Falcon 9 launch vehicle from Space Force Base 40 in Cape Canaveral, Florida, U.S. on Aug. 4 (local time). Yonhap |
Successful launch of Nuri, Danuri
Korea entered the new space era with more than 300 domestic companies taking part in the launch of the Nuri. The three-stage, liquid-fueled Korea Space Launch Vehicle-II (KSLV-II) ― was successfully launched, carrying a 1,500-kilogram payload, including a performance verification satellite, four cube satellites (CubeSat) and a dummy payload.
The small-sized CubeSats are placed inside the performance verification satellite. Every step, from design, construction, test and launch was accomplished by private corporations, with over 500 people from 30 companies involved in developing and manufacturing the main parts of the rocket.
The project cost around 1.96 trillion won ($1.5 billion), with 80 percent, or 1.5 trillion won, being invested by private companies.
On Dec. 16, the Danuri, Korea's domestically developed lunar orbiter, began its journey to enter the moon's orbit as it was successfully launched into space. It remains about 100 kilometers above the moon and will conduct scientific missions for almost a year from January 2023. If the orbiter succeeds in carrying out its operations, Korea will become the seventh nation to undertake a lunar exploration.
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| SK On's battery plant in Georgia, the U.S. / Courtesy of SK |
Korean battery makers expand US investments
Three major battery firms, LG Energy Solution (LGES), SK On and Samsung SDI, are speeding up investments in the U.S. to cope with rising demand for electric vehicles (EV) there and to adapt to the Inflation Reduction Act, which denies tax credits of up to $7,500 to buyers of EVs manufactured outside of North America.
On Dec. 9, Hyundai Motor Group and SK On agreed to build an EV battery manufacturing facility near Atlanta in the U.S. state of Georgia. The project is expected to create over 3,500 jobs through approximately $4 billion to $5 billion in investments.
On Dec. 5, Ultium Cells ― a joint venture between LGES and General Motors (GM) ― secured a $2.5 billion loan from the U.S. Department of Energy to help finance the construction and expansion of three EV battery manufacturing facilities in Ohio, Tennessee and Michigan
In May, Samsung SDI announced an investment of $1.29 billion in an EV battery plant to be built in the U.S. state of Indiana under a joint venture (JV) with Stellantis. Samsung SDI will own a 51-percent stake in the $2.5 billion joint venture, and its investment could increase to as much as $1.57 billion in the long term.
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| Apartment buildings are seen from Lotte World Tower in Seoul in this Nov. 7 file photo. Yonhap |
Real estate market on rollercoaster ride
Despite government interventions, housing prices seemed to maintain an upward momentum early this year. But the steep key rate hike stopped investors from purchasing houses using mortgage loans, drying up liquidity in the real estate market and causing home prices to fall. According to Korea Real Estate Board, apartment prices nationwide fell 4.8 percent this year as of November, which is the steepest annual fall since December, 2003 when it started compiling such data. Data by KB Kookmin Bank showed that apartment prices marked the steepest fall this year since 1998 when the country saw a 13.56 percent drop in the aftermath of the Asian financial crisis.
Upscale apartments in southern Seoul, which cost up to billions of won, also started to lose steam from the latter half of the year as demand dwindled. In other areas that saw steep rises, such as Sejong and Dongtan, it is hard to find a potential buyer despite steep price discounts.
The government is now pondering over ways to induce a soft landing of the housing market, nullifying a series of heavy taxes and mortgage regulations adopted by the previous administration to curb surging apartment prices. However, it remains doubtful whether such measures will have much impact as the interest rate is the key determinant. According to an analysis by the Korea Institute of Finance, a 1 percentage-point hike in the interest rate pulled down apartment prices in the Seoul metropolitan area by 5 percent.
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| The lobby of Star Tower in Seoul's Gangnam District, where Lone Star's Seoul office was located. / Korea Times file |
Korea partially loses decade-long battle against Lone Star Funds
The Korean government's decade-long legal battle with Lone Star Funds came to an end, with Korea suffering a partial loss. The International Centre for Settlement of Investment Disputes (ICSID) delivered a verdict in August that the Korean government should pay the U.S. private equity firm $216.5 million plus interest, regarding the suit Lone Star filed in 2012 demanding compensation surrounding the sale of the now-defunct Korea Exchange Bank (KEB). Lone Star, which had acquired the bank for 1.38 trillion won?in 2003, planned to sell it to HSBC for 5.94 trillion won in 2007, and claimed that the plan fell through because of a delay in approval by Seoul's financial regulator. The Korean government dismissed the claim and insisted that the delay was due to suspicions over Lone Star's qualification. The fund ended up selling KEB to Hana Financial Group for around 3.9 trillion won in 2012.
Lone Star's huge profit, however, triggered public perceptions that Korea was taken advantage of by the private equity fund, and high-ranking political and financial figures, including Prime Minister Han Duck-soo, Finance Minister Choo Kyung-ho and Bank of Korea Governor Rhee Chang-yong, were all directly or indirectly mired in the suit and faced public criticism again following the latest verdict.
