Over the last sixty years, Korea has experienced one of the largest economic transformations in history. And to a large degree, this success has depended on liberalising policy reforms that have opened the country up to foreign markets, dramatically shifting Korea from an agrarian, pre-industrial society to global exporting powerhouse. Now, Korea ranks in the top ten exporting nations, with Korean SMEs and chaebols having commercial relationships with other businesses and countries all around the world.
As Korea’s rise to global political and economic power continues, it’s only natural that more businesses in Europe and elsewhere are considering establishing a presence in the Korean market. This is a topic that Christoph Heider knows all about. As the President of the European Chamber of Commerce in Korea (ECCK), Christoph works to facilitate trade between Europe and Korea and make it easier for European businesses to service the Korean market. #DisruptionBanking met Christoph in Seoul to discuss his work at the ECCK, the challenges and opportunities Korea presents, and where he believes Korea is going next.
Christoph explained that the ECCK is an advocacy group, which works with business leaders to promote more liberal trade policies and greater economic interchange between Europe and Korea. They work with governments in the European Union, European Free Trade Association, and the United Kingdom to encourage greater economic cooperation with Korea, while also advocating that the Korean government “pushes for improved regulations” and “gets rid of unnecessary restrictions where possible.”
According to Christoph, and broadly speaking, the main issue is that Korea often adapts and changes international trading standards in a way that can make it tricky for foreign companies to enter the market. “Korea often takes international standards as a starting point, and then makes customisations which make it very difficult for European companies, or foreign companies overall, to bring their products into the market,” Christoph said. Partly this is because of lingering protectionism, Christoph believes, but also the entirely different cultural background that drives decision-making.
Despite this, the volume of trade going between Europe and Korea has risen considerably in the past decade. Between 2010 and 2020, total trade between the EU and Korea rose by around 50%, from 60 billion to 90 billion euros. This proliferation was largely driven by the signing of a free trade deal in 2011, the EU’s first FTA in Asia and Korea’s first deal with a “big three” power. But also key to this success, Christoph believes, is that European companies have “a pretty high reputation.” Especially in certain specific areas, Korean businesses and consumers recognise the value European players can add.
Christoph noted that there’s considerable European involvement in the Korean real estate market. “When I first moved here in 2013, everybody was talking about further increases in real estate prices, which were substantially increasing. Personally, I thought that the space was over-priced, but I was wrong,” he said. As we covered in our feature with Wonku Lee last week, this is now causing significant problems for Korea and foreign investors with exposure to Korean real estate. The Bank of Korea needs to raise interest rates to match those of the Federal Reserve, in order to prevent the Won collapsing in value on foreign exchange markets. But that will mean putting mortgage rates up for millions, potentially prompting repossessions and a bursting of the housing bubble.
As the world generally faces difficult economic times, Christoph is generally optimistic about Korea’s economic future – at least in the short to medium term. He is concerned, though, that declining fertility rates mean that Korea’s population is ageing and is set to decline. This will inevitably put pressure on the (smaller) working age population that will need to pay for maintaining the elderly, change the consumer structure, and negatively impact growth.
More positively, Christoph believes that, despite the MSCI still classifying Korea as an emerging economy, Korea now presents a fully developed market to foreign investors. This explains why growth rates are now lower at between 2-4%. “We’re not talking about high growth anymore. Some blame the government for this, but it was entirely predictable,” Christoph said. He also pointed out that this growth is still much stronger than that being experienced by European economies, some of whom at the moment are actually declining. “It’s still better than zero. The difference between 1% growth and 2% growth is 100%. That’s why we continue to recommend that European businesses come over to Korea.”
There’s another reason why Christoph is optimistic about Korea’s future as an economic power – one not related to the intricacies of trade deals, regulations, or financial markets. “Koreans, and especially young Koreans, are highly motivated. Everybody wants to catch up to the GDP levels other developed countries have. Nobody cares about purchasing power, they all want to compare nominal GDPs, overtake Japan, and rise up the ranks,” Christoph noted. Should this determination be rewarded, Korea will continue to be an attractive place for European businesses to invest in.
Author: Harry Clynch
#Korea #Europe #ECCK #FreeTrade
