Seoul’s appeal as a financial center is hampered by strict regulation, the mayor says

Seoul’s mayor has admitted South Korea’s reputation for opaque and tough regulations has hurt the city’s ability to persuade businesses and investors to leave Hong Kong.

“It is unfortunate that companies and financial institutions leaving Hong Kong are choosing Singapore as an alternative over Seoul,” Oh Se-hoon said in an interview with the Financial Times.

“The biggest factor is the tax system – Singapore taxes are half of ours. But our laws and systems seem to do the trick too companies hesitate about entering Seoul,” he said.

Oh added that he was “ashamed” that some financiers in the region found working and communicating with Korean regulators more difficult than with their counterparts in mainland China.

The mayor’s proposals for making Seoul a leading Asian financial center include turning the city into a “deregulation special zone”, cutting corporate and personal income taxes, offering lower-priced housing to foreign workers, and creating more foreign schools.

Oh said he pointed out the need for fresh stimulus to Yoon Suk-yeol, South Korea’s conservative president-elect. Yoon will be inaugurated in May, although South Korea’s National Assembly remains controlled by the left-leaning Democratic Party.

“I have asked for systematic support to strengthen Seoul’s competitive advantage over Tokyo, Shanghai and Singapore and received some positive responses; I expect a lot of changes to be made,” Oh said.

Seoul's financial district
Seoul Mayor Oh Se-hoon has proposed turning the city into a “deregulation special zone” © SeongJoon Cho/Bloomberg

South Korea’s financial markets, including capital markets and short-term financing markets, grew from 777.6 trillion won in 2000 to 5,662.3 trillion won (US$4.6 trillion) in June 2021, according to the Bank of Korea.

Foreign investment banks have been attracted by leading Korean companies in sectors ranging from semiconductor manufacturing and electric vehicle batteries to entertainment and e-commerce.

But investors have been stung by short selling bans and government crackdowns on market makers, while a ban on offshore Korean won trading continues to hurt the country’s quest to be recognized by index maker MSCI a developed market.

Observers said Korean regulators and political leaders remain sensitive to public distrust of foreign capital rooted in beliefs that foreign investors exploited the country in the wake of the late 1990s Asian financial crisis.

“With Hong Kong on the defensive amid its recent exodus of foreigners, China slowing down on its zero-Covid policy and capital outflows from Europe, this should be Korea’s time to shine,” said Lyndon Chao, head of equities and post-trade at the Asia Securities Industry & Financial Markets Association, the association of the banking industry.

“But the regulatory environment in Korea was challenging as investors received fines and warnings that were not well reasoned or explained. As a result, big players sit on the sidelines.”

Chan Lee, managing partner at Petra Capital Management, a Seoul-based hedge fund, said foreign investors have often been brought down by US political power chaebolthe country’s leading conglomerates, which have campaigned strongly against protecting minority shareholders.

“There are so many systems and regulations against foreign investors, not to mention the language barrier. The idea of ​​making Seoul a financial center is nonsense,” he said.

Oh, however, defied the skeptics, arguing that Seoul’s strengths include “a world-class ICT infrastructure, a highly skilled workforce, and a digital, finance-friendly infrastructure combined with a real economy based on manufacturing and services.” Seoul’s appeal as a financial center is hampered by strict regulation, the mayor says

Adam Bradshaw

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