Seoul’s lure as financial centre impeded by heavy-handed regulation, says mayor

The mayor of Seoul has admitted that South Korea’s reputation for opaque and heavy-handed regulation has hampered the city’s ability to lure business and investors quitting Hong Kong.

“It is regrettable that companies and financial institutions leaving Hong Kong prefer Singapore as an alternative rather than Seoul,” Oh Se-hoon told the Financial Times in an interview.

“The biggest factor is the tax system — taxes in Singapore are half the level of ours. But our laws and systems also seem to be making companies hesitant about entering Seoul,” he said.

Oh added that he was “ashamed” that Korean regulators were seen by some financiers in the region as harder to work and communicate with than their mainland Chinese counterparts.

The mayor’s proposals to make Seoul a leading Asian financial centre include turning the city into a “deregulation special zone”, cutting corporate and income taxes, offering housing at lower prices for foreign employees and creating more foreign schools.

Oh said he had made representations to Yoon Suk-yeol, South Korea’s conservative president-elect, about the need for new incentives. Yoon will be inaugurated in May, though South Korea’s national assembly remains controlled by the left-leaning Democratic party.

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

Seoul’s financial district
Seoul’s 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 Won 777.6tn in 2000 to Won 5,662.3tn ($4.6tn) as of June 2021, according to the Bank of Korea.

Foreign investment banks have been attracted by leading Korean companies in sectors ranging from semiconductors and electric vehicle battery production to entertainment and ecommerce.

But investors have been stung by short-selling bans and regulatory crackdowns on market-makers, while a prohibition on offshore trading of the Korean won continues to damage the country’s aspiration to achieve recognition by the index-maker MSCI as a developed market.

Observers said Korean regulators and political leaders remain sensitive to the public’s suspicion of foreign capital, which is rooted in a perception that overseas investors exploited the country in the wake of the Asian financial crisis in the late 1990s.

“With Hong Kong on the defensive amidst its recent exodus of foreigners, China slowing down due to its zero-Covid policy and capital flows out of 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 banking industry association.

“But the Korean regulatory environment has been challenging, with investors receiving fines and warning letters that have not been well substantiated or explained. As a result, we have major players sitting on the sidelines.”

Chan Lee, managing partner at Petra Capital Management, a Seoul-based hedge fund, said foreign investors have often found themselves tripped up by the political power of the chaebol, the country’s leading conglomerates that lobby heavily against protections for 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 hub is nonsense,” he said.

Oh, however, pushed back at the sceptics, arguing that Seoul’s strengths include “world-class ICT infrastructure, a highly educated workforce, and digital finance-friendly infrastructure, combined with a real economy based on manufacturing and services”.

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