South Korea aims to become hub of northeast Asia
Even the most casual visitor to South Korea will find it impossible to overlook the national ambition: billboards, LCD advertisements and press articles endlessly trumpet the country's plan to transform itself into the 'hub of northeast Asia'.
On paper, it looks doable. Korea is strategically positioned between China, Japan and the Russian Far East. Logistics infrastructure includes Incheon International Airport, currently serving 20 million passengers a year, and Pusan Container Port, the world's third-largest.
It is home to a cutting-edge technological infrastructure, world-class firms and a young, highly educated population.
The question is: are global investors interested?
One interested investor is Stan Gale, chairman and chief executive of Gale Co. The property developer is engaged in a joint venture with the country's steel and construction giant, Posco, to develop a new city, Songdo, on reclaimed land off Incheon, Seoul's China-facing port.
'This is the largest private development project in the world,' he told the South China Morning Post. 'London's Canary Wharf was 32 million square feet; this is 110 million square feet.'
The scale of Korea's ambitions is impressive. Gale's Songdo New City may be the world's largest real estate development, but is only one component of the 20,960-hectare Incheon free economic zone (FEZ) - a location in which Korea's notorious red tape is slashed to a ribbon.
Incheon will be the first FEZ to get off the ground, with two more in the pipeline: Gwangyang and Pusan, both on the southern coast.
Incheon hopes to emerge as an air-and-sea logistics and leisure hub; Pusan plans to become a maritime logistics hub and industrial complex; and Gwangyang's intention is to be a maritime logistics axis and petrochemical complex.
Pusan's FEZ will cover 10,440 hectares while Gwangyang's will cover 8,900 hectares. Many of Incheon's projects are due for completion in 2008; final-phase developments in all FEZs projects are set for 2020.
Some observers caution that Asia already has two successful hubs - Hong Kong and Singapore - and an emerging axis in Shanghai. With increased competition for capital on the heels of an anticipated United States interest-rate rise, is Korea in the running?
'Incheon is within 3? hours flight of 35 per cent of the world's population, and with 6 per cent annual economic growth in Asia, I don't need to rob Hong Kong or Singapore to get growth,' Mr Gale said. He has no fear of the 'China shock' expected to hit Korea as the mainland attempts to cool its heated economy.
Incheon compared favourably with Shanghai, he said. 'People want to own land in Asia. In Shanghai, you can't own land, and Tokyo and Hong Kong are too expensive.'
However, his global marketing centre on New York's 5th Avenue has a lot of work ahead. So far, Mr Gale has US$500 million in his kitty. He plans to raise, along with financiers Morgan Stanley and ABN Amro, $1 billion by the end of the year. After that, he needs to find $2 billion a year until 2020.
Not every player is as enthusiastic. Observers say the FEZ concept is unsuited to Korea, as such zones are features of developing economies such as China.
'The entire country should be a FEZ,' AmCham Korea president Bill Oberlin said.
Government sources privately confirm that the FEZs are designed to showcase the benefits of a deregulated environment, in the hope that the deregulation of the zones will eventually spread inland.
Militant unions and labour inflexibility are serious concerns for business in Korea. While the FEZs have liberalised laws, they have not yet been tested in practice. Unions may well come out strongly against this aspect of the FEZs.
Achieving hub status is no simple matter. 'Tokyo stepped up to accept the challenge of being a financial centre in the 1980s,' said Ronald Anderson, a vice-president of AIG. 'But they stumbled.'
The region's main hubs - Singapore and Hong Kong - grew up organically as colonial entrepots, with strong rule of law.
Korea, by contrast, is a planned concept and a homogeneous nation - one where investors have serious concerns over rule of law and corporate transparency.
The Gwangyang and Busan FEZs are problematic. Logistics firms point out that the two ports will not only be competing with Shanghai but also with each other.
Meanwhile, other provinces are promoting themselves as hubs, diluting the core concept of the three FEZs. 'There is concern that the effort could fragment,' Mr Oberlin said. 'It is essential that there is central direction. The government had 10 strategies and 200 roadmaps at my last count.'
A final imponderable is North Korea. The existence of the communist state, noted Thomas Hubbard, US ambassador to Korea, 'makes South Korea essentially an island'.
Will Korea become the axis of Asia? What seems likely is that, given Korea's can-do attitude, the hardware side of the project - infrastructure development - will happen. Whether foreign investors will buy the pitch and set up at these FEZs is another matter.
'I think there is a lot of 'build-it-and-they-will-come' thinking around,' Mr Anderson said.