Somehow I Don’t Think This is Going to Help
by Brendon Carr
Against the backdrop of plummeting foreign investment and the flight of Korean capital to better investment destinations, Strategy and Finance Vice Minister Choi Joong-kyung told the Korea Times that Pres. Lee Myung-bak’s “business-friendly” face doesn’t necessarily mean that Korea’s getting over its xenophobic attitude toward foreign investment:
“A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,” he added, suggesting that foreign PEFs are not in the friendly investors’ zone.
PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB’s credit card unit.
The Lone Star case is one which is well-documented and known by all who follow Korean business. The “hand-in-hand with the Korean economy” bit is especially ridiculous when one consider’s Lone Star’s barely-majority stake in the bank. Who held the other shares? Why, Korea’s state-owned and government-controlled “policy banks” (Bank of Korea, the local equivalent of the Federal Reserve; and Korea Export-Import Bank) and some other individual investors. When Lone Star rescued the failing KEB and saved its share price, those government and individual shareholders who held the other half of capital benefitted as well. And since the bank didn’t go under, all those thousands of jobs were saved too. You can’t get much more “hand-in-hand” than that. Yet this point is persistently distorted for political gain.
As for the tax angle, this too is a red herring and the constant kvetching is not good for Korea’s reputation with investors. Tax structuring is done by lawyers and accountants who read and understand the applicable tax laws and put together the investment vehicles to comply with laws. That Korea hates its own laws and constantly grouses about foreigners who follow the laws does not help the perception of “rule of law”.
On question regarding Korea’s reputation for xenophobia, the policymaker said, “What we don’t like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.”
“We welcome all the foreign investors coming to seek long-term investment gains,” he added.
Choi doesn’t seem to get that all investment is speculative. Investors make an educated guess about how their investments will perform based on market conditions and the investor’s expected management input. Being against speculators is anti-business. Oh, and how to parse this guy’s last statement? Just so long as you don’t try to take your profits home, Mr. Foreign Investor.
Is this really the way things are going to go? I was hopeful for the LMB government, but the more things progress (with guys like Choi flapping their gums) the more it appears the plan is not globalization of the Korean economy and a fair marketplace, but merely an end to some of the more overt and egregious harassment of Korean tycoons while harassment of unlucky foreign capital continues.
What a disappointment. Koreans really deserve better than this—their leading companies can and do successfully compete in a global marketplace outside Korea. More Korean companies ought to have the opportunity to sharpen their game against the best fair competition even in their home market.
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Mr. Choi seems to have forget about the Financial Turnaround at KEB:
From 2005 to 2007, earnings of 1 trillion won or more. For the entire history of the bank (1967-2003), the cumulative retained earnings of the bank was a loss of 1.1 trillion won. During 2005 and 2006, the bank had the highest ROE of any Korean bank.
In 2006, the bank started to pay corporate income taxes - the first time since 1996. The total corporate income tax during 2006-2007 was 1,143 billion won.
From 2006, the bank was able to pay dividends to all shareholders for the first time since 1996.
Turning arround a bank like this seems pretty friendly to me. KEB now pays wealth to the govenment and the shareholders. How can Mr. Choi be so stupid not to see this?
Because Mr. Choi sees the world with a lens of Korean = good , not Korean = bad. All that matters is that “= bad” made a profit.
I don’t hold any degrees in business or economics and yet I frequently find myself explaining to Koreans - with advanced degrees in those subjects - that a foreign investor making money in Korea generally indicates that some Korean person or institution is also making a profit.
As Svend said, the zero-sum worldview still prevails in these parts. Many Korean citizens assume that if a foreign entity makes money, it must be doing so at the expense of a hardworking Korean person.
As for Lee’s “business friendly” reputation, I’ve shared your suspicions for some time:
http://idiotscollective.blogspot.com/2008/01/lee-myung-bak-diamond-dilemma.html
It took some time but he is gone.
Vice Finance Minister Choi Joong-kyung, who was replaced after a controversial policy of keeping the won weak against the U.S. dollar intensified inflation, was more reserved. In a telephone interview with the Chosun Ilbo on Tuesday, Choi denied speculation that he was replaced in lieu of Strategy and Finance Minister Kang Man-soo. “I took the responsibility because I was in a position of responsibility. It is all my fault,” Choi said. “I don’t think I had a short term because for the last four months, I worked every day, even at the weekend, from 7:15 a.m. The current economic situation in Korea is grim, but I am certain that things will improve as Kang is doing his best.”