South Korea steps up to a fearful new world

A woman takes a selfie with her daughter wearing a costume of Netflix series ‘Squid Game’ in front of a giant doll named ‘Younghee’ from the series on display at a park in Seoul, South Korea, October 26, 2021. REUTERS/Kim Hong-Ji

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HONG KONG, June 13 (Reuters Breakingviews) – South Korea is having a moment. As governments around the world fret about surging commodity prices, fragile economic growth and volatile markets, newly elected President Yoon Suk-yeol is kicking things off on a surprisingly upbeat note. Local companies are bouncing back, with many of them venturing abroad. The confidence should pay off.

The headline figures paint a less pretty picture. After expanding by 4.1% in 2021 – an 11-year high – the $1.6 trillion export-dependent economy is forecast to grow just 2.7% this year as demand from China, its top trading partner, cools. read more The central bank’s new governor in April issued a dire warning that war in Ukraine, a China slowdown, higher U.S. interest rates combined with the country’s aging population and decreased productivity might tip the economy into an era of low growth and high inflation known as stagflation. Rising inequality and high household debt are also concerns.

The mood in Seoul, however, is notably upbeat. The sprawling metropolis of nearly 10 million people recently scrapped pandemic restrictions such as business curfews and mandatory vaccine passes. Restaurants, bars and coffee shops are packed; last week’s friendly soccer match between South Korea and Brazil attracted 64,000 fans to sell out Seoul World Cup Stadium.

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Compared to pre-pandemic times, the capital city feels richer and more vibrant. A recent boom in local stocks, cryptocurrencies and real estate have spurred the city’s elite, unable to travel, to flex their wealth at home. Demand for art, imported wine, high-end fashion, cars, and even perfume, is taking off. Luxury sales topped $14 billion in 2021, making South Korea one of the few markets worldwide to surpass 2019 levels, according to Euromonitor.

Optimism is evident across Korea Inc too. Covid-19 has been a boon to domestic companies like e-commerce group Coupang and major exporters, including the $350 billion memory-chip maker Samsung Electronics (005930.KS). But during the previous liberal government under Moon Jae-in, firms faced higher corporate taxes, minimum wage increases, cuts to working hours and tougher competition laws. Yoon’s pro-business agenda, by contrast, promises deregulation and tax cuts.

WESTWARD EXPANSION

The shift has emboldened the country’s powerful family-run conglomerates, or chaebol. Less than a month after Yoon took office, the Samsung group unveiled a bold $356 billion investment plan though 2026, 30% more than in the previous five-year period. read more It says it will target semiconductors and biopharmaceuticals, creating over 1 million local jobs in the process.

At the same time, U.S.-China tensions have elevated South Korean technology and components in Western supply chains. U.S. President Joe Biden courted chaebol leaders like Samsung’s Jay Y. Lee and Euisun Chung of Hyundai Motor Group during his visit last month. The two scions have committed billions of dollars to new semiconductor and electric vehicle factories in the United States. Compatriots like LG Energy Solution (373220.KS), SK On and Posco Chemical (003670.KS) also have struck deals with U.S automakers in electric-vehicle batteries and materials.

Beyond manufacturing, once-insular industries are gaining global traction too. K-pop boy band BTS was the world’s best-selling act in 2021; drama series “Squid Game” smashed viewing records to become Netflix’s (NFLX.O) most watched show; Krafton’s (259960.KS) “PUBG Mobile” retained its spot as one of the world’s top grossing games. The international successes have infused companies with confidence to venture out: internet outfits Kakao (035720.KS) and Naver (035420.KS) struck read more digital content deals in North America worth a combined $1.6 billion, while CJ ENM (035760.KQ), the company behind Oscar-winner “Parasite”, recently snapped up an 80% stake in a U.S. studio.

In total, outward foreign direct investment in 2021 hit a record high of $76 billion, according to official figures, up by more than a fifth from pre-pandemic levels. More cross-border deals will come. Telecoms-to-energy chaebol SK Group, for example, appointed its first head of U.S. corporate and government affairs as the conglomerate readies a strategic pivot stateside.

Such moves should help reduce the country’s trade dependence on China. Of course, a more globally integrated and diversified economy also invites fresh risks.

Manufacturers like Samsung have long walked a geopolitical tightrope between Beijing and Washington. Yoon’s tilt towards America will make it harder to do so. Moreover, given South Korea’s rising clout in electric vehicles and semiconductors, tensions with North Korea present supply chain risks. Both sides fired missiles earlier this month amid worries that Pyongyang is readying a nuclear test. There are plenty of reasons these days for governments and investors to be fearful, but that also makes it a good time for an emboldened South Korea and its companies to step up.

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Editing by Jeffrey Goldfarb and Katrina Hamlin

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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