President Yoon's pro-business promise

By Peter S. Kim

With U.S. President Joe Biden's visit to South Korea in the rearview mirror, it is a good time to look at President Yoon Suk-yeol's to-do list, which has many challenges on the political and economic front.

One of the most urgent is the turbulence in global financial markets, which are currently being weighed down by fears of stagflation and the Russia-Ukraine conflict. The last time South Korea hosted a U.S. president, it was with circus-like fanfare for the meeting between Donald Trump and North Korea's Kim Jong-un. Some even had hopes of unification between the two Koreas.

This time, North Korea barely got a mention as Kim's saber-rattling made way for "economic stability," a thinly disguised term for forming a supply chain without China or other non-U.S. allies. Also, the current right-wing government fastened the U.S.-South Korea summit with the noticeable return of chaebol leaders after five years of scrutiny and criticism under the previous administration.

Financial market professionals are hoping for policies to revitalize economic growth as the risks of inflation grow around the world.

Normally a visiting U.S. president would first meet with the South Korean president or stop to meet U.S. troops stationed in South Korea. Instead, he made his way to the Samsung Electronics chip factory as a first stop. Throughout his visit, President Biden spent an inordinate amount of time with heads of chaebols, not only asking for the usual investments but seeking collaboration on the global supply chain. During the past few years, very few chaebols pledged allegiance to the U.S. in fear of upsetting China, who already had South Korea on notice for its THAAD decision.

Days before the summit, South Korea agreed to join the Indo-Pacific Economic Framework (IPEF), kicking off the meeting on a positive note. The Biden administration has been lobbying for the IPEF initiative to counter China's growing influence in the Asian region. The Trump administration abruptly withdrew the U.S. from a similar Trans-Pacific Partnership (TPP) initiative in 2017, and the IPEF seems a revival project.

According to U.S. officials, IPEF is "deepening engagement with America's partner countries in the Indo-Pacific region, now a fulcrum of global wealth and power, on digital trade, supply chain resilience, infrastructure, green technology, tax and anti-corruption."

The IPEF initiative comes as China seeks to expand its economic reach through its Regional Comprehensive Economic Partnership (RCEP), a 15-country group to which the US does not belong. Korea Inc. faces a divided world both economically and politically, making the next few years a critical period for the nation and its business leaders.

Hyundai Motor pledged over $10 billion in investments in the U.S., including a $5.5 billion electric vehicle and battery manufacturing plant in Georgia. Hyundai's market share in China has been in a dramatic decline in recent years due to a combination of an unfriendly Chinese government and intensifying competition from local players.

By pledging investments in the U.S., Korea Inc. is not only signaling its support for U.S.-Korea relations but also a return to business-driven policies by the Korean government under President Yoon. For the past five years, Korea Inc.'s spending and hiring have been hindered by policies like minimum wage hikes, rigid labor laws, and the empowerment of the union movement.

Hyundai Motor has been hounded by annual union strikes for the past few decades. In recent years, the union demands have escalated, empowered by President Moon and his pro-working class ideology. Any manufacturing plans which require a commitment of a decade or more could be held hostage to rising labor costs and regulations. The resulting action has been to hold off on investments and instead superficially talk about expanding plans.

With many industries under pressure to transform from an old economy to a new economy business model, expanding a business could prove fatal for many companies. Even high-tech companies like Samsung Electronics faced a similar dilemma and saw stagnant hiring at home for the past five years. Getting business confidence back via market reform rather than force of hand would be the most critical and perhaps easiest policy shift for the new president.

It is typical to see grand expansion announcements from chaebols during the first few months of a new government. As we enter the first full month of the new administration, it is equally typical to see the feel-good vibe fade quickly. Spending plans looking out more than the current year can be changed and amended at the whim of the companies. This time, the early business-friendly efforts of the Yoon government, such as courting business leaders, portend a possible break from artificial gestures. Business confidence sparked by the simple pivot approach could be contagious, especially jumping from low investor expectations.

Providing an open landscape for Korea Inc. to expand without political scrutiny is a springboard for the future growth of Korea Inc. The next step is to put words into action by announcing measures to promote spending by reinstating incentives for corporations. That will require firm resolve from the ruling government to push through legislation past the left-wing majority parliament. The hard work is still ahead for the new president, but he is heading in the right direction.

Peter S. Kim (peter.kim@kbfg.com) is a managing director at KB Financial Group.