Follow AMCHAM's advice

By The Korea Times - Ending a negative interest rate policy, the Bank of Japan raised the lending rate for overnight borrowing to 0 to 0.1 percent from minus 0.1 percent on Tuesday. The rate hike was the first since February 2007. It came as part of Japan’s attempts to shift away from its ultra-lax monetary policy. Market watchers interpreted Japan’s move as tantamount to a declaration of its exit from the “lost 30 years.”

Japan had been desperate to address the long-standing deflation with the negative rate policy coupled with other measures to inject money into the economy to boost workers’ wages and increase employment. Many Japanese companies have been benefitting from enormous amounts of grants from the United States amid the escalating rivalry between the U.S. and China. Japan has also taken audacious deregulatory measures to induce investments from leading foreign companies while exploring future growth engines in cutting-edge areas like semiconductors, for instance.

In contrast, it is a pity to see Korea still struggling despite opportunities to make the most of the exodus of global firms from China. It needs to attentively listen to the admonishment by the American Chamber of Commerce (AMCHAM) in Korea. It said the “China exodus” by global companies will provide Seoul with precious opportunities to become a business hub of the Asia-Pacific. AMCHAM surveyed around 800 member companies active here, which showed Korea being the second most favored country for establishing their Asia-Pacific headquarters, following Singapore.

In explaining their preference for Korea, they highlighted factors such as reasonable living costs, the influence of Hallyu (the Korean wave), and the convenient industrial and transportation infrastructure, which position Korea as a viable alternative to China as the prime candidate for hosting their headquarters. Concerning the reasons global firms avoid Korea, AMCHAM cited a comparatively lower level of labor flexibility, such as the 52-hour work system, paired with an excessive punitive regime against employers represented by the Serious Disaster Punishment Act, heightening the legal accountability risks for CEOs. They also cited hefty corporate taxes and digital-related regulations.

The Organisation for Economic Co-operation and Development recently forecast Korea’s potential economic growth to fall to 1.7 percent this year, although it climbed to 2.3 percent in 2020. Due to the declining fertility rate and rapidly aging population, the nation is projected to enter a phase of near-zero growth in the foreseeable future. Against this backdrop, Korea's emergence as the Asia-Pacific hub for global companies could offer a breakthrough from the protracted low growth phase. In particular, attracting major global firms and talented people will facilitate Korea’s bid to sharpen its competitive edges in areas such as finance and information and technology.

Singapore has some 5,000 Asia-Pacific headquarters, largely boosted by its policy of curtailing 5 to 10 percent of corporate taxes. In comparison, Korea has less than 100 headquarters.

The Yoon Suk Yeol administration and the political parties should double down on efforts to speed up pension, education and labor reforms. They should also focus on reforming corporate and inheritance tax systems. These are necessary to proactively induce foreign investments and prop up the growth momentum.

AMCHAM was set up in 1953 in the aftermath of the Korean War. This marks the first time it has published such a goodwill policy report since its inception. It can be taken to tell Korea that it faces the last chance to leap forward again. The admonishment is essential for Korea at a time when its growth momentum sputters. The government and the political parties, regardless of their ideological inclinations and political stances, should combine efforts to do away with the diverse regulations that hinder investments by global companies.

Source: https://www.koreatimes.co.kr/www/opinion/2024/03/137_371123.html 

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