Is It Necessary for South Korea to Nurture Another Financial Hub?

South Korea’s North Jeolla Province, or Jeonbuk, has recently laid out a plan to nurture one of its cities, Jeonju, into the county’s third global financial hub.

The main gist of the plan is to establish a building dubbed “Jeonbuk International Financial Center” with a hope to attract global financial firms and talents to the city.

The province plans to spend about 120 billion South Korean won ($101 million) for the project, aiming to begin construction as early as 2021. It is currently preparing to launch a feasibility study.

The province’s ambition to have a new financial hub began in 2015 when South Korea’s National Pension Service (NPS) relocated its headquarters to the city of Jeonju.

The NPS is one of the largest public pension funds in the world with about 704 trillion South Korean won ($593 billion) in assets under management, and it is still growing.

The NPS works closely with many global financial companies, especially asset managers, securities firms and banks, and the province claims that it is natural to provide the best environment for the pension fund and its partners by setting up the necessary infrastructure.

The fact that the NPS is a workplace that is highly sought after by competitive professionals in the financial industry is another reason that the province wants to nurture a new financial hub.

South Korea already designated two cities as such hubs – Seoul and Busan – with the same purpose of attracting global financial companies and talents.

While Jeonbuk has a promising outlook, however, the two others cities have not been able to achieve as much as they wanted.

According to an analysis of data submitted from the Financial Supervisory Service, a total of 165 foreign financial firms have entered South Korea so far.

By region, Seoul had the largest share with 160 firms, which accounts for 97 percent of the total. It is followed by three in Gyeonggi Province (1.8 percent) and one each in Busan and South Gyeongsang Province. More foreign financial companies entered Gyeonggi Province than Busan, although the city was designated as a financial hub.

The Busan-based foreign financial firm is Yamaguchi Bank of Japan. The bank entered Busan in April 1986. Busan was designated a financial hub in 2009, meaning that no foreign financial firm has established its headquarters in the city since it was designated.

Only a dozen foreign financial firms have set up branches in Busan. Seven of them had operated before its designation as a financial center.

The South Korean government conducted overseas promotional activities for foreign financial firms since 2009 to attract them to the country and signed a total of 23 memorandum of understandings (MOUs). Of the 23 foreign financial firms that signed MOUs, only five have set up any kind of business in the country — all in Seoul.

Ten years have passed since the designation of financial hubs in Seoul and Busan, but their international status is gradually declining.

For instance, Seoul’s ranking in the Global Financial Centres Index (GFCI) dropped from sixth in 2015 to 36th this year, while Busan also fell from 24th to 43rd during the same period.

Since the GFCI is one of the leading indexes measuring the competitiveness of international finance in the world’s major cities, the slip of the two cities casts doubt on the efficiency of operating a financial hub in South Korea. This is why many point out that building an additional international financial center in Jeonbuk could be a waste of budget.

In the absence of foreign financial companies seeking to enter the country, designating a third financial hub could rather cause competition among three cities to attract domestic financial firms and the attention of relevant government organizations.

The province seems to be determined and excited about its plan, but it should remember lessons from previous developments that struggled to achieve their goals.