June 7, 2010 / 2:16 PM / in 8 years

Busan, a symbol of South Korea's restless remodeling

BUSAN, South Korea (Reuters) - South Korea’s planners have a long-standing fetish for economic hubs.

Even so, the southern city of Busan seems to be pushing the obsession a bit far.

As the world’s No. 5 container port, it understandably wants to be a marine and logistics hub for northeast Asia.

But Busan’s slick promotional literature also boasts of its ambitions to be a hub for industry, information technology, finance, trade, tourism and culture by the end of the decade. Oh, and it is bidding to host the 2020 Summer Olympics. Phew.

This relentless reinventing is typical of a proud country that feels the world has consigned it to the shadows of its big neighbors China and Japan and so must strive ever harder to win recognition for its meteoric rise.

In 1960, South Korea’s per capita income was under $100 a year, less than that of Mozambique and Senegal, let alone Thailand and the Philippines.

Today income per head is around $20,000 and the economy is the twelfth-largest in the world. South Korea is number one in ship-building, memory chips and display screens.

It rankles with policymakers that financial markets do not give full credit for these achievements, applying a “Korea discount” in part because of nervousness over the unpredictable behavior of North Korea, with which the south is still technically at war.

Since the start of 2009, South Korea’s main share index has underperformed the broader MSCI index for Asian stocks outside Japan by more than 20 percent.

Although the economy is enjoying a V-shaped recovery from the global downturn, markets have been particularly volatile since the sinking in March of a South Korean navy ship. Seoul blames the North for torpedoing the vessel that killed 46 sailors, while Pyongyang denies responsibility.


Scholars put South Korea’s success down to an array of factors. Spending on research and development has jumped to 3 percent of national income today from just 0.5 percent in 1970, helping to explain the country’s strength in technology.

A South Korean consortium beat favored French and U.S. rivals in December to land a $40 billion contract to build and operate four nuclear reactors in the United Arab Emirates.

Its workers toil longer -- 2,315 hours a year -- than anyone else on earth, according to the International Labor Organization.

And the performance of its school children, measured by the Programme for International Student Assessment, is the envy of the world, especially in science and maths, noted Klaus Rohland, the World Bank’s country director for South Korea and China.

Above all, perhaps, South Korea has reaped the benefits of the sort of long-term, government-driven economic planning on display in Busan.

“Concerted and conscious efforts on the part of the public and private sector, working together, to discover and upgrade a comparative advantage: I believe that was key to Korea’s development experience,” said Lim Wonhyuk, director of policy research at the Korea Development Institute in Seoul.


Rohland and Lim were speaking at a conference in Busan timed to coincide with a meeting of Group of 20 finance ministers held in the city last Friday and Saturday.

Danny Leipziger, a former World Bank economist, lauded South Korea for its attention to detail in executing a succession of plans over the years to develop the sinews of the economy -- another source of its success.

“It’s one thing to invest a lot in infrastructure. It’s another to make sure that those infrastructure investments actually pay off,” Leipziger, now a professor of international business at George Washington University, told the conference.

In Busan, that means ensuring that a new port with 30 berths, backing on to a vast logistics park, is completed on schedule by 2015. Thirteen of the berths are already in operation.

Busan’s strategy for this new port provides another illustration of long-term planning.

Busan sits astride the North American and European trunk shipping routes. But with more and more ships sailing directly to China, the city is marketing itself as a transhipment port.

“In terms of the cost of operations, we cannot compete with Chinese ports. So we’re focusing more on processing,” said Kim Yunil, director of regional economic policy with the local government.

So containers will be offloaded in Busan and broken up into smaller cargoes that will be dispatched directly to small ports in Japan. Because of Japan’s high inland distribution costs, that works out cheaper than sending containers to big ports such as Yokohama and Kobe.

“Japanese logistics companies are convinced of the cost efficiency of this kind of business and so some of them have decided to invest in our new port,” Kim told Reuters.


China looms large in Busan’s economic plans in other ways.

Having seen low-cost industries such as textiles, footwear and lumber shift to China over the years, Busan knows it must raise its game to fend off Chinese competition to its big ship-parts and auto-component industries.

“Our main task in the coming years is to promote the competitiveness of our manufacturing business to survive against China,” Kim said.

China is also a key tourism market for the city of 3.6 million, South Korea’s largest after Seoul, the capital. About three-quarters of the Asian visitors to Busan are now from China, Kim estimates. Until a few years ago, Japanese made up the bulk.

Japanese women remain an important market another service sector Busan is keen to develop -- medical tourism, or, more precisely, cosmetic surgery.

Indeed, with about 100 clinics already clustered down a street known as Beauty Town, the only puzzle is why Busan is not also setting its sights on becoming a plastic surgery hub. (Editing by Mathew Veedon)

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