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South Korea

Building an International City in South Korea

Erik Mobrand, Seoul, South Korea, July 25, 2006

South Korean Minister of Finance and Economy Han Duck-Soo (C) and APEC participants pose for a picture during a photo session at a venue for the 12th APEC Finance Ministers Meeting in Jeju. Finance ministers from Pacific rim nations wrapped up a two-day meeting with a pledge to share responsibility to fight high oil prices and other impending risks to the global and regional economy. (Photo: Jung Yeon-Je / AFP-Getty Images)

South Korea's largest island, Jeju, lies approximately 100 miles south of the Korean mainland. The volcanic island is home to some 500,000 people, who engage mostly in farming and providing services to domestic tourists. With a warmer climate, sandy beaches, and avenues lined with palm trees, Jeju is a major resort destination for South Koreans on holiday.

On July 1, Seoul granted greater authority to the island's leaders, as part of an effort to develop the island as a major international center. The Jeju Special Autonomous Province now has expanded discretion over areas including education, taxation, finance, and policing. The new status, approved in South Korea's National Assembly in February, is accompanied by tax breaks for firms investing on the island, as well as visa-free entry to citizens of all but eight countries.

Opening the Hermit Kingdom

The changes on Jeju Island are the latest efforts in South Korea to make the country a 'hub of Northeast Asia,' a long-term project that has been underway officially since 2002.

While South Korea has become well integrated into the international economy as a major player, the country has managed to modernize without becoming cosmopolitan. Seoul, with its ten million inhabitants, has developed into a world-class metropolis, but one rarely hears the sound of a foreign language on the bustling streets of the business districts. Foreign firms tend to staff their branch offices with locals, giving Seoul a very different feel from most major world cities.

Now the South Korean national government, along with Jeju's provincial government, is seeking to build an international city virtually from scratch. The goal is to make Jeju a center of international business and tourism, on par with Hong Kong and Singapore — cities that are regarded as models for the island's future. Korean media have taken to referring to that model as "Honggapore" in discussions of Jeju's development strategy.

To draw in foreign capital, Jeju is offering tax incentives. Foreign firms investing at least $10 million on the island are exempt from taxes for the first 15 years, while domestic firms are exempt for ten. The provincial government will also provide cheap leases on public land and buildings.

Medical care is one area where Jeju is hoping to attract investment. Foreign firms can now establish hospitals operated by physicians trained overseas. The goal is to build hospitals that draw South Korean and foreign patients alike.

In 2009 the Jeju International High School will open for both Korean and international students. The province hopes that the school will be the first of many international schools on the island.

A loosening of visa regulations is among the most direct measures to make international influences more visible on the island. Jeju now allows visitors from countries including China, India, the Philippines, and Vietnam to stay for thirty days without visas, while other South Korean entry points still require visas for nationals of those countries.

Northeast Asian Hub

Near the end of his term in office, former South Korean President Kim Dae-jung declared the government's goal of making the country a regional center. The geopolitics of Northeast Asia had for so long hurt South Korea, thus the goal for the future became to make regional cooperation a source of security and prosperity. Upon coming to office in 2002, current president Roh Moo-hyun embraced his predecessor's plan and the administration has continued to pursue programs that link South Korea to its neighbors in positive ways.

The South Korean government points to the country's geographic centrality in Northeast Asia as reason for making it an anchor of the region. Official documents note that 51 cities with populations greater than one million lie within a three and a half hour flight from Seoul. Or, phrased another way, more people live within a 750-mile radius of Seoul than reside within Europe and the United States combined.

Policymakers certainly also have China's economic rise in mind when reframing investment in South Korea as investment in Northeast Asia. South Korea cannot compete with China's low wage level, so Korean leaders have opted to try to attract firms interested in China by encouraging businesses to set up regional headquarters in Seoul, while more basic operations are located in China.

The development of South Korea as a Northeast Asian hub has several dimensions. The country seeks to liberalize trade with its neighbors. Toward this end, free economic zones are being established across South Korea. Regional cooperation is also necessary for some large-scale projects in which South Korea has intense interest. These projects include an oil pipeline from Russia and a railroad through North Korea and on to the Asian and European continents.

The reappearance of the North Korean nuclear problem in late 2003, however, has posed a barrier to those projects, as well as to another goal of South Korea's position as a Northeast Asian hub — promoting the security of the region.

Still, many South Korean cities have taken up projects to revitalize themselves to attract regional and international investment and tourism. Less formally, the continuing demand for Korean popular culture throughout East Asia has perhaps done more than any government policies to integrate the region with South Korea at the center.

Challenges on the Road to "Honggapore"

Jeju Island, like other South Korean localities seeking to expand their regional and international ties, faces a long list of challenges.

The island's workforce will need to be revolutionized, moving from its current orientation to the needs of farming and simple services to being capable of offering high-end services in the future. Jeju will require people who speak English, if not Chinese and Japanese, for business and tourism purposes, and the island today is no better shape than the rest of the country in that regard.

Autonomy, in fact, may be a mixed blessing for Jeju's future. With decreased taxes, the province does not have resources for building infrastructure and facilities that would help attract business. Greater support from Seoul might in some ways be more in line with the island's strategy. Concentrating resources rather than decentralizing authority over them would seem to be more appropriate for developing Jeju, or any other locale, as a regional or international hub.

Even where the island does have discretion, the province's efforts to promote international interest may be insufficient. Business taxes have been pushed down to 25 percent, but that remains higher than rates in Hong Kong and Singapore.

Another daunting task for Jeju is attracting foreign tourists. Weather is seasonal, and the scenic beaches are not as large as in other resort towns. Jeju sees around five million tourists each year, but South Koreans make up the vast majority. If Jeju is becoming an international holiday destination, it remains a well-kept secret. During our visit earlier this month, the beaches remained almost abandoned despite beautiful weather.

In the first half of 2006, all but 190,000 (or seven percent) of the 2.58 million tourists to see Jeju were Koreans. Almost all overseas vacationers came from within East Asia, with 80,000 from Japan and 54,000 from the People's Republic of China (Jeju Tour News, July 7-12). Those statistics suggest that while Jeju has a long ways to go to attract foreign tourists, it may have the potential to become a major holiday destination within Northeast Asia for those who do not wish to wander farther.

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