Chapter 453 South Korea Economic Analysis (Part II)

If you want to plan the transfer of assets, you have to start with the Third Reich, and if you transfer directly to the red countries, people can easily find them. It is clearly a premeditated economic attack on South Korea, and if it is small, it will definitely crack its teeth. The more boldly they retaliate against our country, causing more disputes, and those Third Reichs are more willing to help. Therefore, in this regard, the policy of taoguang and obscurity against the state is contrary.

In this regard, Zhang Zijian thought of one person, that is, Jin Yongsan, his rise to power was officially a hotbed of corruption. During his tenure, Kim Yong-sam allowed South Korea's family business to expand, creating mountains of debt that sowed the seeds of the 1997 financial crisis. In the final weeks of his administration, the entire country teetered on the brink of bankruptcy and had to seek an emergency loan of $58 billion from the International Monetary Fund, which was seen by South Korean nationals as receiving humiliating aid. Kim Yong-sam stepped down amid national condemnation.

Even more ironic, while fighting corruption and clarifying his own financial assets, his son Kim Hyun-chul was called the "little president" during his administration, and in 1997, when his father was in office, he was found to have been entrusted by a group and other companies to receive 6.6 billion won in the name of activity expenses and other expenses, and evaded 1.4 billion won in gift tax, so he was prosecuted by the prosecutor and sentenced to two years in prison. Kim Hyun-chul was later arrested again on suspicion of receiving 2 billion won in illegal funds from Cho Dong-wan, the former vice president of the Hansong Group.

Zhang Zijian was thinking, should he disclose his identity, have a good relationship with this corrupt government, and make profits from it? Maybe this is a breakthrough, but now Uncle Yong has not yet appeared on stage? The election will not be successful until the end of this year, so maybe there will be a better report at this time?

Thinking about some things during Kim Yong-san's administration, Zhang Zijian also felt funny. Since 1992, South Korea's economic growth has slowed down considerably, with an economic growth rate of only 4.7 percent in 1991, the lowest level in 13 years, ranking last among the four Asian tigers. For this reason, the World Bank has excluded South Korea from the Four Tigers and downgraded it to the level of Asia's new tigers, and the face-loving South Koreans have been stimulated, and major newspapers have lamented that "South Korea is no longer a dragon." And he was very aggrieved, jumping very happily, Zhang Zijian thought about it, and only South Korea and Japan would be like this.

Kim Yong-sam believes that corruption is the crux of the "Korean disease." To cure the "Korean disease" once and for all, it is necessary to fight corruption. Kim Yong-sam pointed out bitterly: "In the land of South Korea, the authoritative order has collapsed, the social discipline is lax, and irresponsibility, fraud and corruption are pervasive everywhere. The once-famous Korean spirit of hardship and hard work has vanished, and now they are full of money, poverty and luxury. ”

At the same time, Kim Yong-sam announced that he would not get involved in luxury entertainment such as golf during his five-year term, and he instructed the closure of the golf course in the presidential palace and asked civil servants to bury their desks and actively work for the welfare of the people. "South Korea's current per capita national income is less than $7,000 a year, but the way of life of Koreans is similar to that of residents of developed countries with an annual per capita national income of $30,000," he said. Kim Yong-sam's advocacy caused many political dignitaries to give up their hobby of playing golf, and for a time the membership card of South Korea's golf clubs plummeted.

In response to the phenomenon of high consumption in bars, Kim Yong-sam pointed out: "Can South Korea, where the per capita GDP is only 7,000 US dollars, be such a luxury? The government will consider using measures such as increasing tax rates and tightening taxes to encourage them to change production or suspend business. In July 1993, the South Korean government announced that it would raise the tax rate for entertainment services such as bars and closely monitor the bribery and bribery of bars, high-end restaurants, nightclubs, etc., in order to make government officials dare not take a step beyond the thunder pool and dare not enter those luxurious elegant rooms. As a result, the number of customers in many places has decreased by 70%~80%, and among the 17,000 hotels approved to operate luxury room business in the country, 1/4 of them have closed, closed or changed production.

At this time, Zhang Zijian thought that if this article appeared, he could consider buying a few large hotels or high-end places, after all, it would appreciate very much in the future. So I wrote this plan in the notebook again.

Of course, the most effective anti-corruption measure of the Kim Yong-sam government is that senior public officials must disclose their personal income and assets. At the first state council after taking office, Kim Yong-sam said that the fight against corruption should start with himself, and he did what he said about disclosing assets, and the next day, the assets of Kim Yong-sam and his immediate family appeared in the newspapers: real estate, cars, etc., worth 1.7 billion won, about 2.25 million US dollars. He declared that he would never accept a penny of government funds from enterprises and individuals during his five-year term.

From 1 September to 1 December 1993, the assets of public officials will be verified. Whoever conceals or transfers property is exposed and will be fined $2,500 or even expelled. If it is found that the person's property is from improper sources or illegally gained, the person will be dismissed from public office, sentenced to up to five years in prison, and fined $62,500. This law also clearly stipulates that the above-mentioned high-ranking public officials in South Korea must declare their assets in January every year in January and explain the origin of their assets. Disclosure of assets is mandatory at the time of retirement or retirement, and if the prosecution finds it suspicious, it will open a case for verification, because it is impossible for a high-ranking public official to become a wealthy class.

President Kim Yong-sam and the prime minister handed over the property register. When Kim Yong-sam registered his property, he calmly told everyone: "My property is the same as that registered during the 'purification campaign' in February, and the extra part is my salary. His move aroused a strong reaction from the masses and created a huge political and public opinion pressure, and a total of 1,167 people of the ruling party's leaders, officials at or above the vice ministerial level, and members of parliament followed suit, and even the leaders of the opposition party had to follow in his footsteps and announce their assets one after another. For quite some time, the newspapers in Seoul were full of interesting stories about the cash, real estate values, and luxury goods owned by everyone from the president to the deputy minister and his family.

In the case of the declaration of assets, one councillor was arrested, six people resigned voluntarily from their posts or, five deputy ministers were dismissed, five senior officials were publicly warned, and more than 70 public officials resigned from their posts to evade them, fearing that the disclosure of their assets would provoke public ridicule.

Just as Zhang Zijian thought that the period of Jin Yongsan's rule was also a normal market economy, although he increased corruption, he was actually continuing the rampant corruption. In our words, there are policies and countermeasures, but of course, in the final analysis, the government and business continue to collude, and the banks are held by enterprises. If a company fails to repay its loans in time and has a financial crisis, then the bank is completely unlucky, and the bank is either an uncle or a grandson, and if it collects excessive debts, then the government will intervene. At the same time, companies are paying bribes everywhere and continue to lead corruption in South Korea.

As in Western countries, when dealing with the financial crisis of enterprises, it is often necessary to supervise the operation of corporate assets through the courts, and ask creditor banks or other institutions to postpone the maturity of debts, or cut interest rates, so as to give enterprises a chance to breathe. I really can't pay off the debt, and the big deal is just to bankrupt the company. Through the liquidation of bankrupt enterprises, the remaining fixed assets and other factors of production of the enterprise can be rearranged, which is conducive to improving the overall social benefits. Although the bankruptcy of a company will bring some pain, the bankruptcy of a loss-making enterprise can not only stop the generation and expansion of bad debts of banks, but also give a warning signal to other enterprises. However, the South Korean government's industrial policy has obscured this very important message.

The new mercantilist model of development will inevitably deprive the financial sector of its independence from firms. Banks, under the guidance and control of the government, have to carry out the credit rationing under the guidance of the government. If the banks know that the loans demanded by the plutocracy are part of the government's plan, and that the plutocrats are not threatened with bankruptcy under any circumstances, then why should the banks review the loans and supervise the management of the borrowing companies?

The low profitability of South Korea's chaebols is the root cause of the large number of bad debts in financial institutions. After accounting for the opportunity cost of capital, from 1992 to 1996, only 27 percent of the 570 non-financial companies on the Korea Stock Exchange made net profits. Many large enterprises are losing more and more money, and it is no longer possible to repay their debts with the profits of normal production. They are eager to turn around, and in order to turn things around, they often invest heavily in projects that are highly profitable but also risky. Banks are well aware of the risks associated with chaebol investment projects, but if they do not support them, they will never be able to repay their loans. Banks have no choice but to be led by the nose by big business. In order to achieve the industry's goals, the government has adopted various methods to maintain the trend of over-borrowing and over-investment. As a result of the government's continuous intervention, the return on assets and the return on stocks of Korean commercial banks are low and continue to decline. Therefore, the three uncles of Jin Yong are just shouting slogans on the surface, and using the overall civil servants to cover up some unsightly numbers. How can the common people know the financial figures of those big enterprises, and even the asset statements on the stock market are fake.

However, large Korean companies are keen on high-risk investments, and when they make money, they go to themselves, and when they lose money, they borrow money from banks. Banks have also done the same, and some Korean commercial banks have even used borrowed short-term dollar foreign debt to invest in Eastern European and Russian bonds for high-risk arbitrage. Between 1993 and 1996, the total external debt of Korean commercial banks increased by 12 per cent per year, while foreign exchange assets increased by only 7 per cent. The holes in the banking system are getting bigger and bigger.

In order to achieve industrial policy, the Korean government often directly stipulates specific production goals and financing plans for certain enterprises. As long as the enterprise can meet the export target set by the government, it can obtain policy financing, export subsidies, and tax reductions and exemptions. Since the power in the hands of government officials is likely to be turned into money, it is inevitable that enterprises will be encouraged to link up with senior government officials, collude with government and business, and seek rents in various ways, and corruption cases will emerge one after another. The two former presidents, Chun Doo-hwan and Roh Tae-woo, Kim Hyun-chul, the son of former President Kim Yong-san, and many high-ranking government officials and dignitaries have been brought to court for corruption. South Koreans generally believe that the uncovered corruption cases are just the tip of the iceberg.

In January 1997, Hanbo Group declared bankruptcy after it was unable to repay its debts of up to $5.8 billion. Han Bao's bribery case implicated many important government officials and senior bank executives. Two bank presidents, four members of parliament and many government officials were arrested as a result. Han Bao's bankruptcy has uncovered the mystery of the rapid development of some large enterprises and debunked the myth of the invincibility of large enterprises. After Han Bao, one large enterprise after another fell in response, making the economic crisis more and more severe.

By the time of the financial crisis, the Sanmei Group, which ranked 26th, went bankrupt and defaulted on $2.2 billion. Subsequently, the textile giant, Danong Group, ranked 36th, went bankrupt due to a debt of $1.57 billion. The 19th-ranked Jinlu Group also declared bankrupt because it was unable to repay its $3.6 billion debt. After the financial turmoil hit Asia, South Korea's investments in Malaysia, Thailand and Indonesia suffered heavy losses, exacerbating South Korea's financial liquidity woes and doubling its external debt burden. The wind of bankruptcy spread like a plague, and finally dragged down Kia, the eighth-ranked largest company. Large enterprises such as "Woocheng", "Jianrong", "Hantai", "Korea New Core", and "Nucor" have also declared bankruptcy due to excessive investment and high debts. In the same year, Halla Group, a shipbuilding and machinery manufacturing giant ranked 11th, became insolvent and declared bankruptcy.

When big companies go bankrupt, the banks that lent them money in the first place have huge bad debts. "First Bank of Korea", "Development Bank", "Chaoheung Bank" had particularly strict bad debts and were difficult to operate. When the total non-performing loans of Korean banks in the third quarter of '97 were 16.1 trillion won, they rose to 21.87 trillion won in December. South Korea's business and financial circles are in turmoil. The disruption in the financial system has in turn implicated many small and medium-sized enterprises. Many enterprises with normal production have also been forced to suspend production due to lack of working capital and are in trouble.

When there is a problem at the decision-making level, there is also a problem with the consulting system. There is no shortage of economists in South Korea, and the tragedy is that they are unable to revise their industrial policies in time when they know that a crisis is coming. During this period, the government's attempts to save large corporations led to an increase in short-term debt and loans that turned into doubtful debts, and the international credit of South Korean financial institutions plummeted. Foreign banks are reluctant to lend new money to South Korea, and the cost of raising funds for investment banks has risen rapidly. South Korea's massive foreign debt, foreign trade deficits, and huge bad debts in the banking system have destroyed confidence in the Korean currency. Both foreign investors and ordinary people saw that the situation was not good, and they exchanged the won in their hands into dollars. At the end of '97, more than $1 billion a day flowed out of South Korea. Due to the massive capital flight, the won is under constant pressure to depreciate.

At this time, Zhang Zijian felt that if his plan could succeed, this was a key, how to attract those dollars into his hands, this needs the support of a huge consortium, but you can't open a commercial bank to South Korea! Maybe you can exchange dollars for real estate, and only this method can you frantically absorb the hard-earned money of Koreans.

However, the South Korean government is indeed a bastard, and those big companies in South Korea insist that the central bank intervene in order to protect their own interests, and throw out the dollar to stabilize the exchange rate. In the face of a wave of massive sell-offs of the won, even the South Korean government is more than willing to defend the won. In the midst of the financial turmoil, South Korea fought and retreated. In a bitter battle to defend foreign exchange, the Bank of Korea suffered heavy losses, and its foreign exchange reserves fell sharply from more than $30 billion. As of December 2, South Korea had only $6 billion in foreign exchange reserves available. Only $3.2 billion remained on December 12. On November 17, the Bank of Korea was forced to abandon its rigid policy. The defeat was like a mountain. The value of the won plummeted, falling by 48% in a matter of weeks.

In the early days of the new mercantilism development strategy, the South Korean government was still able to exercise relatively effective financial supervision over enterprises and financial institutions. The government uses credit management to control the scale of credit to the chaebols, and even interfere with the output plans of enterprises. In the '60s and '70s, under the management of a similar planned economy, South Korean companies had relatively high profit margins. On several occasions, the South Korean government has decisively ordered the closure of large companies that are not doing satisfactorily in order to prevent more bad debts for the financial sector. The effectiveness of South Korea's development model depends to a large extent on the authority of government agencies in managing the economy.

Since the mid-80s, Korean big companies have gradually expanded their wings and quickly entered the international market. In order to achieve rapid expansion, the Korean chaebol urgently needs to bring in foreign investment. Obviously, opening up the capital market and raising the level of domestic interest rates are the prerequisites for attracting a large amount of foreign capital. In order to integrate with the international financial system, the South Korean government has gradually reduced its intervention in the economy and opened up its financial market to the outside world under the influence of the trend of global economic liberalization. The effect of opening up financial markets is significant. From 1994 to the third quarter of 1997, South Korea received an unprecedented amount of foreign funding, reaching $65.9 billion.

However, the abolition of old financial regulations without the establishment of an effective market mechanism has given South Korean companies, especially chaebols, unprecedented freedom to operate. The lack of a restraint mechanism inevitably leads to "soft budget constraints" for enterprises. As a result, over-investment and over-borrowing have emerged in large numbers, and corporate yields have become lower and lower, eventually accumulating a large number of non-performing loans in financial institutions.

The government has not established an effective regulatory mechanism for financial institutions' overseas investment. The rapid growth of overseas investment by South Korean financial institutions, especially the newly established commercial banks, is extremely risky.

In the process of financial liberalization, the government's financial supervision needs to change, but instead of weakening, it should be strengthened. However, neither South Korean president did so between 1987 and 1997. Instead of improving its financial regulatory capacity, the government has undermined the financial regulatory system through corruption. Bureaucrats and politicians use a variety of tactics to control banks, often forcing them to make government loans, such as the 1997 Han Bao scandal.

South Korea has not been able to establish a well-developed banking system. Before the financial crisis, there were 20 banks and many non-bank financial institutions in South Korea. There are three wholly state-owned banks, and the government is the majority shareholder in the others. In the wake of the financial turmoil, three banks were closed, and 17 more banks were adjusted.

Prior to the financial crisis, the South Korean government stipulated that private individuals and private institutions could not own a 4% stake in a bank alone. All bank presidents and managers must be appointed by the government. The financial and personnel rights of banks are firmly controlled by the government. Behind the scenes, officials and chaebols decide where the loans go. The government controls not only the flow of credit and the interest rate of loans, but also the term of loans and the types of loans.

The South Korean government has long implemented preferential protection measures for large companies. Banks are supposed to supervise and restrain companies, but under South Korea's financial system, banks are unable to restrain the financial activities of large companies. The financial structure of the chaebols lacks transparency, and they lend money through guò cross-guarantees. Banks have taken the status of companies as an indicator of the safety of their loans, and have abandoned the scrutiny and supervision of chaebol lending for quite some time.

Many non-bank financial institutions have become private coffers for corporate leaders under the control of these chaebols. Eventually, South Korea's financial system has developed a very absurd situation: corporations constrain financial institutions, not financial institutions constrain firms.

The South Korean government and banks do not adequately supervise the financial system, so is it possible for companies to achieve their own financial regulation? In the early days of South Korea's economic development, South Korea's emerging large enterprises were indeed very careful about their own financial conditions, and their internal financial supervision measures were relatively sound.

After 1987, the South Korean government adopted a series of reform measures to loosen its grip on the economy. First, the South Korean government is no longer proposing new industrial policies and development goals. Special care is no longer given to certain industries. For a long time, the South Korean government strictly stipulated that certain industries must be licensed by the government before they can enter. The South Korean government lifted these restrictions after 1987, allowing companies to enter any industry they could choose to enter according to their circumstances. It's almost a natural thing in other countries, but when you get to South Korea, you get into trouble. By this time, the leadership of the Korean chaebol had passed to the second or third generation of the family. These heirs are mediocre in their talents, often have low vision, are ambitious, and their ability to manage enterprises and make decisions is far inferior to that of their predecessors.

Thinking of this, the corners of Zhang Zijian's mouth had a slight evil smile, and that Park Dazhi soon said like a report, his eyes are high, he can only have fun and enjoy, he is so high, he doesn't know how to manage at all, and it is not impossible to take revenge when the time comes.

Some of them blindly pursue high-tech and capital-intensive industries with high capital investment. There are many cases of over-investment and investment failure due to wrong decision-making. Second, the South Korean government announced that it would no longer monitor the output and investment of large corporations. This decision further fueled the overinvestment of the chaebols. As a result, huge bad debts quickly accumulated in the financial system due to successive losses of the chaebols. The South Korean government no longer directly orders insolvent businesses to go bankrupt. The bankruptcy proceedings of the business will be subject to the decision of the court. For five to 10 years, the debts of bankrupt companies are treated as non-performing loans. Banks simply don't know how to deal with chaebol bankruptcy.

By the mid-90s, many chaebols were listed on the capital market. Although the chaebol nominally controls only a small number of shares, the complex circular investment among the members of the chaebol actually controls the entire enterprise. The chaebol corporate family is like a circle of money, using the funds of all shareholders to pursue their own interests. After the demutualization, the excessive investment of the chaebols became more and more expensive.

There is no doubt that it is right to relax the intervention and control of enterprises. However, the condition for this to be achieved is the need for a sound market competition mechanism. After the government deregulated, it is up to the market to restrain the investment behavior of enterprises. Within South Korea, there are hardly any market constraints that are effective against the chaebols. Deregulation will allow the chaebols to do almost whatever they want, which will inevitably exacerbate their tendency to overinvest and borrow, pushing South Korea increasingly to the brink of a financial crisis.

In fact, due to the extremely inadequate financial supervision mechanism of the Bank of Korea, the government and companies occupy a dominant position in the financial regulatory system. So, who will oversee the government and business? Both the government and corporations have their own interests, and in any case, stabilizing the country's financial order will not be their main goal. Government officials want to keep their positions and get promoted. The chaebols pursued high profits, hoping to get more loans and expand at high speeds. They are all in favor of the necessary financial order, but they all want to control others and open themselves up. The deregulation of the financial sector in the process of economic liberalization has laid the seeds for South Korea's financial system.

At the end of the day, a financial crisis is the loss of liquidity for banks. No matter how high the non-performing loans within the bank are, as long as deposits and loans are basically balanced, there will be no payment crisis. In other words, it is impossible for non-performing loans to directly lead to the financial crisis. Only a large outflow of funds in a short period of time can put banks in a difficult situation where they cannot pay. In general, domestic financial flows are relatively predictable and limited in size. The financial crises since '97 have been closely linked to international financial flows. After the opening of the capital market to the outside world, there has been a large inflow and outflow of funds, which has increased the liquidity and unpredictability of funds. If a country's financial system is exposed to the international capital market, it is very likely to attract short-term foreign investment. Whether or not these attacks will be catastrophic depends on the health of the country's financial system and its ability to resist it. Non-performing loans and high short-term foreign debt due to overinvestment are all conditions that lead to the crisis. It is the sudden appearance of large-scale capital flows that can lead to subversive disasters.

Since 1987, South Korea has followed the trend of history and actively moved towards the world, and the general direction is correct. However, in the process of opening up the financial sector, the ROK made a mistake in opening up its financial sector: it opened up its financial sector to the outside world by a large margin without rectifying the domestic financial order and establishing perfect rules for financial competition. South Korea has always had reservations about foreign banks entering the domestic market. However, South Korea soon opened the door for large domestic conglomerates to enter the international financial market. South Korea's chaebols have borrowed heavily and used foreign capital to invest overseas. A large number of foreign capital passes into South Korea's chaebols.

It was mainly external pressure that prompted South Korea to open its financial markets. Due to the increasing integration of South Korea into the international community in terms of trade and finance, conflicts between South Korea and international financial markets have occurred frequently. Internally, the chaebols in South Korea demanded freedom from government control, and externally, Europe and the United States were no longer tolerant of the neo-mercantilist policies of East Asian countries, and the development model of South Korea's neo-mercantilism began to shift to a more liberal approach.

As South Korean economists have noted, the crisis in South Korea "is also responsible for the liberalization ideas that prevail among some economists and government officials." In an era when neo-mercantilism is abused, any idea that advocates liberalization is considered good. For example, in their liberal mindset, regulatory and economic regulatory constraints seem to be meaningless. In addition, some economists and government officials have long argued that over-regulation of the financial sector would deprive South Korea of the impetus for internal reform. Only external pressure can lead to the liberalization of the financial sector. I don't see the danger of short-term money movements. As a result, short-term financial activities that should have been liberalized last were liberalized first".

Before the financial turmoil, South Korean officials, as well as most economists, were dogmatic in believing that domestic liberalization would take place before foreign markets were opened; Trade account liberalization precedes capital account liberalization; The opening up of the financial sector should be carried out before the operation of capital; Long-term capital liberalization should be carried out before short-term capital liberalization. These general principles are not a substitute for the programming of open finance. In order to establish an effective financial supervision and control system, it is necessary not only to improve the legal system suited to the national conditions, but also to train a large number of professional personnel. None of this can happen overnight. The competition mechanism of the financial market needs to be cultivated over a long period of time. In the whole process, it is necessary to strengthen financial supervision and control over foreign-related transactions. The financial turmoil is a consequence of the lack of financial supervision, and cannot be blamed on opening up to the outside world. Don't choke on food.

Thinking of this, Zhang Zijian looked a little brighter outside the sky. I was lazy, and when I saw that the secrets he had written in the notebook were numb, and there were still many traces of painting, I looked at the draft, and wanted to take advantage of the fact that I was still very energetic, strike while the iron was hot, and sort out a piece of information.

Now Zhang Zijian has figured out the important cause of South Korea's economic crisis, which is not even inferior to the real estate bubble in small Japan. Such a big crisis has been produced under the government's concealment, which has to be blamed on the behavior of the third uncle Jin Yong, at this time, there is still more than half a year before he comes to power, how can he use this more than half a year to pave the way for his future plans? Zhang Zijian also has a hunch that this time he will be more profitable than any financial event, and even more than a billion US dollars, but the initial investment is very large. Gotta figure out how to get an empty glove white wolf!

However, Zhang Zijian thought that the three uncles of Kim Yong wanted to remove more than 1,300 high-ranking public servants from their posts soon after taking office, including the speaker of the National Assembly, members of the National Assembly, secretary general of the ruling Democratic Liberal Party, mayor of Seoul, minister of justice, minister of health, minister of construction, and so on; the Ministry of National Defense also ordered the family assets of more than 490 general-level officers to be made public; the chief of the general staff of the Navy was arrested for taking bribes, and the former commander of the Navy was also implicated and investigated. After the following year, 3,635 officials were punished, of whom 642 were dismissed, 192 were temporarily suspended, and the rest were demoted, reduced in salary, or arrested by the judicial organs. In another year, the number of officials who have been punished has already arrived; More than 4,000 people. Among them, 1,363 senior and middle-level public servants who violated the law were dismissed, and 242 public officials who had problems with the disclosure of their assets voluntarily resigned.

Zhang Zijian is wondering, why is the third uncle Jin Yong so high-profile anti-corruption? Is this an attempt to suppress and eradicate the strength of opposition and opposition parties? Consolidate your own struggles, or dig a hole for those people to jump into, and then compromise to achieve their own political goals? RO