Northeast Asian Business Hub Soonhoon Bae The Korea Advanced Institute of Science and Technology, Seoul, Korea －韓国科学技術院教授、元韓国情報通信相 Thought on Korean Initiatives October 29, 2004

Current Picture of Northeast Asia -Lack of full reconciliation -North Korean nuclear issue -Competition on leadership -Lack of full reconciliation -North Korean nuclear issue -Competition on leadership -No sense of common identity as Northeast Asian community -Collision of nationalism -No sense of common identity as Northeast Asian community -Collision of nationalism Culture Economy International Relations International Relations -Surge of China as the World ’ s factory and market -Japan ’ s high-tech capacity -No FTA yet -Surge of China as the World ’ s factory and market -Japan ’ s high-tech capacity -No FTA yet Common ground for Northeast Asia No foundation for sound competition and cooperation

Economic Environment for Korea Stagnant domestic consumption Stagnant domestic consumption Competition with Japan Competition with Japan Competition with China Competition with China Gap in R&D investment (Korea: less than 1/10 of Japan) Gap in R&D investment (Korea: less than 1/10 of Japan) China’s export increase (year 2003: increase by 30%) China’s export increase (year 2003: increase by 30%) Stagnant job market Increased imports of intermediate goods from Japan World market share Korea 2.0% 2.5% China 2.0% 5.0% Burdens of social cost Government(60%) Companies(40%) Deteriorated competitive edge loss of jobs (Labor market shrinks for new entrants)

NEA 3 countries (GDP 5.8 tril.US$, T.V.1.7tril.US$) NEA 3 countries (GDP 5.8 tril.US$, T.V.1.7tril.US$) NAFTA (GDP 11.5tril.US$, T.V. 2.7tril.US$) NAFTA (GDP 11.5tril.US$, T.V. 2.7tril.US$) EU (GDP 7.9tril.US$, T.V. 2.4tril.US$) EU (GDP 7.9tril.US$, T.V. 2.4tril.US$) APEC (21) Pop. 2.6 bil. (42%) GDP 20 tril. US$ (60%) T.V. 6.4 tril. US$ (48%) ASEM (26) Pop. 2.2 bil. (38%) GDP 15 tril. US$ (49%) T.V. 6.3 tril. US$ (55%) Trans-Atlantic Market Place Pop bil (11.2%) GDP 20 tril.US$ (60%) T.V. 5.5 tril.US$ (50%) Pop. (100 mil.) 14.5 (23.6%)3.8 (6.2%)4.1 (6.8%) Area (10thou. ㎢ ) 1,007 (7.5%) 324 (2.4%)2,174 (16.3%) GDP (tril. US$) 5.8 (18.6%) 7.9 (25.2%) 11.5 (36.7%) Trade Volume (tril. US$) 1.7 (12.6%) 2.4 (18.3%)2.7 (20.8%) *( ) : share of the world total Comparison among Economic Blocs Kor · Chn · Jap EU NAFTA

Market-customization Korea’s Role for Common Prosperity in NE Asia EU NAFTA EU NAFTA Northeast Asia Republic of Korea Investment Technology Investment Technology Inbound Outbound Products & Services Products Material Gateway Business Hub Logistics Finance Marketing

Cooperation by differentiation Market focus (Intermediary roles) Northeast Asian market World market Technology of Japan Manufacturing of China Hub Strategy of Korea Korea’s competitiveness as a hub in NE Asia Geographic proximity to China with huge domestic market & low labor cost Geographic proximity to Japan with high technologies Highly educated labor force and entrepreneurial skills Strategic Advantages such as well-developed national infrastructure, overall superior technological platform, etc. Advanced Information Technology Korean Business Hub

 Logistic hub - Vertical integration Trans-Shipment JIT Supply SCM Business Hub (Regional Logistic Support for Manufacturing and Distribution) Stand-alone transportationParts and raw materialSub-assembly

 Financial hub - Northeast Asian(Regional) focus · Commercial banking – Reform by global practice · Investment banking – Asset Management (Industry restructure through M&A) · Consultancy and project financing – Open service market Business Hub (Specialized Regional Financial Hub)

 Emerging market focus  Market Integration through FTAs – Pursuing economies of scale & economies of network  FDI - Regional (global) corporations Brokerage National goal-oriented market economy Private profit-motivated market economy Business Hub (Regional Industrial Cluster) JapanKoreaChina Balanced development Business Hub (Finance, management, and technology) Fast track industrialization

Projects of infrastructure construction that would contribute to peace in the region 1. Development of nodes for inter-Korean economic cooperation 2. Linking of inter-Korean and Trans-Asian railroads 3. Development of regional energy resources 4. Cooperation in ICT and other leading edge technologies 5. Exploration of financial resources for regional development 6. East Asia FTA (EAFTA) 7. Regional financial cooperation 8. Cooperation on environment 9. Social and cultural exchanges Projects leading to a Northeast Asian community Possible Areas for Cooperation

Thank you.