In-depth

Published: 30 Dec. 2020, 18:31 Updated: 30 Dec. 2020, 19:24

Top business stories of the year

Real estate debacle

An apartment complex seen from Lotte World Tower in Songpa District, southern Seoul on Dec. 2. Price of jeonse or long-term rent skyrocketed in November, despite the government's continuous effort to cool down the real estate market, recording a 0.6 percent year-on-year jump, the biggest hike in 29 months. [NEWS1]

Even as the economic fallout from the coronavirus pandemic dominated the news this year, controversy surrounding the government’s ongoing real estate crackdown continued.

President Moon Jae-in kicked off the year saying that the government will “never lose the war against real estate speculation.”

What followed was a series of real estate regulations and supply plans, including converting hotels and public facilities into rental apartments.

The ruling Democratic Party has forced through three sets of legislation designed to protect tenants, including automatic extension of jeonse, or long-term rent, contracts and limiting rent increases to a maximum 5 percent on contract renewal.

Despite the government’s efforts, the market showed little signs of cooling off. In fact, the measures scared landlords off and jeonse prices skyrocketed. With rental apartments in short supply, renters turned to buyers and prices continued to rise, squeezing even more people out of the market.

Kim Hyun-mee, the Land Minister under the current administration since 2017, was finally replaced with Byeon Chang-heum despite strong protests from the opposition People Power Party. Byeon is the 26th minister under the current administration to get the job without the support of the opposition party.

Bullish Kospi

A digital signboard at the dealing room of the Hana Bank main branch in central Seoul shows the Kospi closed at 2,873.47 on Dec. 30, up 1.88 percent from the previous trading day, and a record high. [YONHAP]

Seoul's main bourse passed the 2,800-mark for the first time ever in December, bouncing back up after plummeting below 1,500 in March during the first wave of the coronavirus pandemic.

Behind the rebound was the unexpected rise of retail investors armed with abundant liquidity due to the government's monetary easing policies.

With low interest rates making bank savings unattractive and the government tightening real estate policies, many retail investors jumped into the stock market and continued to buy despite the ongoing pandemic.

According to data from the Korea Exchange, retail investors net bought 63.9 trillion won ($58.8 billion) of shares on the Korean stock market this year as of Dec. 30, while all other investors net sold.

Retail investors' favorite pick this year was Samsung Electronics, buying some 9.6 trillion won of shares in the electronics company.

By sector, semiconductors, bio, battery and auto shares led gains and are expected to drive the growth of the main bourse next year as well.

While brokerage firms expect the 2021 Kospi target to be above 3,000 on the back of a recovery in exports, Covid-19 remains a risk as daily cases hover around 1,000.

Base rate hits record low

Bank of Korea Governor Lee Ju-yeol taps gavel at the Monetary Policy Committee meeting in March where the base rate was slashed by 0.5 percentage points to 0.75 percent in the face of the coronavirus. [NEWS1]

The Bank of Korea (BOK) took the base rate to an all-time low of 0.5 percent in May.

It was 1.75 percent at the end of 2018. With the economy already showing signs of weakness, the Covid-19 pandemic forced the central bank’s hand.

The move was in line with global cuts, especially those by the U.S. Federal Reserve, which took its rate to an all-time low. The cuts were made to keep money cheap for companies and individuals struggling as travel has come to a near halt and business has slowed dramatically.

Since May, the Korean rate has been kept where it is, as the monetary authorities battle pandemic-related weakness as they also fight speculation and potential bubbles in asset markets. Like other monetary authorities, the BOK has sent other signals of support to the market.

In March, it committed itself to an unlimited supply of money to the market through repo operations, or repurchase agreements, the first such commitment by the BOK. The bank ended the repo operation in July.

Test kit exports

A researcher of bio company SD Biosensor holds up the company's fast-speed Covid-19 test kits at the company's office in Suwon, Gyeonggi. [YONHAP]

When Covid-19 spread outside Asia, calls rushed in from foreign governments to the Blue House asking for Korean test kits. The country’s health care and pharmaceutical industries had never received this kind of attention.

Between January and November this year, Korea exported a total of 2.5 trillion won ($2.28 billion) worth of Covid-19 test kits to 170-or-so countries, according to the Ministry of Food and Drug Safety. Growth over the past year was rapid: From January to March, Korea sold $25 million worth of test kits. In November alone, it sold $546 million worth.

Monthly export figures and the number of destination markets never dropped since April, when Covid-19 test kits started as full-fledged exports.

The hype was evident for the manufacturers. Seegene, which was one of the first Korean companies to export its test kits, said its 2020 revenue will surpass the 1-trillion-won mark. This compares to last year’s revenue of 122 billion won.

The confidence boost of the test kit success led to a government drive to develop Covid-19 treatments and vaccines and supported its goal of making biopharmaceuticals the next big export item for Korea.

The government said it will commit 1.7 trillion won to research and development for bio health care next year. That would be a 30 percent increase on year. The Ministry of Science and ICT announced earlier this month that 520 billion won of its 2021 budget would be allocated to original bio technology, including development of new drugs and medical equipment.

Titans of industry pass away

Lee Kun-hee, late chairman of Samsung Electronics [NEWS1]

Samsung Electronics Chairman Lee Kun-hee and Lotte Group founder Shin Kyuk-ho, two titans of Korean industry, both passed away this year.

Lee, who built Samsung into a top semiconductor and consumer electronics producer, was one of the most important figures in postwar Korean history. He passed away on Oct. 25 at 78 years old.

Lee was the third son of Samsung founder Lee Byung-chull and took over as chairman of the company for 33 years.

Lee is perhaps best known for a remark he made in 1993, in what became known as the Frankfurt Declaration, when he told Samsung executives gathered in Frankfurt for an emergency meeting “to change everything, except your wife and children.”

Shin Kyuk-ho, late founder and honorary chairman of Lotte Group [NEWS1]

Shin, the honorary chairman of retail giant Lotte Group, died on Jan. 19 at 98 years old.

Shin was the founder of Lotte Group, building a chewing gum company in Japan into the fifth-largest conglomerate in Korea.

The effort was helped by state support and rapid economic growth in Asian countries, including Korea and Japan.

Shin established Lotte as a chewing gum manufacturer in 1948.

It debuted in Korea through the establishment of Lotte Confectionery in 1967 and gradually expanded to other areas, including retail, petrochemicals and tourism.

Korean Air Lines takeover of Asiana Airlines

Korean Air Lines and Asiana Airlines aircraft parked at Incheon International Airport on Dec. 17. [NEWS1]

In a complex transaction seen by some as much a bailout of a family as a bailout of an airline, a state-owned bank made an investment that will allow Korean Air Lines to take over troubled Asiana Airlines.

When the deal is complete, the resulting carrier will become the world’s No. 7 by capacity to transport passengers and cargo, according to 2019 International Air Transport Association numbers provided by Korea Development Bank (KDB).

In the transaction, KDB will invest 500 billion won ($451.6 million) in Hanjin KAL and buy 300 billion won of the company’s exchangeable bonds. Hanjin KAL, which already owns 29.27 percent of Korean Air Lines, will buy 730 billion won of a 2.5-trillion-won share offering by the airline.

KDB and Korean Air Lines argue that the purpose of the deal is to restructure the struggling airline industry hit hard by Covid-19-related travel restrictions. But some shareholders and workers don’t agree.

Korea Corporate Governance Improvement (KCGI), Hanjin KAL’s largest shareholder, argues that the acquisition in Hanjin KAL is an attempt to protect the interests of Chairman Cho Won-tae and protect him from disgruntled shareholders. It also says that it is especially problematic for taxpayer money to be used to protect Cho.

Workers from Korean Air Lines and Asiana Airlines fear layoffs.

Despite the objections, the acquisition is proceeding smoothly. Earlier this month, a court rejected the arguments by KCGI.

Hedge fund crises

Lime Asset Management CEO Won Jong-jun at a press briefing in 2019. [NEWS1]

About 2 trillion won ($1.8 billion) of investor money was frozen and much of it is presumed missing as two major fund groups made bad investments and allegedly engaged in fraud, embezzlement and Ponzi-like machinations.

The tragedies of Lime Asset Management and Optimus Asset Management were made that much worse by the fact that major banks and brokerages were found to be negligent, aggressively pitching the investments as safe to unsuspecting greenhorns.

Lime, which is the largest hedge fund in the country, abruptly halted redemptions in some funds in late 2019. Optimus followed in the summer of 2020, saying that it would not be able to return some client money that was put into funds marketed as being nearly sovereign safe.

The authorities are working their way through the mess. Some clients are being compensated by the sellers of the funds and administrators are picking through the rubble to see what can be recovered.

Punishments are being meted out, with some parties already in jail, licenses revoked and banking executives censured for not better managing their sales teams. Larger issues remain, especially in terms of the regulation of the business and the structuring of the trust side of the fund management.

The real scandal is that the scandal wasn’t caught earlier, and until the regulators have line of sight to the assets and the custodians keep a better eye on the investments, nothing stands in the way of the next Ponzi scheme.

Delivery worker deaths

A delivery man from CJ Logistics loads packages into a truck at a terminal in Seoul in October. [YONHAP]

Civil groups and unions representing the interests of deliverymen claim that overwork has been a real problem, linking the death of some of the workers to the boom in online shopping.

While nothing so far has been proved, plenty of circumstantial evidence exists. Package delivery will be up about 30 percent this year, much faster than the recent trend of a 10-percent annual rise. Ministry of Employment and Labor statistics show that most delivery workers are on the job 12 hours a day, and 14 hours a day during the busy season.

As people have avoided dining out, demand for food delivery has spiked, while online transactions have risen 17 percent from 12.3 trillion won ($11.1 billion) in January to 14.37 trillion won in September.

The demand for delivery is only expected to rise, while the government restricts gatherings to small groups and requires restaurants to close early.

A civil society-led task force claims that 16 delivery workers died of overwork this year, though it provided no comparisons to the overall population or to any demographic group similar to the deliver workers cohort.

Among the 16 deaths, that of Seo Hyeong-uk from CJ Logistics was confirmed as an “industrial accident.” Seo had a heart attack in July.

While causation has not been clearly established between the delivery boom and deaths, a consensus has developed about structural problems in the business. Three companies dominate deliveries, and they contract to companies that contract with the individuals.

The result is a lack of accountability for the welfare of the workers and a tendency for all the work and stress to be forced onto the shoulders of those who can least bear it.

Emergency relief grant

People waiting in line to apply for the first emergency relief grant that was given to every Korean household at a bank in Daejeon on May 18. [YONHAP]

The government responded to the economic fallout of the Covid-19 pandemic and the social distancing measures that followed with two emergency relief grants.

A third relief grant was also planned and will begin to roll out at the start of 2021.

The first relief grant amounted to a total of 14 trillion won ($12.9 billion) including 12.2 trillion won created through a supplementary budget, which was approved by the National Assembly in April.

This grant gave between 400,000 won and 1 million won to every Korean household in an attempt to boost consumption.

A 7.8-trillion-won second relief grant followed in September, created through the fourth supplementary budget. It offered a total of 2 trillion won in cash grants to small businesses and up to 1.5 million won to freelancers and people working as independent contractors.

The government announced on Dec. 29 a third emergency relief package amounting to 9.3 trillion won. It included a 4.1-trillion-won cash handout to small businesses whose operations were limited or stopped due to intensified social distancing as the number of daily confirmed cases rose toward the end of the year.

Each store will get between 1 million won and 3 million won. Freelancers, whose income has been unstable, will also receive 500,000 won.

Korean New Deal

President Moon Jae-in holding a keynote speech on the nationwide government briefing on the Korean New Deal plan at the Blue House on July 14. [YONHAP]

President Moon Jae-in in April first started discussing the idea of a national project that would create the foundation for economic growth in the post-Covid-19 era.

He later likened it to Franklin Roosevelt’s New Deal implemented during the Great Depression. The Korean version, Moon said, should prepare the country for the digital era.

In July, the first national report on the Korean New Deal was made at the Blue House. The government announced an investment plan totaling 160 trillion won by 2025, with 71 percent coming from government coffers.

The Korean New Deal, which the government broke down into the Digital New Deal and the Green New Deal, is supposed to create 1.9 million jobs, with 887,000 expected within the next two years.

The Digital New Deal aims to create a digital infrastructure that would help boost the development of three major areas — digital, network and artificial intelligence. The government plans to invest 12.7 trillion won into the digital deal next year.

The Green New Deal is intended to help Korea achieve carbon neutrality by 2050. It includes the development and adoption of hydrogen fuel and renewable energy sources including solar and wind farms and upgrading plants to smart factories. The government plans to invest 13.2 trillion won in the green deal next year.

BY LEE HO-JEONG, JIN EUN-SOO, KIM JEE-HEE, SONG KYOUNG-SON AND JIN MIN-JI [kjdbusiness@joongang.co.kr]