Korea's regional hub aspirations: in a first of a series of articles focusing on South Korea, Denis McMahon * explores the challenges South Korea faces in its goal of becoming a regional hub.

• Author: McMahon, Denis
• Position: South Korea In Focus

Last year's accession of Roh Moo Hyun to the South Korean presidency created space on the political agenda for an idea that had been gaining currency, but had hitherto been lacking a political champion.

Soon after his inauguration, Roh identified the development of South Korea into a regional "hub" as one of the 12 priorities of his Government. The hub concept seeks to capitalise on South Korea's perceived comparative advantages to turn the country into the services centre of North East Asia, specifically in the areas of finance, logistics and R&D.

The concept is driven by the Seoul Financial Forum (SFF), an association of high profile business and government officials who regard the evolution of the Korean economy into one more reliant on service industries as imperative to the country's long term viability.

The fear in South Korea, as shared by South East Asia, is that the growing manufacturing and industrial capacity of China is leading to the hollowing out of domestic industry. Whereas the traditional "flying geese" model of Asian development dictated that an economy would move up the chain of value-added manufactures in response to competition from the cheaper labour of a less developed neighbour, the breadth of the skills set available at low wages in China has challenged the competitiveness of even Korea's high value manufactures.

The hub strategy has been developed as a form of insurance. Rather than compete with China, transformation into a hub would allow Korea to take advantage of...