South Korea's Terrible, Horrible, No Good, Very Bad Yearby and
Trio of political, economic, corporate woes rock nation
Tumultuous year for Korea’s chaebols fuels calls for reform
It began with a nuclear explosion and ended with a street party where some 800,000 people sang and smiled in the freezing Seoul sunshine to celebrate the impeachment of their president. Even for a country with a modern history as tumultuous as South Korea, 2016 has been an eventful year.
This was the year that a confluence of business failures, political scandal and economic malaise brought the strongest signs yet that the system that made South Korea a global industrial powerhouse may be about to change. In the past few weeks, that system -- an alliance of the political elite and the families that run the country’s huge chaebol conglomerates -- became the focus of an outpouring of anger as hundreds of thousands of protesters gathered each week, demanding the removal of President Park Geun-hye.
The trigger for the president’s downfall was anger at often lurid revelations about the influence of Park’s friend Choi Soon-sil and the possible involvement in the scandal of the nation’s biggest companies. Prosecutors raided chaebol offices and lawmakers demanded to know why those corporate groups donated tens of millions of dollars to foundations Choi controlled. Choi, whose lawyer has denied most of the allegations, has been indicted for attempted coercion and abuse of authority.
"It is so ridiculous that I feel like I’m watching a movie,” said Lee, 26, a college student who would only give his family name. He was among protesters outside the National Assembly on Dec. 9 as parliament voted to impeach Park. “I’m thinking of getting a job abroad. The younger generation like me is so disappointed that they’re thinking of emigrating.”
The Korean people felt betrayed not just by the president’s dealings with Choi, but also because the economy has slowed and people are losing jobs, said Kim Kwang-doo, an economics professor at Seoul’s Sogang University.
“The whole scandal has really hit people emotionally,” Kim said. “All those years of repressed anger erupted.”
The day after parliament voted to impeach the president, crowds took to the streets of Seoul again, this time in a decidedly more festive mood. Food trucks hawking hot dogs, hamburgers and traditional Korean snacks like rice seaweed wraps lined the way to the rally, where street vendors sold candle-lites and batteries. The beat of gongs and drums competed with rock singers on stage.
Flags and Balloons
Where protesters had earlier carried burning torches and waved placards demanding Park’s impeachment and venting anger against the chaebols and ruling party, Saturday’s crowd waved flags, held balloons or hoisted signs demanding Park step down immediately.
“People felt compelled to take to the streets because they saw little hope in Korea for them and their children,” said Kim Sang-jo, an economics professor at Hansung University. “There have been illegal and improper relationships between the government and business before, but most of the people turned a blind eye because they believed it would ultimately help the conglomerates become bigger and more competitive, and hence create jobs.
“What’s different this time is that both the government and businesses breached that point of tolerance for many people,” Kim said. “The dark side came to light and people started to have doubts about the future.”
At Saturday’s rally, 65-year-old retiree Kang Ki-wan warned that this was only the beginning. “The connection between government and the chaebols needs to be severed," said the Seoul resident, who had attended every anti-Park protest since the first one seven weeks ago. "We’re still under the same system. Korea needs to fix it if it wants to develop and grow."
With Park removed from power, interim leadership passes to Prime Minister Hwang Kyo-ahn until the Constitutional Court can ratify parliament’s decision, which could take as long as six months. If the judges concur, a national election would be held about two months later.
“In the short term, it’s not going to be good for the economy because the uncertainty will only continue,” said Kim, the Sogang University professor.
Even before prosecutors tied the chaebols to the scandal, embarrassing setbacks by leading companies and global political and economic shifts meant 2016 was shaping up as a year to forget for Korean companies.
It began in January when Hyundai Motor Co. and Kia Motors Corp., South Korea’s largest automakers, forecast their weakest sales growth in 10 years, citing a slump in demand in China and a stronger won. Days later, North Korea announced it had detonated its first hydrogen bomb.
An increasingly belligerent North Korean leader Kim Jong Un and the slowdown in China -- South Korea’s biggest export destination -- were to hit businesses hard over the coming months. Following a North Korean missile launch, South Korea withdrew from the Gaesong factory park it had set up across the border in 2004 to try to improve relations between the two nations. The closure effectively wrote off more than a trillion won ($858 million) of investment.
As the months passed, the drop in trade weighed on corporate earnings. Export growth has declined for 21 of the past 23 months. By August, the country’s biggest container line, Hanjin Shipping Co., had filed for bankruptcy protection, stranding an estimated $14 billion of goods at sea.
The following month, workers at Hyundai Motor started their first full-scale strike in 12 years. By the time it was over in mid-October, Hyundai had lost production of about 140,000 cars worth more than 3 trillion won.
Then it was the turn of retail giant Lotte Group, as prosecutors indicted Chairman Shin Dong-bin and four other members of the founding family on charges including tax evasion and embezzlement. Lotte said it would explain at the trial and that most of the allegations against the chairman involve events prior to his time in charge.
Finally came the biggest corporate bombshell of all. After weeks of reports of exploding batteries, Samsung Electronics Co. in October killed off its flagship Note 7 smartphone at a cost of more than $5 billion.
"In the old days, they said the chaebol were driving the growth, the government was driving the growth," said Chong Hoon Park, head of research in Seoul for Standard Chartered Bank. "Now the growth is quite slow, so they cannot tolerate the corruption anymore."
Economists expect South Korea’s gross domestic product will expand just 2.7 percent this year, marking the first five-year stretch of sub-3.5 percent growth since the 1950-53 Korean War.
“One of the biggest challenges will be in narrowing the gap between people’s expectations for change and the reality we are facing in terms of the economic environment,” said Kim at Hansung University. “The economy and uncertainty in the global market is going to be the biggest obstacle to meaningful reforms.”
Korean household debt last year rose to 87 percent of GDP, from 74 percent in 2009. Youth unemployment is "persistently high," averaging 9.3 percent, according to Bloomberg Intelligence economist Justin Jimenez.
The families who run the chaebols have weathered many storms since the days of the dictator Park Chung-hee, Park’s father, who fostered the ties between government and the business groups in the 1970s and 1980s and set in motion the economic “miracle on the Han River.”
In the Asian financial crisis of the late 1990s, South Korea had to accept a humiliating bailout from the International Monetary Fund. The economic collapse -- at one point the won fell 50 percent in two months -- brought soul-searching from the Korean people who largely blamed themselves for allowing the economy to become so fragile. Millions of Koreans handed in their jewelry, containing 226 tons of gold, to help pay the IMF.
This time, Koreans are pointing fingers at their leaders and bosses. On Dec. 6, lawmakers summoned the heads of nine chaebols to parliament for questioning about the Choi scandal.
Opposition members focused their attention on Jay Y. Lee, the 48-year-old scion of the Samsung Group’s founding family. Lee and the other chaebol leaders denied that they sought political favors in exchange for donations, but after 13 hours, Lee promised change. “If there is an alliance between companies and government, I will cut all ties,” he said. “I think we’ve lost your trust.”
Many analysts expect that change will come slowly. The business families control their empires through a complex network of cross-shareholdings among units and a lack of transparency in management.
“These companies and their leaders know if they keep their heads down for a little bit, it’s very hard to dislodge them,” David Kang, director of the Korean Studies Institute at the University of Southern California, said on Bloomberg Television. “You can legislate against bribes and $100 dinners or something, but these are favors that are given and exchanged over years between families that have existed over generations.”
By some measures, Korea’s situation isn’t so bad. Government debt is only 39 percent of GDP, compared to a G-20 average of 117 percent, according to Jaejoon Woo, Korea economist for Bank of America Merrill Lynch. That gives room for fiscal stimulus.
The nation’s stock market is up 3 percent this year after rising by about that much last week on optimism Park would be impeached. That’s better than the 0.2 percent decline in Japan’s Nikkei, or the 2.1 percent drop in the Euro Stoxx 50.
And there are signs that some reform may already be on the way.
Four chaebol leaders, including Lee, said they would withdraw from the Federation of Korean Industries, the business lobby that lawmakers said pressured the groups to provide funds to Choi’s foundations.
“The Federation of Korean Industries has been the connecting link between the government and conglomerates -- a route for the government to relay its policies,” said Kim at Hansung University. “For the heads of the conglomerates to say they will withdraw their membership is the first step to really making changes.”
That optimism was palpable among the thousands celebrating at the weekend in Seoul around the statute of King Sejong, the epicenter of the protests. Lee Eunha was taking a selfie with her four-year-old daughter, a memento for the child “to know someday that she was here in the venue of democracy.”
Grocery store owner Hwang Chun-youn, 56, had driven up from Uiwang City to be part of the celebration.
“I feel like a big weight has been lifted off our shoulders,” he said. “It’s true Park Chung-hee helped make this country great but his daughter has made too many mistakes. Both should be buried in history for the sake of the future of the country.”