ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Economy

South Korea's Moon stakes legacy on $138bn K-New Deal

Investors skeptical about plan to boost digital and green sectors

South Korean President Moon Jae-in speaks during the first meeting on the K-New Deal strategy at the presidential office in Seoul on Sept. 3.   © EPA/Jiji

SEOUL -- South Korean President Moon Jae-in is staking his legacy on a 160 trillion won ($138 billion) K-New Deal of investment in the digital and green sectors, but the liberal leader's patchy economic record has made analysts skeptical.

The project appears to be the most important item on his agenda for the final 18 months of his five-year presidency, especially now that denuclearization talks with North Korea have collapsed.

"After the failure of his of 'income-driven growth' economic policy, Moon's next economic plan had to be something big to offset previous mistakes and build a lasting legacy," said Paul Choi, a senior Korea analyst at CLSA, in reference to the president's hiking of the minimum wage by 16.4% in 2018 and 10.9% in 2019.

"That's why when the government announced its 160 trillion won Korean New Deal plan over the summer, we called it 'Moon's Hail Mary New Deal.'"

Moon is betting that the project will revive an economy struggling to maintain growth momentum amid the pandemic. Asia's fourth-largest economy entered a recession in the April-June period, when gross domestic product contracted 3.2% from the previous quarter, in which it had fallen 1.3%.

Moon hopes the plan, equivalent to 8% of GDP, will create 1.9 million jobs in the digital and green sectors. Some 100 trillion won will be financed by the public sector, with the remainder coming from private investment.

The government has selected 10 key projects. One is a "data dam," which aims to establish infrastructure for collecting and trading big data for financial, environmental and transportation services. Other programs include artificial intelligence in government, green energy and eco-friendly mobility.

The government also plans to establish large onshore wind power complexes and is looking at up to 13 candidate locations. For the mobility project, the government aims to increase sales of electric vehicles by 1.1 million units over the next five years.

But some analysts say the private sector should have a bigger role in the projects to make them more efficient and sustainable.

"We remain cautious, mainly due to the uncertainties around the profitability and sustainability of these projects, which are critical factors to induce private-sector participation," said Marie Kim, a Seoul-based economist at Citi Research. "Relaxing the government's heavy regulation is key, and utilizing well the efficiency of the private sector is also important for the ultimate success of the plan."

The government also plans to set up New Deal investment funds in digital and green areas, with losses backstopped by the government. But analysts worry that it risks creating market bubbles.

"Beware fund managers, Moon's bulletproof 20 trillion won New Deal Policy Fund may eat your lunch as well as skew your portfolio," said Choi at CLSA in a note headlined "Moon's debut as a fund manager."

But the government's Green New Deal has been praised by global investors and analysts.

"We commend South Korea for investing billions of dollars into solar and wind at home, and that it is planning to close half of its coal plants by 2034," said Jens Munch Holst, CEO at the Danish pension fund AkademikerPension.

A report from the Japanese investment bank Nomura cited South Korea and the European Union as good examples on how to catch up on addressing climate change. It said governments' fiscal packages should include retrofitting cities with smart power grids, expanding charging stations for electric vehicles and investing heavily in 5G.

"We have seen some early, encouraging signs with the EU set to implement a substantial green stimulus package and South Korea working on a Green New Deal; however, much more remains on the docket," Nomura said in the report.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more