Korea in crisis, is it following Japan?

Economist magazine review! Korea is now at an economic and political turning point. Will it really follow Japan? Squid game actor Lee Byung-Hun is also involved!

The Economist, a famous British magazine, published an article about Korea's economy. In particular, it compared Korea to Japan! As a Korean like me, this might be a little sensitive...

The article is an accurate analysis, so it is very painful and scary, but it remains to be seen whether it is completely correct. I'll introduce this to you!

Japanese asset price bubble? What happened to Japan?

Japanese economist's review of the bubble

[The grand principles of the economy were reaffirmed through Bubble, saying, "There is no free lunch" and "You can't create something out of nothing". When in the Bubble, anyone to benefit without losing money. However, once a bubble occurs, it has to pay a huge price economically.]

Japan's economic boom in the late 1980s

Since the 1960s, Japan has grown remarkably over the course of 30 years of rapid economic growth. Under the leadership of the Ministry of Trade and Industry, which is famous enough to be talked about so far, Japan was able to establish itself as the world's second-largest economy with economic growth rates of 10%, 5% in the 1970s, and 4% in the 1980s.

Global Rankings from 1987 to 1988

What happened after that? Party in hell

1. Real estate bubble collapse

It's such a famous story. I'll skip the contents.

2. Opportunity for Korea to pursue economically

Japan, which is still unable to get out of the swamp of the bubble economic downturn, calls 1990 to 2000 the "lost decade". Through this period, Korea was able to significantly narrow the economic gap with Japan. As of 1990, when per capita GDP was $25,359 in Japan, Korea was almost quadrupled to $6,516. Korea's per capita GDP is estimated at about $32,046 in 2018, but Japan is only $1.25 times different, and only four steps different in per capita GDP rankings, which was 33 steps different. Japan's per capita GDP is virtually in place considering inflation.

Is it really similar situation in Korea?

Let's find out the difference first.

1. At the time of the Japanese bubble, 

many of the ranking companies were financial-related companies such as banks and securities firms. Korea's current ranking companies are manufacturing and IT companies.

2. Korea's regulation on the total amount of real estate loans is relatively high. 

At the time of the bubble economy, Japanese LTVs were at a crazy level of up to 200%, while Korean LTVs are currently managed at up to 70% and about 30-50% based on general housing.

3. As in the case of Japan, it is not subject to economic sanctions.

The Plaza Agreement was one of the direct and indirect causes of the Japanese bubble in the 1980s. As Japan's exports fell sharply due to the Plaza Agreement, the Japanese government used interest rate cuts and deregulation of real estate loans to boost the economy. As a result, Japan's real estate and stock markets, which had already been in an expanding atmosphere since the early 1980s, created a huge bubble, which led to the bubble economy in the 1980s. Anyway, the Plaza Agreement, along with Germany, suffered a huge economic blow.

Let's find out what is in common

1. Domestic economy

Korea is a country that accumulates wealth through exports and has a relatively small proportion of domestic demand. Japan was the same.

2. Productivity 

Currently, the working age population is decreasing. Japan was the same.

3. Real estate

Land value has quadrupled from GDP in 2013 to 5 times now. Japan was 5.4 times.

4. Household debt

Recently, loans have increased rapidly. Japan was the same.

5. Central bank's action

Korea raised interest rates for the first time among major countries during the pandemic.
Japan was the same and hurriedly raised interest rates to burst the asset bubble.

Lee Byung-hun of Squid Game also invested heavily in real estate!!!

How much did Lee Byung-hun invest in real estate?

In March 2018, Lee Byung-hun purchased a building with a land area of 1,477.11㎡ (447 pyeong), a total floor area of 7,916.7㎡ (2399 pyeong), and two basement floors to ten ground floors for 26 billion won. It is known that he received about 17 billion won in loans from the financial sector.

<Map Link : 서울 영등포구 양평동4가>

Korea's unbeaten real estate legend

Until now, only the sound of "collapse collapse" has been heard in real estate, but the belief originated from the experience that it has never collapsed. In Korea, where the history of diversification of investment destinations is not so long, financial technology has long been only savings and real estate. In particular, the baby boomers have experienced asset growth through real estate. They actually made some turnaround through real estate, and in the meantime, the fund, which once almost became our hope, was listed on the list that should never be done due to the financial crisis.

Dozens of new real estate books are released a day, and real estate in Korea is always considered the top priority in recommending financial technology. Perhaps because the country is small, it can be said that the desire and passion for ownership of the land of the people are very large.

Similar but different?

In fact, it has been heard for a very long time that Korea has faced an economic bubble. Especially in Korea, there's a saying like this... [Korea follows Japan, like 20 years behind...] 

Paradoxically, the Japanese economic bubble was not bad for Korea. This is because Korea had a lot of opportunities to achieve economic growth at that time. But similarly, who would benefit if the Korean bubble came now? There are many countries around that want to follow Korea's economic growth. That's the case with Taiwan and Vietnam. The reality is that Korea has virtually given them the lead in many manufacturing industries.

But I hope Korea is a little different from Japan. Politically and culturally, the meaning of a free Republic of Korea is also considered meaningful to the Western world. If the economic bubble comes, one of the flowers of democracy in Asia will fall. 
Lastly, thank you very much for reading, and I hope you can prepare for your individual economic situation before the crisis comes.