September 24, 2004

New Island Hopes to Be Hong Kong of Korea

By JAMES BROOKE



NCHON, South Korea - After Hong Kong, Singapore, and Shanghai, will Asia's new hub be Songdo?



From the mud flats of a man-made island here, Stanley Gale, a New Jersey developer, spins a vision of a future hub city for Northeast Asia, an ambitious $20 billion, 120-million-square-foot development four times the size of Canary Wharf in London.



"Over the next 10 years, you are going to see 60 million square feet of office space here, that is a build-out the size of downtown Boston," Mr. Gale said looking across the one-year-old island, its shores lapped by the waves of the Yellow Sea.



About 200 miles across the Yellow Sea lies China, the driver for the Songdo development. One of the region's most aggressive bets on the China trade, Songdo is intended to be a corporate hub in a free economic zone, a bilingual English-Korean city where foreigners can own land, run schools and hospitals and where companies can get relief from Korean taxes and bureaucracy.



By 2008, a six-lane, 6.4-mile bridge is to connect Songdo with Incheon International Airport, a $5.5 billion complex with direct flights to 24 Chinese cities.



On Nov. 11, ground is to be broken here for a $2 billion first phase, a 12-million-square-foot complex slightly smaller than Rockefeller Center. By 2007, this 94-acre core of the future city is to hold a convention center, a retail mall, 1,200 hotel rooms, 2,300 apartments, and a 65-story Northeast Asia World Trade Center.



"It is Korea's challenge to Pudong. Can Korea challenge Shanghai?" Richard C. Holbrooke, chairman of the Asia Society, said in an interview referring to the Pudong financial center in Shanghai. "Everyone knows they will finish on time, or ahead of schedule and on budget, because Koreans always do. The critical question is, Will they get enough tenants, headquarters, companies to make it viable?"



For now, Inchon is not bracing for a corporate version of Gen. Douglas MacArthur's famous Korean War landing of September 1950. Multinational companies seem to be saying, Build it, and then, maybe, we will come.



"One theme we hear is: 'Get it going, and then come back and talk to us,' " John B. Hynes III, president of Gale International Korea, said in an interview after his office contacted the 550 American and European companies in South Korea. "We hear, 'Where are my people going to live? Where are their kids going to go to school? Where are they going to have lunch? What are they going to do on weekends?' "



Il Young Main, Korea president for United Technologies, said after one Songdo presentation in Seoul: "Location, location, location - who wants to go there? All the companies say they want to be in Seoul."



But many South Koreans are already voting with their feet, migrating to the shore of the Yellow Sea. Next to the Songdo site, apartment towers with 8,000 units are nearing completion. One year from now, it is expected that 25,000 people will be living there.



The shift reflects a turning from Seoul, the nation's inland capital, 30 miles east of here. It is a congested city with traffic jams, high housing prices and odd odors from storm drains. To relieve centralization in Seoul, President Roh Moo Hyun is preparing to move much of the capital to Yeongi-Gongju, a small city about 100 miles south of Seoul.



For business, Inchon is regaining an economic vibrancy it enjoyed a century ago as Korea's "Chinese city." With the rise of China, some of South Korea's economic action is shifting west to the Yellow Sea. Last year, the government announced a goal of tens of billions of dollars in new investment by 2020 in the Yeongjong area, the part of the free economic zone that includes the airport.



"We don't see China as a competitor, but rather, as complementing us," Lee Hwan Kyun, chief executive of the Inchon Free Economic Zone Authority, said in an interview here. "We see Korea and China as being interdependent."



With China having surpassed the United States as South Korea's largest trading partner, exports to China are helping to push South Korea's overall exports up by about one quarter this year, to a forecast level of $245 billion.



Songdo will offer parks, two miles of canals, a seaside cultural center, an aquarium and three attractions that South Koreans usually can enjoy only if they get on an airplane: an 18-hole golf course; a privately owned, American-managed international school; and a privately owned, American-managed hospital.



"So many people I know in Seoul send their kids with the mother to study in the U.S., while the father stays home and works for the chaebol," James von Klemperer, principal of Kohn Pedersen Fox Associates, the architectural firm for the master plan, said referring to South Korea's big conglomerates.



The developers are banking that there will be a market for years to come for a Yellow Sea city that offers expatriate families a comfortable Western lifestyle. Looking at demographics and economics, planners say that 51 cities of one million people or more are within a 3½-hour flight, a radius that includes almost one-third of the world's economic activity.



On a recent afternoon, airplane noise was not noticeable here. This is lucky because airport authorities have set a goal of carrying 70 million passengers by 2010, triple this year's forecast level of 23.5 million. Under a $3.6 billion expansion, Inchon would emerge in 2008 as the world's 10th-largest airport in passenger capacity. For cargo, the airport's annual handling capacity is nearly doubling, to 4.5 million tons by 2008.



This fall, Korea's National Assembly is expected to pass legislation that would allow foreign schools in free economic zones to admit Korean students, and also take away some of the union power in work sites. The planners say that Songdo will emerge as a center for finance and development of high technology.



"It is important that the government's commitments are very strong," Huh Chan Guk, director of macroeconomic studies at the Korea Economic Research Institute, said in an interview. "They must ensure the foreign investors that the regulations will work, there will be tax incentives and the labor-management issue will be controlled."



Free-zone measures include a flat 17 percent income tax on foreign executives and employees, no import duties on import of capital goods, and cash grants for foreign high-technology investments.



Hong Jae Hyong, a National Assembly member and chairman of the ruling party's policy committee, predicted that Seoul would pass the special economic zone measures on schools, hospitals and labor relations, "as a sign shown by the government of how much we welcome foreign investment, and how much the government is willing to make the environment friendly to foreigners."



Last year, new foreign direct investment to South Korea fell by almost a third, to $6.5 billion. With much of Songdo's $20 billion price tag expected to come from overseas, this project seems bound to become one of the largest foreign investments here for many years to come.



Government planners freely admit that one strategy behind Inchon and two other coastal economic zones is to set an example for what economic liberalism and reduction of red tape can do, creating support for the adoption of such measures on a national scale.



"The entire country should be a free economic zone," Bill Oberlin, president of the American Chamber of Commerce in Korea, said at one recent public forum in Seoul on the project. Kwon Tae Shin, deputy minister of finance and economy for international affairs, said, "The reason we started free economic zones is because we cannot make all of Korea a free economic zone."



With Northeast Asia currently a world hot spot for economic growth, Songdo does not need to become the region's Hong Kong to succeed.



"Everyone is groping, competing to be a hub,'' said Nicholas Platt, president emeritus of the Asia Society, who visited the Songdo site this year. "Shanghai wants to be a hub; Inchon wants to be a hub; Pusan wants to be a hub. Frankly there is room for all of them."





they also had picture of Stanley Gale and Songdo Convention Center in the papers

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