[Choi Jun-young's Urban Pilgrimage] Charter City and Financial Hub

For some time now, many cities have considered 'finance' as their future and are competing for it. Unlike manufacturing, which consumes a lot of raw materials and energy, finance is a clean, sophisticated, and high value-added industry, making it an attractive urban industry. After Brexit (the United Kingdom's withdrawal from the European Union), many European cities have emphasized that they can become the EU's financial centers replacing London and have been making efforts to attract London's financial institutions. In South Korea, fierce competition among local governments over the relocation sites of financial public enterprises related to the second phase of public institution relocation is in the same context.

Although everyone desires it, there are very few cities worldwide recognized as financial hubs. New York in the United States, London in the United Kingdom, and Hong Kong are considered international financial centers. Many cities, including Paris in France and Frankfurt in Germany, are striving to grow as financial hubs, but no clear trend has yet emerged. Why is that? The essence of finance lies in 'freedom.' Historically, financial flows concentrate and develop where there is more freedom.

Cities Guaranteeing Freedom Grow Rapidly
Financial Flows Concentrate and Develop

Finance enables large-scale capital projects that individuals cannot undertake with their own capital. Effectively mobilizing society's capital and generating additional profits is only possible where people's desires are allowed. New ideas can emerge where free thought and activities are permitted, and this role has always belonged to cities. People seeking freedom from constraints not only move to cities but also create new cities.

Paul Romer, an American professor who won the Nobel Prize in Economics in 2018, focused on this role of cities. Regarding why some countries and regions fail to grow and remain underdeveloped, Romer paid attention to urbanization. Countries with rapid urbanization grew, while those without showed stagnation. Romer recognized that traditional gradual development policies require long time and excessive effort with low chances of success and proposed creating artificial new cities as an alternative strategy. The difference between Romer's concept of cities and typical new towns is the exclusion of the influence of the host country's institutions. Although located within a country's territory, these cities operate almost like separate countries. By transplanting advanced systems instead of developing countries' laws and institutions, building excellent living infrastructure, and providing innovative administrative services, these new cities can create positive ripple effects on surrounding areas and the entire country.

Choi Jun-young, Senior Advisor at Yulchon LLC

Operated with Freedom + British System
Hong Kong as a Representative Asian Financial Hub
Recently Shaken by 'Security Law' and Others

Although it may sound like a fanciful dream, historically, cities applying this concept have existed. These cities are called Charter Cities. The term Charter City originates from British politician William Penn, who in 1681 acquired control over the current Pennsylvania area in the United States and established a new city based on a charter guaranteeing religious freedom. Many people seeking religious freedom without persecution migrated there, and the city rapidly grew to become an early central city in America. Representative examples where the abstract value of 'freedom' created and grew cities and ultimately transformed nations include Hong Kong and Shenzhen, the first special economic zone designated in China.

According to Professor Romer, several prerequisites exist for a Charter City to function properly. First, it must operate under a separate system distinct from the host country's existing system. The transplantation of a familiar yet efficient system that allows the movement of people and capital is a primary condition. Second, excellent living infrastructure and an open immigration system must attract good human resources. Third, a financial structure must be formed to attract companies and ensure smooth operations. Income tax and corporate tax should be kept low, and the finances necessary to maintain the Charter City should ideally be secured through land lease fees. Considering that finance is the industry best suited for such Charter Cities, the most important factor is freedom. Hong Kong was an ideal example of a Charter City in this regard. Its near-laissez-faire freedom, operation under the British system, and role as China's previously closed external gateway combined to make Hong Kong Asia's representative financial center. Even after its return to China, this role remained unchanged until recently. However, the recent enactment of the Hong Kong National Security Law by China is perceived as restricting 'freedom,' threatening Hong Kong's very existence. The future of Hong Kong, which grew through freedom, will not be the same as in the past.

South Korea's Leap to an Asian Financial Hub
Time to Consider Charter Cities

As Hong Kong's future becomes uncertain, competition among Asian countries over Hong Kong's financial hub functions will intensify, as seen in the European example. For South Korea, a manufacturing powerhouse but weak in finance, Hong Kong's changes could be a good opportunity. However, judging by the current situation, the likelihood of new opportunities coming to us is low. What if South Korea applied Hong Kong's existing system to some regions and guaranteed their operation through Hong Kong people's autonomy for the next 30 years? Companies and talent could flow into places where familiar systems are maintained, naturally strengthening financial hub functions. In the long term, this would lead to growth and development of those regions.

South Korea has invested significant budgets and efforts over the past 60 years for balanced regional development. Many supports have been provided through laws and systems, suppressing the growth and development of the metropolitan area. More directly, administrative and public institutions have been relocated, and new cities created. These proactive and bold measures are rare worldwide, but their results are limited. Numerous special zones have been designated nationwide, but none truly enjoy freedom within them. If we desire regional development and growth and South Korea as an Asian financial hub, it is time to seriously consider Charter Cities.