Stop Opening Fried Chicken Shops, Move 'Here'... "The Answer Is Clear" How to Raise Korea's Potential Growth Rate [New Year Interview]

"Questioning the Path of the Economy and Finance in 2026" Relay Interview
① Shin Kwanho, President of the Korean Finance Association (Professor of Economics, Korea University)
Low-Productivity Service Sector Must Shift to High Value-Added Industries

"From Fried Chicken Shops to Uber and Airbnb."

On January 7, at Jeonggyeong Hall of Korea University in Seongbuk-gu, Seoul, Shin Kwanho, President of the Korean Finance Association and Professor of Economics at Korea University, identified the "high value-added transformation of low-productivity service sectors" as the key to rebounding South Korea's potential growth rate. He argued that the structure of the service industry, which is focused on low value-added sectors like food and accommodation businesses-epitomized by "fried chicken shops"-should be shifted toward high value-added service industries such as Uber and Airbnb. He also predicted that the government’s strategy of focusing on nurturing the artificial intelligence (AI) industry would significantly boost productivity and contribute to raising the potential growth rate.

However, President Shin emphasized that the difficulty in rebounding the potential growth rate does not stem from a lack of answers, but from the arduous process required to reach those answers. Ultimately, this is a matter of politics, and he explained that now is the time for "political will"-not to side with any particular interest group blocking the path, but to narrow the gaps between these groups and resolve side effects in order to move forward.

Shin Kwanho, President of the Korean Finance Association, participated in a New Year interview with The Asia Business Daily on the 7th at the Jeonggyeong Hall of Korea University in Seongbuk-gu, Seoul, under the theme "Asking the Path of Economy and Finance in 2026."

Regarding the high exchange rate, which is one of the major concerns for the Korean economy at the beginning of the year, he assessed that both the current level and market expectations are excessive. He analyzed that concerns over the scale of investments in the United States have led to a concentration of expectations for a rising exchange rate, resulting in short-term supply-demand disruptions. However, considering structural factors, he believes it will be difficult for the won-dollar exchange rate to fall below 1,400 won. He pointed out that raising the potential growth rate is also necessary to ease concerns over the exchange rate, so that the growth gap with the United States does not widen further.

The following is a Q&A.

-How do you evaluate South Korea’s GDP growth rate this year?

▲The 1.8% forecast by the Bank of Korea is similar to our country’s potential growth rate. It is still difficult to say that a full recovery has been achieved. Exports, especially semiconductors, are expected to perform very well again this year. However, the domestic market, including construction, is sluggish, and consumption only saw a temporary boost from consumption coupons and has not improved as much as expected since then. Interest rates remain high, and household debt is already elevated. After paying interest, there is not much room left for consumption. However, an active stock market will help stimulate consumption.

-South Korea’s potential growth rate is also declining. What is the biggest problem?

▲Potential growth rate is determined by capital, labor, and total factor productivity. Labor is unlikely to increase further due to population aging. Capital accumulation is also expected to be less smooth than in the past. What remains is productivity. The sector with the lowest productivity is services. This is because the service industry is centered on low value-added sectors such as food and accommodation businesses, represented by fried chicken shops. Therefore, I believe we need to shift toward high value-added service industries.

Corporate restructuring has not been swift, resulting in a considerable number of zombie companies. Even if resources are allocated to these areas, it can be like "pouring water into a bottomless pit," failing to increase overall productivity. Allowing limited resources to move to sectors with high productivity and growth potential will help improve productivity and raise the potential growth rate.

The government’s focus on nurturing AI and robotics is a very good move. However, new corporate innovation must proceed smoothly in this process, but regulations often hinder innovation. Rational regulatory reform must accompany investment.

The labor market also has much room for improvement. Innovation emerges through repeated challenging attempts and failures, but when failure is determined, employment must be flexible enough to allow for redeployment. Without such flexibility, people will not dare to take risks. While the United States exhibits somewhat extreme flexibility, our labor market is far too rigid and needs to be made more flexible. At the same time, for those who suffer in the process, the government should provide support so that the process is not too painful.

-What is the top priority for achieving the government's goal of a "3% potential growth rate"?

▲Ultimately, we must enhance productivity. We know the answer. However, regulatory reform and labor market reform are each difficult tasks. A representative example in regulatory reform is Uber. If Uber had entered the market, related production companies would have developed and productivity would have increased. Existing vested interests naturally resist during the entry process.

For example, if someone spent over 100 million won to buy a personal taxi license and then Uber suddenly appeared and operated without a license, they would naturally feel it is unfair. At the time, there were discussions about the government buying licenses and transitioning to Uber, but ultimately, it was not properly implemented. Concluding "let’s not do it" is tantamount to saying "let’s not improve productivity." We must be able to accept new technologies. The government must play a role in resolving side effects and coordinating among stakeholders during this process, and this is where politics is needed. The most important role of politics is to mediate conflicts, but in Korea, politics often exacerbates conflicts, making the situation very difficult.

The same applies to Airbnb. The situation is similar for autonomous taxis and AI-powered medical services. New services always face resistance. To raise the potential growth rate, we must leverage innovative services to improve productivity. The challenge is how to resolve the inevitable conflicts that arise in this process.

Shin Kwanho, President of the Korean Finance Association, is posing before an interview on the 7th at the Chungkyung Building of Korea University in Seongbuk-gu, Seoul.

-What is the biggest "global variable" for the Korean economy this year?

▲The biggest global risk is the direction of U.S. monetary policy. Inflation has not fallen to the desired level, so the key issue is how much the United States can ease monetary policy in this situation and what impact that will have on financial markets. Other countries have been raising interest rates. If monetary policies diverge in this way, capital mobility becomes unstable and global problems can arise, which is my biggest concern.

The U.S.-China conflict is also a major variable. There are essentially no laws governing the international order. In the past, the United States, as a "superpower," set the rules and others implicitly followed, but now the U.S. is acting more in its own national interest rather than as a rule-setter, so the rules have effectively disappeared. In this situation, countries are struggling to determine their course of action. If the implicit support provided by the United States disappears, especially the scope of actions available to major powers expands.

The key question is how far China will go under these circumstances, particularly since China has invested heavily in Venezuela’s oil resources, and how far it will tolerate recent U.S. actions. The U.S. and China are also competing for AI supremacy, and I expect the dispute over Taiwan, which plays a key role in the semiconductor value chain, to intensify further.

-How do you assess the current high exchange rate situation?

▲Investment commitments to the United States and similar factors have focused expectations and temporarily disrupted supply and demand. Many people expected the rate to exceed 1,500 won, so they held onto their dollars, pushing the exchange rate up to the high 1,480-won range. However, I believe this level is excessive. It will not be easy for the rate to continue rising above 1,500 won. On the other hand, considering the investments we have committed to and other factors, it will also be difficult for the rate to fall below 1,400 won.

Another factor, which also applies to Japan, is that as economic vitality declines and growth slows due to aging, countries inevitably invest overseas. Japan, with growth below 1%, has made massive overseas investments. Korea is now experiencing the same phenomenon. Compared to the past, this trend has strengthened and has contributed to a higher won-dollar exchange rate.

The exchange rate is determined by interest rate differentials and growth rates between countries. We are at a disadvantage in both respects. Our interest rates and growth rates have both fallen below those of the United States. A widening growth gap means we are increasingly likely to fall behind the U.S. This is directly related to the potential growth rate. Nationally, it is essential to raise the potential growth rate, if not to 3%, then at least to 2%.

Shin Kwanho, President of the Korean Finance Association, is being interviewed on the 7th at the Jeonggyeong Building of Korea University in Seongbuk-gu, Seoul.

-What direction should real estate policy take this year?

▲It is a difficult issue. The situation has worsened so much that drastic measures, such as the land transaction permit system, have been taken, but I am unsure how effective they will be. Last year, housing prices surged during the normalization process, so caution is needed, but normalization must occur.

It seems impossible to prevent housing prices from rising in certain areas. Rather than focusing too much on this, the priority should be to ensure that the general public has no difficulty in their housing situation, by stably supplying homes to the masses, not just a select few. However, in Korea, whenever housing prices rise in key areas, everyone pays attention and it becomes a politically sensitive issue, so I am unsure how feasible this is, but I believe this is the direction for normalization.

-What institutional incentives could expand "productive finance"?

▲As President of the Korean Finance Association, I held a productive finance symposium with the Bank of Korea. One of the key points raised was that activating the capital market would allow companies to raise funds more smoothly, and this seems to be progressing to some extent. Stock prices are rising, and with the government amending the Commercial Act, the capital market is moving toward normalization.

The problem lies in venture capital. Promising companies must be discovered at the pre-capital market stage for them to grow and enter the capital market, but we face many difficulties at this stage. Few countries have an active venture capital sector. The United States, centered on Silicon Valley, is a representative example, and China has also developed to some extent. These countries have very large markets, so there are many incentives to start businesses. Korea does not have that scale, so it faces more challenges in attempting to go global. Another example of a successful venture ecosystem is Israel, which provided incentives for U.S. venture capital to invest, thereby activating relationships and nurturing the venture ecosystem together. We need to try various models.

-What should the government prioritize in its policy agenda this year?

▲Monetary policy has limited flexibility, but fiscal policy is different. In the long term, fiscal conditions are not easy, but for now, national debt is not excessively high. Since national debt is measured as a ratio to GDP, using fiscal policy to increase GDP can also reduce the government debt ratio. Last year, the government moved too hastily and focused on consumption coupons, which was less effective. From this year, I hope more sophisticated and effective fiscal policies will be introduced to help those truly in need and improve economic growth rates by enhancing productivity.

-What are the key issues in introducing stablecoins?

▲The Korean won-based stablecoin is more than just a new payment method; it is the intersection where the two worlds of traditional financial discipline and innovation collide head-on. These two systems fundamentally differ in how they establish trust. The focus should be on maximizing the benefits and controlling the risks that arise at this intersection.

There are three main issues in institutionalizing the Korean won-based stablecoin. First, how to design the issuer, the scope of reserve assets, and the redemption and liquidation procedures so that redemption promises hold even in crises. Second, how to manage the on- and off-ramps with legal tender and how effectively to implement identity verification. Third, how much to allow cross-border transfers and use in international settlements. If the system is inadequate, there will be greater gaps in controlling illegal fund movements and money laundering, and large-scale redemptions (coin runs) and liquidity crunches could interact with vulnerabilities in traditional finance to create systemic risks.

Shin Kwanho, President of the Korean Finance Association, is posing before an interview on the 7th at the Chungkyung Building of Korea University in Seongbuk-gu, Seoul.