Lee Hye Yung, 32, is one of the many wealthy South Koreans who now believe their future lies in another country. Her husband's job at a technology company was becoming increasingly insecure. Korea's high-pressure school system was getting to their two kids. So the Lees recently sold their posh Seoul apartment for $500,000 and will settle in New Brunswick, Canada, later this month. "We are dreaming of a comfortable life in a large and beautiful house there," says Lee. "We really don't have any reservations about leaving Korea."
Wealthy South Koreans are voting with their feet against the government of President Roh Moo Hyun, which has encouraged populist attacks on the upper classes. Business elites are leading the exodus, fearful that Roh's pro-union stands will undermine their livelihoods. Those who cannot move overseas are often spending large sums to buy houses or businesses in places like Los Angeles, New York or Shanghai as a safe means of parking their money for retirement--which has, in turn, inspired a government crackdown on illegal capital flight. "The overall anti-business and anti-rich atmosphere in Korean society is accelerating capital flight," says economist Jo Ha Hyun at Seoul's Yonsei University. "The money drain is hurting Korea's already sluggish economy."
The numbers tell the story. During the first half of this year, money transfers by Koreans resettling overseas rose 24 percent from a year earlier to $867 million, and the amount of money sent to overseas relatives rose 15 percent to $5.8 billion. And those are just the legal transfers that the central bank can record.
This exodus is a shock to a newly developed nation like South Korea, which for years restricted foreign travel and money transfers in order to harness savings and capital to the job of building industry at home. Seoul began to ease those restrictions with the rising wealth of the past decade, and today the caps limit spending on overseas education at $100,000 per student, and on money transfers to overseas relatives at $10,000 per year.
To dodge the rules, some business people channel money through front com-panies or under false names. During the first six months of 2004, illegal foreign-exchange transactions are estimated by the government to have totaled $1.2 billion, up five times from the same period last year. In June financial regulators launched a probe into such transactions that led to the announcement last Wednesday of charges against 124 people for various violations, and the investigation is still underway.
Some investors are seeking a refuge from the bearishness Roh has inspired. South Koreans are sitting on an estimated $300 billion in idle cash, because the Seoul stock market is stagnant and interest rates on bonds are the lowest in recent memory. Foreign real estate seems to be the haven of choice.
The outflow of funds is big enough to boost prices in the major expat Korean communities. Around Koreatown in Los Angeles, prices for homes and such businesses as gas stations or liquor stores have doubled in the past three years. New Star Realty & Investment, the largest Korean-run real-estate agency in the United States, with 25 offices in southern California, has seen average annual growth of 15 percent since 2001 and expects to sign contracts worth $1.7 billion this year. Its Korean-language Web site gets 5,000 hits a day, with more than half from Korea. "We are flooded with inquiries from customers in Korea," says CEO Chris Nam. But according to New Star's Seoul branch, only one in 10 inquiries leads to a buy, because the agency refuses to broker lawbreaking deals.
There are plenty of those. In Los Angeles, real-estate agents say, Koreans are buying up big mansions, office buildings and even golf courses with illegal cash transfers. Those flows are reportedly the main reason five L.A. banks that cater to Koreans saw their combined assets surge 20 percent, to $6 billion, last year. In Shanghai, prices in the ritzy Gubei area have doubled since 2002 largely because of demand from Korean businessmen, says Gang Yun Jo, a Korean resident of the city. "It is difficult to find legally purchased property," he says. Koreans avoid filing the reports Seoul requires of foreign-property buyers because they often result in tax probes.
The rich increasingly feel like social outcasts at home. The ruling Uri Party is full of young liberal leaders who tend to view all wealthy business people as corrupt beneficiaries of South Korea's decades of authoritarian government. The Democratic Labor Party, which recently won its first National Assembly seats, would go further, slapping a "wealth tax" on people with extensive assets. "Rich people are sometimes treated as thieves," says economist Jo. "It is natural they want to move to where they are more respected." And right now, that means out of South Korea.