Jeon Byeong-seo, head of the China Economic and Financial Research Institute, acknowledged the necessity of policy finance to support China's strategic industries such as semiconductors and artificial intelligence. However, he emphasized the need to establish a clear 'exit mechanism' regarding the timing of support termination and the transition to private funding.
Speaking at the 2026 Financial Forum held in Beijing on October 21, Jeon shared insights from South Korea's financial experiences with Chinese financial professionals. He highlighted 'exit, order, and patience' as three key concepts, which garnered significant attention at the forum.
Jeon likened finance to the blood of the economy, stating, "What matters is not the amount of blood but the blood pressure and circulation." He explained that if finance outpaces the real economy, bubbles can form, while lagging behind can stifle growth, making it crucial for finance and the real economy to maintain balance.
His first recommendation was the establishment of an 'exit' mechanism for policy finance. He noted that South Korea utilized banks as tools for industrial policy from the 1960s to the 1980s, providing low-interest funds primarily to the steel, shipbuilding, automotive, and electronics sectors. This strategy helped South Korea emerge as a manufacturing powerhouse, but it also led to weakened risk assessments by banks and a belief among companies in their invincibility, resulting in adverse effects.
Jeon pointed out that just before the 1997 financial crisis, the debt ratio of South Korean manufacturing firms approached 400%, and after the crisis, 168 trillion won in public funds was injected to rebuild the financial system. He stressed that while policy finance for strategic industries is necessary, it is essential to determine in advance when support will end and when private funding will take over. Otherwise, policy finance could devolve into a 'life support system' for uncompetitive companies.
The second point Jeon emphasized was 'order.' He reflected on the launch of the KOSDAQ market in 1996, which became a growth foundation for bio-pharmaceutical, gaming, and battery companies. However, he noted that South Korea made the mistake of opening the market before strengthening regulations. This led to widespread poor listings and unfair trading, causing the KOSDAQ index to plummet by 80% in a single year in 2000, taking over a decade to restore market confidence. He advised that the Chinese equivalent of NASDAQ, the STAR Market, should not only lower listing thresholds but also strengthen exit mechanisms. He argued that three fundamental systems—information disclosure, delisting, and penalties for illegal activities—must be properly established before expanding the market.
Lastly, Jeon highlighted the importance of nurturing long-term investors, referred to as 'patient capital.' He noted that individual investors dominate the South Korean stock market, which has experienced volatility this year due to leverage and forced liquidations. In contrast, long-term institutional investors like the National Pension Service can act as a buffer against market fluctuations. He urged that China, with the world's largest household savings, should transition funds from real estate and deposits into long-term investments through pensions, insurance, and public funds. He stressed that for long-term capital to flow in, not only should investments be smooth, but recovery channels must also be expanded, including mergers and acquisitions (M&A) and secondary funds (S funds).
Jeon also proposed expanding financial cooperation between South Korea and China. Given the close ties in semiconductor and battery supply chains, he argued that collaboration should deepen in areas such as science and technology finance, direct trading of the yuan and won, and financial safety nets.
The Financial Forum is an international financial forum co-hosted by China's major financial policy authorities and the Beijing municipal government. The 2026 event took place from October 19 to 22 at the Beijing Financial Street, focusing on 'Openness, Cooperation, Inclusion: Building a New Ecosystem for Global Financial Development,' with over 400 key figures from more than 40 countries and regions in attendance.
* This article has been translated by AI.
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