FSC Live-Streams Financial Development Review Committee for First Time... Launching Full-Fledged Debate on Productive Finance Reform

Presentations by Five Research Institutes Including KDI
Need to Channel Funds into High-Tech Industries and Regional Economies
Research Institutes Call for Selective Capital Allocation and Institutional Reforms

The Financial Development Review Committee examined the current structure of Korea's financial system and the flow of funds, and discussed reform directions to shift toward productive finance. The participating research institutes agreed that a restructuring of the financial system is needed so that funds can move into sectors with high growth potential.

Yonhap News Agency

The Financial Services Commission announced that on the 9th it held a plenary meeting of the Financial Development Review Committee, co-chaired by Financial Services Commission Chairman Lee Eogwon and Financial Development Review Committee Chairman Shin Jinyoung, and discussed these issues.

This meeting was convened to bring together the members of the Financial Development Review Committee, the official advisory body to the Financial Services Commission, in one place to review the role and tasks of finance in breaking through the current phase of low growth and polarization. In particular, to enhance transparency in the policy decision-making process, the topic presentations and the main panel discussion were broadcast live for the first time ever.

In his opening remarks that day, Financial Services Commission Chairman Lee Eogwon stated, "Today's topic, productive finance, is the most important policy task as the first step in the great financial transition, enabling the Korean economy, which is facing the structural challenges of low growth and polarization, to open the door to a new leap forward," adding, "Finance must expand and redirect the flow of funds toward high-tech industries, venture businesses, regional economies, and the capital market, and move toward a virtuous cycle of productive finance that enhances industrial competitiveness, increases household assets, and expands venture capital."

He went on to say, "It is very important to reform the structure and systematize them so that productive finance can take root as a lasting achievement, and from that perspective, today's meeting aims to explore reform directions and practical tasks for transitioning to productive finance."

At the seminar, five research institutes, including the Korea Development Institute (KDI), took part and gave presentations on topics such as changes over time in the role of Korea's financial system, the flow of funds in the market, overseas cases of promoting productive finance, and tasks for institutional improvement.

First, KDI presented on the topic "The Role of Productive Finance and Policy Tasks for Building a Virtuous Cycle of a Super-Innovative Economy," outlining how the role of Korea's financial system has changed over time and proposing strategies for promoting productive finance going forward. KDI stressed that as advanced technologies such as digital and artificial intelligence (AI) are emerging as core pillars of national competitiveness and security and global competition for technological supremacy is intensifying, it is necessary for finance to take the lead in investment to foster new industries through productive finance.

KDI also pointed out that it is important, based on an understanding of the technology and industrial ecosystem, to expand the supply of innovation capital tailored to advanced technologies, and, in parallel, to build regional technology and industrial ecosystems by supplying capital that meets regional innovation needs.

The Korea Institute of Finance, under the theme "Exploring Ways to Enhance the Efficiency of Capital Allocation for a Transition to Productive Finance," analyzed the flow of funds by economic agents such as households, corporations, and financial institutions. The Korea Institute of Finance emphasized that "to improve the productivity of our economy, it is more important to strengthen the screening function of finance than to simply expand quantitative supply," and stressed that funds should be allocated to companies that have high productivity but face growth constraints due to financial limitations.

Woori Financial Management Research Institute, under the theme "Analysis of Overseas Cases and Implications for Strengthening Productive Finance," introduced the cases of China and Japan. Using the example of China, the institute emphasized that national strategies and industrial and financial policies need to be pursued consistently over a long period. From the example of Japan, it highlighted the importance of a virtuous cycle in which households' surplus funds are supplied as innovation capital for companies, and household assets are then increased again through rising stock prices and dividend income.

The Korea Capital Market Institute presented "Directions for Improving Financial Institutions, Taxation, and Pensions to Promote Productive Finance." The institute noted that the foundation for a great financial transition has been laid with measures such as the launch of the National Growth Fund and the approval of Individual Management Accounts (IMA) and short-term investment notes, and proposed that additional institutional improvements are needed, including modernizing the Korea Exchange infrastructure and expanding the scope of exemptions from liability in cases where venture capital investments and loans fail.

Lastly, the Korea Institute of Public Finance presented "Tax Reform Measures for Productive Finance" based on an analysis of after-tax returns among overseas stocks, domestic stocks, and real estate. The institute identified the combination of leverage and the tax system in the past as a key factor behind the real estate-focused structure of the Korean economy, and assessed that recent tax reforms, including the introduction of separate taxation on dividend income, are expected to enhance the attractiveness of the domestic capital market.

It also stressed that tax policies must continue to be designed with consideration for tax fairness so that the domestic capital market can be competitive with the real estate market and overseas capital markets.

This content was produced with the assistance of AI translation services.