NEWS of Korean overseas investment has flowed thick and fast in recent months. It ranges from microchips in Britain to banks and car plants in Poland, financial services in Ireland and research and development centres in the US. Behind the expansion are Korea's distinctive conglomerates, the socalled chaebols, which are taking to globalisation with relish and borrowing billions to achieve it. Fired by a burning desire to dominate the high-tech industries of the future, they aim to repeat the process that has transformed South Korea from wartime ruin 43 years ago into Asia's biggest industrial powerhouse after Japan.

That the chaebols' strategies are so strikingly similar says much for the resilience of the Korean development model, in spite of attempts to reform it. Created with strong support from the state, the chaebols were favoured with virtually free funds for expansion, and bailed out when they stumbled.

The scope of their activities is sweeping. Daewoo, which achieved sales of more than $40,000 million in 1995 and exports of over $10,000 million, claims no fewer than 20 principal business areas. The eclectic mix includes hotels and home appliances, cars and computers, ships and semiconductors.

The company is unabashed in its advocacy of diversity, believing that a mixed business can better ride out the bumps in the business cycle.

The chaebols' domination of the economy is as big as their collective ambitions: the four largest Hyundai, Samsung, Daewoo and LG together accounted for 57 per cent of all Korean exports in 1994. Samsung planned to invest more than $10,000 million last year alone and aims to quadruple its sales by 2001 to more than $200,000 million.

Despite the brash confidence that is apparent in the staggering expansion plans, there are lingering anxieties that it could all go wrong. Korea is keen to be recognised as a leading industrialised country and is lobbying to join the OECD and the Bank for International Settlements (BIS). Membership will mean playing by the rules of the rich nations, which are only just being adopted in Korea, and slowly at that. Korea will have to open its markets more enthusiastically, encourage competition and remove the web of subsidies that aid export-oriented industries.

Korea's economic expansion plans need huge infusions of capital and Seoul will have to open its financial markets further to make foreign investors more welcome. Over time, the subsidies, state meddling in industry and the chaebols cosy relations with government should give way to a more transparent allocation of resources.

The economic reforms started under President Kim Young-sam in 1993 are already concentrating corporate minds and business leaders fret about the future. Their big concern is efficiency and the need to adapt the industrial companies they have created to the demands of a global market. They are particularly worried by the need for new capital and an appreciating won that could undermine exports. They complain about Korea's inadequate infrastructure, and the transport system in particular. Labour costs are soaring and there is ferocious competition in the very sectors that have been targeted for expansion notably automobiles and advanced electronics

Costs of globalisation

There are already signs that economic liberalisation and the globalisation strategy are slowing growth and stimulating inflation. In July, the government was obliged to revise its forecasts as the current account deficit during the first six months of the year shot to more than $9,000 million, compared with $8,900 million for the whole of 1995. 'Even the most talented forecasters were dead wrong,' says Hoon Chae, director-general of area research at the Korea Trade-Investment Promotion Agency (Kotra). Analysts now expect a current account deficit of at least $12,000 million, inflation of about 5 per cent and growth of only 7 per cent.

This is a far cry from real economic growth rates of nearly 10 per cent a year, and observers are divided about its seriousness. 'The growth rate is quite high but we feel we are falling into a period of contraction,' says J W Lihm, chief of domestic economic research at the Bank of Korea (central bank). Any sign of a slowdown is alarming to some. 'In an economy like Korea's, if you don't run at a certain speed, you collapse,' says Chae. 'We worry whether it's a structural adjustment or a temporary phenomenon.'

A further worry is the rate at which money is flooding in and foreign debt is rising.

There was a net inflow of $13,000 million in 1995 and a further $8,000 million in the first four months of 1996, mostly into Korean stocks. Korea's foreign debt, which stood at $58,600 million in 1994, rose by 38 per cent in 1995 and is expected to shoot over $100,000 million this year.

Korea's record of economic expansion is not unblemished and disaster has struck before. In 1980, external debt soared to 49 per cent of GNP, the current account deficit was 9 per cent of GNP, the economy contracted by 2.2 per cent and inflation rocketed to 29 per cent. That crisis was aggravated by the oil shock of 1979 and a degree of state interference that Korea's current leaders eschew.

The liberalisation process is slowly removing barriers to foreign investors and overseas investment by Korean companies and, so far, the experts see the impact as almost entirely beneficial. Even their anxieties about trade trends are measured.

'When we talk only of exports and of slow exports this year, it is by comparison with last year which was exceptional,' says Chae.

In 1995, semiconductors accounted for 16 per cent of all exports, but saturation of the market has seen sales plummet this year.

'Negative growth in 1996 has come as quite a shock to us,' says Chae.

The consensus view seems to be that, regardless of the forecasters failure to predict events this year, Korea's bid to become a global economic power will be as successful as its previous bouts of rapid expansion. 'We have to worry about this situation, but on the whole high growth, high inflation and a current account deficit is characteristic of the Korean economy,' says Lihm.

Yet, after years of sacrifice to pay for economic expansion, Koreans are keen to enjoy the fruits of their labour. This is evident in a rise in consumer spending and the vogue for foreign travel. Faced with worsening indicators this summer, President Kim urged people to spend less abroad to help the economy. His homily echoed the mix of authority and sacrifice that his military predecessors had wielded so effectively, but, in a more liberal climate, he lacks the means to impose his will in the same manner.

Facing re-election next year, Kim has presided over a democratisation process that is still in its infancy. He is only the second directly elected president and the first without a military background. Yet, old habits die hard and many vestiges of the authoritarian past persist, from bloated security services to an imperial-style presidency.

Parliament faithfully reflects Korea's acute regional rivalries and has been more preoccupied by theatrical squabbles over who should be speaker than thought-provoking debate. The prosecution for corruption of Kim's two predecessors, Roh Tae Woo and Chun Doo Hwan, has done little to inspire popular confidence in the country's leaders, while exposing the extent to which they served the interests of the business elite.

Comparisons are often made between the Korean development experience and the progress of many communist economies in the 1950s and 1960s as progress was achieved from a similar mix of coercion and hard work.

Today, South Korea is loosening up and North Korea is about the only country left pursuing an unalloyed collectivist ideal. Since the death two years ago of Kim Il Sung, the 'Great Leader', observers have been writing obituaries for the north, forecasting its imminent collapse and speculating about the cost of its reunification with the south.

Prickly problems

A series of disastrous harvests and reports of famine have merely reinforced assumptions that the regime of Kim Il Jung, the Great Leader's son and successor, must be faltering.

A strong nationalist streak makes Koreans favour reunification, but the cost could be crippling for the south if it comes about because the northern economy has collapsed. It has yet to happen, but direct investment in the north by the chaebols could help integrate the two economies, while easing an eventual union.

Korea's other prickly regional relationship is with Japan, which it alternately admires and despises. The admiration is for a record of economic advance that Seoul has emulated and confidently expects to exceed. The dislike stems from invasions and occupations over many centuries and the insensitivity of some contemporary Japanese politicians who still seek to whitewash aspects of the brutal 40-year occupation of the peninsula which ended in 1945. Niggling problems over fishing rights and relations with the north help maintain the tensions to this day.

Having mounted the Olympic games in 1988, Korea is to co-host the football World Cup with Japan in 2002, which should force both countries to be more cordial. A promising start was made this summer when, prompted by the football festival, Japan's Prime Minister Ryutaro Hashimoto met President Kim at a Korean island resort for a rare bilateral summit. Noting the positive personal chemistry between the two leaders, analysts were quick to predict smoother times ahead.

Kim will be hoping that the small economic setback this year is also a prelude to more upbeat economic news. The government has weighed in with plans for five huge infrastructure projects, worth $25,000 million, to be funded from privatisation receipts and foreign borrowing. The private sector will also contribute to the costs of the schemes an airport, high speed train and three container ports which are intended to turn Korea into a transport hub for northeast Asia.

As the scale of the schemes suggests, Korea has lost none of its appetite for thinking big, and commandeering public money to advance the ideas. Having grown accustomed to running hard, there is no intention of slowing down now.

Rewriting tbe script: President Kim's war on graft could send his predecessors to jail

Welcome: funds are flowing in and foreign debt is rising rapidly

Exchange rate: $1 = W813.95 (July 1996)