South Korea’s Dual Economy: Wealth Surges as Structural Pressures Mount

Executive Summary

South Korea’s economic landscape in 2025 reveals a tale of two realities. While the wealthiest 0.9% of the population now controls 60.8% of household financial assets—a concentration growing at twice the rate of ordinary households—broader structural challenges loom. A weakening won, manufacturing job losses despite export rebounds, and ballooning household credit risks underscore the fragility beneath surface-level prosperity. These divergences demand scrutiny of how asset polarization, automation, and global trade shifts are reshaping Asia’s fourth-largest economy.

The New Plutonomy: Financialization and Polarized Wealth

Ultra-High Net Worth Growth Outpaces the Rest

KB Financial Group’s 2025 Korea Rich Report highlights a seismic shift: the number of individuals with over ₩30 billion ($22.5 million) in assets surged 20% year-on-year, while the broader “rich” cohort (₩1 billion+ financial assets) grew just 3.2%. Ultra-high net worth individuals (UHNWIs) now control 46% of rich-held financial assets (₩1,411 trillion), up 4 percentage points since 2020. This mirrors global trends where top-tier wealth benefits disproportionately from capital markets—South Korea’s stock-heavy rich saw 34.9% report investment gains in 2025, driven by semiconductor and AI equities.

Real Estate to Equities: A Strategic Pivot

The wealthy’s asset allocation reveals strategic caution. While residential property remains 31% of portfolios, financial assets now comprise 37.1%, with stocks rising to 7.9% (+0.5pp). Notably, 55% of rich investors plan to increase equity exposure in 2026, favoring U.S. (53.6%) and Vietnamese (7.5%) markets. Yet paradoxically, risk aversion is rising: stable investment preferences jumped 5pp to 49.3%, reflecting geopolitical and currency volatility concerns.

Manufacturing’s Automation Trap

Jobs Decline Despite Export Resilience

South Korea’s manufacturing employment fell for 17 consecutive months to 4.35 million—a loss of 150,000 jobs since 2023—even as semiconductor exports recovered. This mirrors patterns in the U.S., Germany, and Japan, where automation and AI adoption reduced headcounts despite output growth. Hyundai’s shift to AGV (Automated Guided Vehicle) systems exemplifies this: productivity gains without proportional hiring.

China’s Shadow and Cost Pressures

Competition from China, which absorbed 19.6% of South Korean rich investors’ foreign equity allocations, compounds pressures. With Chinese manufacturers leveraging scale and lower costs to dominate Southeast Asian and European markets, Seoul faces a dual challenge: maintaining export competitiveness while managing domestic job erosion. The result? A “high-value, low-employment” manufacturing sector ill-equipped to address youth unemployment at 7.1%.

Currency Conundrum: The Won’s Structural Weakness

Overseas Investments Drive Depreciation

The won’s slide to ₩1,479.9/USD—its weakest since the 1997 crisis—stems not from fundamentals but capital flows. Retail “Seohak Ant” investors purchased $5.5 billion in foreign stocks in November alone, while the National Pension Service’s overseas investments reached $65 billion. Offshore NDF markets, trading $50-60 billion daily, amplify speculative pressure. Authorities now signal intervention via pension fund hedging, but skepticism persists: the BIS estimates the won remains 15% undervalued.

Yen Synchronization Risks

The won’s 0.7% decline against the dollar in December—contrary to gains by the euro (+1.2%) and yen (+0.17%)—highlights its new correlation with Japan’s expansionary policies. As both nations pursue fiscal stimulus and equity market “value-up” strategies, sustained yen weakness could anchor the won above ₩1,450, complicating export pricing and inflation management.

Household Debt: Regulatory Whack-a-Mole

Mortgage Curbs Fuel Credit Loan Surge

Government caps on mortgage lending (down ₩421.1 billion in December) triggered a 20% YoY spike in credit loans, notably “minus bankbook” balances (₩40.7 trillion). Households now prioritize high-interest credit (4.18-4.84%) over mortgage repayments, which fell to ₩1.7 trillion in early December. This “balloon effect” risks destabilizing lower-income borrowers: savings banks’ provisions hit 18% of loan values despite dwindling profitability.

Conclusion: Navigating the Fault Lines

South Korea’s economic trajectory hinges on balancing elite wealth dynamics with structural reforms. The stock market’s reliance on semiconductor bets—72% of rich investors hold chip equities—leaves portfolios vulnerable to cyclical downturns. Meanwhile, manufacturing automation and trade protectionism (G20 restrictions impacted $4.1 trillion in goods) necessitate workforce reskilling, particularly as AI adoption spreads. With the won’s stability tied to pension fund maneuvers and demographic decline looms—2042’s workforce will shrink 27%—policymakers must address inequality and innovation in tandem. Failure risks cementing a dual economy: buoyant capital markets atop an eroding productive base.