foul play

South Korea is hoping fried chicken will help solve its runaway debt problem

September 17, 2013
September 17, 2013

South Koreans are among the most heavily indebted in the world, a threat to one of Asia’s largest economies. So what are Korean policymakers doing about it? For one thing, they’re slowing the growth of new restaurants, especially fried chicken shops. Officials have ordered restaurant franchises not to open two outlets within half a mile, or 800 meters, of each other, according to a Wall Street Journal report (paywall).

Almost a third of the country’s workforce is self-employed. So a fair portion of its debt load stems from individuals who take out loans to start and run small businesses—often restaurants. (Also, workers in their 50s, forced to retire from Korean companies that largely favor younger staff, often turn to the mom-and-pop food industry to supplement small pensions.) Thus, South Korea has a ratio of restaurants to people of 12 to 1,000, twice that of Japan and six times as much as the US, the Journal reports.

Korean fried chicken, a twice deep-fried snack often eaten with beer or soju after work, is a particularly popular restaurant option. The food, now popular in countries outside of Korea as well, first took off in the country during the 2002 World Cup, when it became the bar food of choice for Koreans watching the matches. But chicken stalls have a high failure rate. According to the Wall Street Journal, about 7,400 fried chicken restaurants are opened in South Korea every year, while 5,000 existing ones go bankrupt each year. Nearly half of new fried chicken joints in South Korea close within three years of their opening, the report said.  

While a crash in the restaurant market isn’t likely to cause a financial crisis, policymakers think rising loan defaults could hurt consumer spending and crimp bank lending. Already, Korean household debt is growing at its fastest pace in a year in a half and weighing on spending. Korean household debt was equal to about 136% of annual incomes in 2012, a nine-year high.

Of course, chicken-inspired lending isn’t the only contributor to Korea’s household debt. Other culprits include loans for education, cars, homes and other consumer needs.

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