Anyone blinded by east Asia's dazzling rise into thinking that the entire region is one unending economic success story should ponder the case of South Korea. Once held up as a model of precocious development, which rapidly transformed itself from an agricultural into an industrialised society, east Asia's third largest economy is sinking into premature middle age.

After bouncing back from the 1997 economic crisis, growth has dwindled to an average of 4.2 per cent in the past four years, well below potential. Competitors in China and other lower-cost countries are fast eroding Korea's industrial base. Its companies are moving plants offshore as fast as they can, while a wave of increasingly strident xenophobia at home risks diminishing still further the country's modest foreign direct investment inflows.