SEOUL - While Thailand seems too obsessed with domestic politics to remember that this year marks the 10th anniversary of the "tom yum goong" economic crisis, South Korea marks the occasion with some serious soul-searching.

"We are finding ourselves in a new trap. We need to get out of this corner as soon and as vigorously as we can," declared Woo Cheon-sil, a senior adviser to South Korea's deputy premier for economic affairs.

Concern is rising among politicians and scholars that Seoul runs the risk of being caught between two neighbours - China and Japan.

The "nutcracker phenomenon" isn't exactly a novel threat. Even in the 1990s, Seoul realised that it was being squeezed between two economic giants. China was looming as a low-cost manufacturing location and Korean companies were soon to discover that they didn't have the advanced technology or brand power of Japanese or Western companies.

Today, "Sandwich Korea" has become the latest buzzword among business people here.

South Korea's economic growth, which was in the range of 8 per cent to 9 per cent for much of the 1990s, has recently slowed to 5 per cent. One of the reasons for this is that China has taken Seoul's lead in low-cost manufacturing and is threatening its higher-value industries. China has recently overtaken South Korea for the first time in shipping orders.

The "growth-oriented" development paradigm no longer works. The formula might have helped drive South Korea's rise from rags to riches but the challenges that face Asia's third-largest economy are plain to see:

l Slowing economic growth;

l Widening income gap between the rich and the poor;

l Intensifying competition with emerging markets.

And all these new threats appear on the horizon just as Korean society is greying at an unprecedented speed.

Robert Glenn Hubbard, dean of Columbia Business School, says the government will have to refrain from "controlling the economy" to create a more corporate-friendly environment.

Jung Chang-young, president of Yonsei University, proposes that the government and corporate sectors should invest more to enhance technologies to develop value-added products so that Korean companies can outpace those in less developed nations.

Leaders of Korea's top conglomerates, such as Samsung Group chairman Lee Kun-hee and SK Group chairman Chey Tae-won, compare Korea to the meat in a sandwich jammed between China and Japan.

The social repercussions of the questions they raise are huge. Korean manufacturers have higher costs than China. Retaining a high-cost production system will make it difficult for Korea to overtake Japan. Chinese firms are moving rapidly towards a low-cost, high-quality model, ditching their renowned low-cost, medium-quality, production policy. In other words, Chinese firms are increasingly stealing the thunder of their Korean competitors.

What, then, can South Korea do to remain competitive? In Hubbard's view, the threat of China could be turned into an opportunity. China's weak financial infrastructure means Korea could gird itself into a position whereby its aim to become Asia's financial hub could counter China's growing economic influence.

Jung suggests that for Seoul to avoid "sandwich" status it should enhance its industrial competitiveness by upgrading the quality of Korean-made products. That means aggressive investment in research and development.

He went so far as to suggest that shareholders and workers should be willing to deal with short-term sacrifices in favour of technology development. "Companies should build a consensus among staff to spend profits on technology development rather than shareholder benefits or labour cost hikes. You can learn a lesson from Toyota of Japan, which has frozen wages and drastically invested in technology amid high profitability," the well-known academic told a recent forum on Korea's economic issues.

As the senior counsellor to the deputy premier for economic affairs, Woo Cheon-sik opposes this new approach, dubbed "Vision 2030". In practical terms, the new policy thrust foresees:

l Maximum economic dynamism to enhance its competitiveness at all levels;

l Adequate social investment that includes embracing the vulnerable and needy members of society;

l Deeper and bolder institutional reforms that incorporate "pro-active" budget spending.

Somebody in the audience asked him how urgent the mission was. The questioner, obviously, wasn't a Korean. The academic responded almost immediately: "I have in fact written a poem on this vision for the country. The goal is to build a connected, competent and compassionate society with what I call total entrepreneurship. But if we aren't aware of the great changes and threats facing us, then I can only say that the new window of opportunities may be closed in time, probably for good."

This time the "paradigm shift" is no less dramatic as the one in the 1990s when, as the story goes, Lee Kun-hee, the chairman of Samsung Group, rallied his executives in a special marathon meeting that lasted until 3am before declaring: "To survive the threats around us, we must go for a total transformation. From today onwards, you must change everything except your wife."

Then, he smashed a Samsung-made TV set in front of the group. Today, the conglomerate's chairman may have to swallow a tiny computer chip to prove his point.