South Korea’s tensions with North Korea are escalating, but South Korea has a plan to keep its economy, exchange traded funds (ETFs) and its growing ETF industry humming.

The country announced recently that it would begin charging levies on banks foreign exchange borrowings. The rule is aimed at keeping a lid on the chances that capital would flee the economy – something nervous investors may be looking to do if things deteriorate.

If the move works, iShares MSCI South Korea (NYSEArca: EWY) may continue to remain in positive territory. IQ South Korea Small Cap (NYSEArca: SKOR) is only slightly above its long-term trend line, but 2011 could bring good things if the broader small-cap uptrend sticks. Slower economic growth, however, could be a risk for either fund, as it is forecast to slow to 5% next year…but that’s hardly anything to get down about.

Rather than getting mired in the issues of the present, South Korea’s eyes are on the future, and that future is ETFs. The country’s bourse is going to introduce products tracking raw materials, grains and corporate bonds, a stock exchange official said. If such funds are introduced, South Korea’s ETF market could grow as much as 67% next year, says Bloomberg. [South Korea ETFs Stand Strong.]

The value of ETF assets in South Korea, the fourth-biggest market for the products in Asia, may expand to about 10 trillion won ($8.8 billion) in2011. [North Korea Is a Distant Memory for South Korea ETFs.]

South Korea ranked fourth in the Asia-Pacific ETF market in terms of assets under management, trailing Japan, Hong Kong and China, according to data from BlackRock. It’ll be interesting to watch this race for dominance in the ETF market in Asia.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.