Hardware is passé: China has the busy hands that will make the dolls and appliances that sell at Wal-Mart and Carrefour stores around the world. (Although branded and high-ticket items are still attractive: Samsung last month unveiled a two-meter-wide plasma television that retails for $124,000.) Korea's main natural resource is brainpower, and it's got more than its fair share: 97% of its youth make it to grade 10 of high school, the highest percentage in the world. Korean students' math skills are second only to those of the Finns. When your people are as smart and educated as those in advanced countries, you can compete on the higher level of ideas and creativity.

One of Korea's hottest exports these days is entertainment—movies, TV programs, pop singers, Internet games—and that's a triumph of talent. An episode of the serialized television drama Jewel in the Palace scored Hong Kong's highest viewership ratings ever this year, and Chinese President Hu Jintao told a visiting South Korean lawmaker he's a fan. Jang Dong Gun, Korea's hottest leading man, is suddenly everywhere. After starring in last year's Taegukgi, a Korean War tear-jerker that broke box-office records at home, Jang is playing opposite Hong Kong star Cecilia Cheung in the big-budget U.S-Chinese-Korean co-production The Promise, which Beijing has picked as its contender for the Best Foreign Film Oscar.

The overseas popularity of such cultural exports has been dubbed the "Korean Wave," and it's at its crest. In the first nine months of this year, 550,000 tourists visited South Korea on Wave package tours, which take them to locations where TV serials have been filmed. At any given hour, millions of people in China, Taiwan, Japan, Hong Kong and the U.S. are online playing Lineage, a computer game created by Seoul-based NCsoft. Singers such as Rain and BoA are white hot throughout Asia.

The overseas box office from South Korean films for the first six months of this year came to $42 million (up from $58 million for all of last year and $15 million in 2002), while computer-game exports are expected to reach $480 million (up from $376 million in 2004). That's still a pittance compared with the country's electronics exports, which are expected to top $100 billion this year.

But money isn't everything. Foreign Minister Ban Ki Moon says the Wave has brought South Korea long-overdue respect. "Everybody knows we are the 11th-largest economic power in the world," he says. "But we have 5,000 years of culture and this is not well known." Says Yang Kee Ho, a political-science professor at Seoul's SungKongHoe University: "The Korean Wave shows we're not just a small country anymore."

Koreans also say their art reflects the country's unique sensibility. For one thing, familial relations are strongly portrayed in its dramas. Yun Suk Ho, director of four TV serials that have been smashes in Japan, talks of han, a Korean word for a deeply felt sense of oppression: "Korean dramas express sadness particularly well. The writer of Autumn in the Heart would cry when writing his script. The actors, during rehearsals, started crying too." Shin Hyun Taik, a film producer who runs a government-funded foundation promoting cultural exports, emphasizes another aspect of han: a grudge mentality, with resentments directed at everyone from U.S. troops to Japanese politicians. "A grudge is part of our national sentiment," he says. "We have a talent for expressing this."

Shin worries that the Wave will subside. His solution: to aggressively court film industries in other Asian nations to join in co-productions and other cross-pollinations. "We don't want to make the same mistake Hong Kong made," he says. "The action flicks, the Jackie Chan movies, were great. But they didn't share with the rest of Asia and their wave ended." In other words, Korea simply can't go it alone in this business.

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