Gov’t Won’t Ban Circular Investment

In its push to reform investment rules, the government has decided to reduce the number of companies to which an investment cap will apply. A much-debated ban on circular investment will not be introduced.

The Fair Trade Committee announced on November 15 that it has confirmed the government’s reform of policies related to big conglomerates.

The Committee is going to submit a fair trade law reform bill to the National Assembly and push for its confirmation in next February’s extra session.

In the government-ruling party consultative meeting held this day, however, some Uri lawmakers argued for reducing the number of companies to be capped.

Fewer Companies May Be Capped –

The investment cap will ban an affiliate to a big business group with more than 6 trillion won in assets from investing more than 25% of its net assets in other affiliates.

According to the reform, the cap will apply to companies with 2 trillion won in assets affiliated to a group with 10 trillion won assets. It will also be lifted to 40% of net assets. There may be more changes as some Uri lawmakers argue the cap be lifted to up to 3-5 trillion won for affiliates.

The reform also includes easing regulations on a company’s shareholding of a subsidiary from more than 30 percent to more than 20 percent.

The debated ban on circular investment was switched to a plan to induce companies to discontinue the practice voluntarily by giving tax benefits.

Business World Response: “Mostly Satisfying”–

The business world’s response to the government’s plan was “Mostly satisfying.”

The number of companies to be capped was lowered from 343 affiliates of 14 groups to 24 affiliates of 7 groups: Samsung (7), Hyundai/Kia Motors (5), SK (3), Kumho Asiana (3), Lotte (3), Hanhwa (2), GS (1). The investment reserve power for 24 affiliates increased from 16 trillion won to 33 trillion won as a result.

The Korea Chamber of Commerce & Industry said, “We will push for a more radical reform, including the abolition of investment caps, since the cap on big companies puts a limit on the dynamics of investment.”

Chairman Kwon, “Circular Investment Regulations Still Needed” –

There is a forecast that the position of the Committee Chairman Kwon Oh-seung, who has pushed for the ban on circular investment, will be weakened as the ban has been discarded.

It was reported that Kwon expressed his intention to resign after the committee was swamped by a wave of strong criticism from the Ministry of Finance & Economy, the Ministry of Commerce, Industry and Energy, and the ruling party, as well as from the business world.

Announcing the government’s reforms, however, Kwon said, “I still believe prohibiting circular investment will be helpful for both them (big companies) and the national economy.”

He recited Yun Dong-ju’s famous poem, which says, “I will go my way,” in the Committee’s executive meeting on the morning of November 13.

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