Easing capital rules risk deepening corporate favoritism concerns

“It is a meaningful step. But concerns about preferential treatment remain.”

That worry was voiced repeatedly by business figures familiar to the author on Dec. 11, the day the Ministry of Economy and Finance reported to President Lee Jae-myung on special provisions under the Act on National High-Tech Strategic Industries aimed at easing the separation of industrial and financial capital. The concern warrants clarification. A dictionary definition of “preferential treatment” describes it as a special favor or benefit. In other words, if a specific individual or group alone receives a particular advantage, it amounts to preferential treatment.

The special provision was intended to open a new financing pathway for South Korean companies operating in advanced industries. In practice, however, the prevailing view is that only one conglomerate, SK Group, stands to benefit. Even officials involved in drafting the policy have acknowledged that possibility. When a reporter asked whether there were beneficiaries other than SK, one official replied, “We will have to see how the rules are applied.”

There are three core conditions for qualifying for the easing of the separation of industrial and financial capital. First, the provision applies only to general holding companies. Second, the holding company’s grandchild subsidiary must operate in the semiconductor sector. Third, the company must expand investment outside the capital region. In South Korea, SK Group is effectively the only company that meets the first two conditions at the same time. Samsung Electronics, another major domestic semiconductor firm, does not operate under a holding company structure. Other companies that do adopt such a structure lack appropriate grandchild subsidiaries engaged in semiconductor businesses.

Under the special provision, a holding company’s grandchild subsidiary will be allowed to establish a subsidiary, known as a great-grandchild company, while holding only a 50 percent equity stake. Existing regulations require full ownership to set up such entities. The change would allow companies to bring in external investors for the remaining shares. Newly established great-grandchild companies would also be partially permitted to enter financial businesses, an activity that had previously been barred.

This framework can be applied directly to SK Group. SK runs its semiconductor operations through a tiered structure, with SK Inc. as the holding company, SK Square as a subsidiary and SK hynix as a grandchild subsidiary. Under the new provision, SK hynix would be able to secure a 50 percent ownership stake while raising capital and establishing financial great-grandchild companies, such as special purpose vehicles designed to attract investment. The revised rules would also make it possible to raise external funds, including capital from vehicles such as the National Growth Fund, through SK hynix subsidiaries.

The overall direction of the special provision is positive. South Korea’s semiconductor industry is engaged in a capital-intensive race with global competitors that are investing hundreds of trillions of won. SK Group is no exception. Chairman Chey Tae-won has said the company plans to invest 600 trillion won in building the Yongin semiconductor cluster alone. In that context, even a partial loosening of the separation between industrial and financial capital, a constraint semiconductor firms have borne for decades like a sandbag tied to their ankles, deserves recognition for easing financing pressures.

Still, selectively granting such benefits to a single company risks undermining public confidence in the policy itself. If a measure that should be pursued as a general principle to nurture advanced industries is instead applied only to a narrow set of firms, criticism that the government is favoring large conglomerates will be difficult to avoid.

Semiconductors are not the only sector in which South Korea must catch up with global leaders. Other national strategic industries, including artificial intelligence, batteries, future mobility and biotechnology, face similarly heavy demands for large-scale investment. The key question, then, is whether the government intends to continue offering case-by-case benefits tailored to specific companies. Only by expanding the easing of the separation between industrial and financial capital, first tested in the semiconductor sector, to a broader range of industries can policymakers move beyond recurring controversies over preferential treatment.