Rival parties disagree on reintroducing cap on chaebol’s equity investment

The following is the last in a two-part story about political parties’ call for economic democratization ahead of the December presidential election. ― Ed.


Both the ruling and opposition parties are voicing “economic democratization” as a key policy for the presidential elections in December.

The constitutional term refers to efforts to promote balanced growth, economic stability and equitable income distribution and to prevent market domination by a select few and their abuse of economic power.

Parties agree on the need to address unfair practices by family-owned conglomerates, such as giving most of their orders to affiliates or companies run by relatives, encroaching on areas of trade traditionally occupied by small firms.

They have starkly different views, however, on easing the concentration of economic power in conglomerates.

The Democratic United Party calls for reintroducing the cap on big business groups’ equity investment and banning cross-shareholding among their affiliates after a grace period of three years. Chaebol families have used the cross-investment or circular investment to control several affiliates despite holding a relatively small stake.

Earlier this month, a group of DUP lawmakers said they would submit a revised fair trade bill that prohibits the nation’s 30 biggest conglomerates from investing more than 25 percent of their assets to acquire shares in other domestic companies. The envisioned bill is tougher than the version previously laid out by the DUP which bans the 10 largest business groups from spending more than 30 percent of their assets to buy shares in other firms.

The ceiling on conglomerates’ equity investment, first introduced in 1987 to prevent reckless business expansion by family-controlled business groups, was scrapped in March 2009 under the Lee Myung-bak administration.

The DUP also presented a bill that caps non-financial companies’ stakes in banks at 4 percent, down from the current 9 percent, and a bill that bars holding companies from borrowing more than the value of the assets they own, down from twice the value.

The DUP’s Rep. Hong Jong-haak submitted a revised corporate tax bill that allows double taxation on dividends paid among the affiliates of large conglomerates with assets of 5 trillion won or more.

The ruling Saenuri Party is against reintroducing the cap on chaebol’s equity investment, but many Saenuri lawmakers insist that chaebol affiliates must be banned from making fresh cross-shareholding investments.

The Saenuri Party is more focused on preventing large conglomerates’ abuse of economic power.

Park Geun-hye, the Saenuri Party’s presidential frontrunner, stressed on Monday that her party’s idea of economic democratization was clearly different from that of opposition parties, which she said was aimed at breaking up the chaebol.

She said reviving the cap on conglomerates’ equity investment was unlikely to be effective and would cost too much.

“It is important to guarantee fair opportunities, market transparency and a clear rule of law,” Park said in a debate session with news editors, hinting at stronger roles by the Fair Trade Commission.

Saenuri floor leader Lee Hahn-koo proposed punitive compensation or class action suits systems for big business groups’ unfair or wrongful treatment of minority shareholders, subcontractors, consumers or temporary workers.

A group of Saenuri lawmakers led by Rep. Min Hyun-joo submitted a revised bill to toughen punishment of chaebol chiefs charged with embezzlement or breach of trust.

Chaebol tycoons were often given light sentences by courts for grave economic crimes, including suspended prison terms.

If the new bill is passed, the minimum jail term for specific economic crimes will be raised from the current three to seven years, providing no room for suspended sentences.

Saenuri’s Rep. Kim Jae-won tabled a bill that requires the National Pension Fund to exercise its shareholder rights.

Saenuri Rep. Na Seong-lin and DUP Rep. Lee Yong-sup laid out revised bills on the retail industry to ban large discount stores from opening near traditional markets and increase the number of days large discount chains must close, respectively.

By Kim So-hyun (sophie@heraldcorp.com)