On the 2nd, the Lee Jae-myung administration announced plans to review the easing of financial-industrial separation, raising expectations in the domestic industrial sector. This suggests that companies leading global industrial investments in areas like artificial intelligence (AI), similar to Japan's SoftBank, could emerge in Korea.

The key is to relax regulations on corporate venture capital (CVC). If this happens, companies with foresight can take on the role of fund managers (GP), selecting companies to invest in, while the financial sector provides the funds, thereby increasing both the scale and success rate of investments. If this plan materializes, it is expected to alleviate funding issues in the increasingly competitive global high-tech industries such as semiconductors and batteries, as well as foster promising startup companies.

● Both Industry and Financial Sectors Call for Easing Financial-Industrial Separation

Following the 'money war' among companies in industries like AI, there have been repeated calls to lift the funding constraints on domestic companies. SK Group Chairman Chey Tae-won notably stated last month, "Even if we want to invest in high-tech industries like AI, there's not much we can do due to financial-industrial separation regulations."

Similar sentiments were echoed in the financial sector. At the National Growth Fund National Report Conference on the 10th of last month, attended by President Lee Jae-myung, Jin Ok-dong, Chairman of Shinhan Financial Group, stated, "Korea is the only place where CVCs are tied down by financial-industrial separation, but if CVCs could play the role of GP, banks could also participate."

The calls for easing financial-industrial separation from both industry and financial sectors arise because the expertise in high-tech industries is increasing, making 'investment difficulty' higher. Technologies like AI and semiconductors are now difficult for general investment companies to assess. Even if the financial sector wants to invest funds, the structure is not easy, hence the proposal to resolve this through CVCs led by companies.

An industry insider stated, "It used to cost KRW 30 trillion to build a semiconductor fab (factory) 5 or 6 years ago, but now with rising prices and labor costs, it is said to cost KRW 40 trillion to KRW 50 trillion," adding, "There is a limit to competing with overseas companies with a single company's investment." Joo Jin-yeol, a professor at Pusan National University School of Law, said, "Even if we combine the capital of all Korean conglomerates, we can't match a single U.S. big tech company, so it's unreasonable for a company to bear all the investment burden alone," emphasizing the need to open up CVC regulations.

● Fair Trade Commission Considers Legal Amendments

In Korea, a CVC system that allows holding companies to invest was introduced in 2021, but it has not been activated due to various regulations. According to the 'Monopoly Regulation and Fair Trade Act' (Fair Trade Act), general holding companies must own CVCs as 100% subsidiaries, and external funds are only allowed up to 40% when raising investment funds. Overseas investments cannot exceed 20% of total assets. They also cannot play the role of a GP, gathering investors to form funds and leading investments.

The Fair Trade Commission has begun reviewing amendments to this Fair Trade Act. Options being discussed include easing CVC regulations or allowing GPs. Several legislative amendments are already pending in the National Assembly to expand the external funding regulation ratio for CVCs to 50% and the overseas investment ratio to 30%. However, the core regulation of financial-industrial separation, such as the limit on industrial capital's bank shareholding (4%), aimed at preventing the privatization of financial companies by large corporations, is expected to be excluded from the easing.

President Lee, regarding financial-industrial separation, emphasized in the chief aide meeting on the 2nd that "our society needs to discuss very specific areas where there are no monopoly harms," according to spokesperson Kang Yoo-jung from the presidential office. Spokesperson Kang stated, "In very specific areas, when national importance and the demands of companies and the government align, like the AI industry promoted by the government, we can discuss exceptions," adding, "What the President emphasized was 'very limited areas.' It needs to be thoroughly discussed and approached from a pragmatic perspective." President Lee's remarks are interpreted as a response to some ruling party criticisms that easing financial-industrial separation would allow privileges for conglomerates.

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