Government split over ‘corporate venture capital’

05-Jun-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

The Ministry of Economy and Finance and the Fair Trade Commission (FTC) are in conflict over a proposed easing of regulations that would allow non-financial holding companies here to create “corporate venture capital (CVC).”

While the finance ministry has pursued the deregulatory measure to prompt large businesses to invest in startups, the FTC has opposed this, saying it goes against the principle that restricts industrial capital from owning financial firms, such as banks and insurers.

A CVC refers to funding that conglomerates have invested in.

Global tech giants, such as Google, Intel and Baidu, have launched their own CVCs to foster startups with growth potential and acquire those startups swiftly when they are needed.

In contrast, Korean law has barred non-financial holding companies from setting up CVCs because there has been concern over chaebol owners using the assets of their financial subsidiaries to tighten their grip on their companies.

Since the nation’s investments in startups have diminished amid the COVID-19 pandemic, however, Cheong Wa Dae has agreed to allow the finance ministry to push forward with the deregulation.

Based on the support from the President, the finance ministry announced Monday it will consider allowing non-financial holding firms to own CVCs “restrictively.”

“For another boom in the startup industry, we will drastically ease regulations on venture capital, and will consider allowing non-financial holding firms to own CVCs,” deputy prime minister and Finance minister Hong Nam-ki said, announcing economic policies for the latter half of 2020.

“Both the amount of money raised for investments in startups and actual investments in startups have grown gradually over the past 13 years, but the former dropped 20 percent in the first quarter, while the latter fell 4 percent. The government had no choice but to consider a drastic measure.”

Although large businesses and startups welcomed the government announcement, the FTC has remained skeptical about the proposed measures.

The antitrust watchdog said even if the government eases regulations on CVC, it will continue to be very difficult for non-financial holding firms to establish CVCs.

The finance minister admitted there has been some opposition inside the government to the ministry’s plan to allow non-financial holding companies to have CVCs.

Progressive civic groups protesting CVCs are another headache for the government.

The Citizens’ Coalition for Economic Justice (CCEJ) said in a statement that the government should stop pursuing the “chaebol-friendly” policy which violates the principle of separation between industrial and financial capital.

“If the government regards CVCs as non-financial companies, financial holding companies will be forced to sell their venture capital, because the current law bans them from owning non-financial firms,” the CCEJ said.


Category: Korea

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