Focus Industry ICT Caught in the Crossfire A Tariff Bomb of 2 Tril. Won Dreaming a Robot Empire US-China Trade War Threatening Hyundai, Kia to Face Huge Extra Burden When LG Makes Foray into Smart Factory S. Korea’s Exports US Imposes Tariffs on Imported Cars Market in China

AUGUST 2018 / VOL. 32 No. 386 www.businesskorea.co.kr

Korean Gov’t to Inject 2 Tril. Won into Biotech Industry

12,000 won 08

ISSN 1016-5304 Contents 2018 / Vol.32 No.386

FOCUS 08 A Local Asset Management Firm Calls for Eviction of Macquarie from Domestic Market

NATIONAL 10 US-China Trade War Threatening S. Korea’s Exports 11 S. Korea, India Agree to Open Additional Markets Including Service Sector 12 S. Korea’s Current Account Surplus Reaches Eight-month High Record High Inward FDI 13 Dongah Construction Claiming Rights to Sunken Russian Vessel Donskoii 14 More Incentives Needed for Companies Returning Home Visa Rules on Foreign Scholars Eased 15 U.S. Issues Warning against Companies Trading with N. Korea Will AIIB Invest in N. Korea Infrastructure? 16 Korea’s 3 State-run Resource Developers Lose Nearly 16 Tril. Won from Overseas Projects 17 South Korea Builds Hospital for Moms and Children in Paraguay 18 Korean Investment in India Expected to Increase Significantly 19 S. Korea’s Exports Top $50 Bil. for Fourth Consecutive Month in June 20 Mayor Park Pledges to Make Incheon a ‘Special Peace City in Northeast Asia’

Cover Story 22 Korean Gov’t to Inject 2 Tril. Won into Biotech Industry While Easing Regulations 24 Korean Refineries, Chemical Firms Look to Biotech for Future Growth 25 S. Korean SMEs Scramble to Acquire Foreign Biotech Firms 26 Korean Bio-Health Venture Companies Gathering in Osong 27 A String of Bad Events Raises Questions about Growth Potential of Korean Bio Industry

MONEY 28 Non-bank Financial Groups Need to Expand Capital under New Rule 29 Number of 1 Trillion Won KOSDAQ Companies Drops Sharply 10 Enough to Avert Financial Crisis? 30 Multiple Major IPOs around the Corner in Seoul Bourse 31 Will S. Korean Gov’t Phase in IFRS17 and K-ICS in Insurance Industry? 32 Foreign Investors’ Korean Bond Holdings Hit Record High 33 Foreign Financial Firms Send Nearly 7 Tril. Won to Headquarters for Past 5 Yrs. 34 KOSDAQ Venture Funds Fuel Bio Stock Bubbles 35 KDB, Korea Eximbank Provide 8.7 Tril. Won to Korean Firms for Overseas Expansion 36 Foreign Investors Continued to Dump Korean Stocks in June 37 Only Asian Investors Net Purchase S. Korean Stocks 38 Short Sellers Target Samsung Group Affiliates 36 ict 40 Samsung, Tencent Forge an Alliance to Face Apple and Google 41 Korean Gov't Launches System Semiconductor Design Support Center 42 Competition Heating Up for Leadership in Foldable Smartphone Development 43 S. Korean Internet Portals Aim for Video Sharing Market 44 Debate over Network Neutrality Rekindled as 5G Era Approaches 45 Korean Banks to Roll out Blockchain-based Authentication Service 46 Korea’s Three Mobile Carriers to Roll out 5G Services On Same Day Next March 47 Google Launches Android Auto in Korea 48 Is Global Memory Chip Boom Coming to an End? 41

04 49 S. Korea to Make Massive Investment in Nano Technology 50 Competition Getting Severe to Secure Leadership in AI Speaker Ecosystem 51 Chinese Firms Seeking to Undermine Samsung’s Dominance in OLED Market

INDUSTRY 52 Hyundai, Kia to Face Huge Extra Burden When US Imposes Tariffs on Imported Cars 53 Patent Right Protection in S. Korea Still Far From Adequate 54 S.Korea’s Petroleum Product Exports Hit a New High Again S. Korea EV Market is Entering a Stage of Popularization 53 55 Korean Auto Parts Manufacturers Are Being Driven into Dead End 56 Korean Research Hospitals to Be Allowed to Establish Bio Ventures 57 Medical Device Stocks Get Big Boost from Korean Gov't Deregulation Initiative 58 S. Korea’s Two Big Shipbuilders Suffer from Severe Deficits 59 S. Korean Steel Companies Going Through Tough Times 60 S. Korea to Work with US, UAE for Nuclear Power Plant Project in Saudi Arabia 61 S. Korea's Key Manufacturing Industries in Structural Crisis

IR & MANAGEMENT 62 Concerns Grow over the Rush to Introduce Stewardship Code 66 63 Could NPS Prevent Corporate Owner Families from Lining Their Own Pockets? 64 Korean Companies’ Profitability Stays at Lowest Level among 17 Nations 65 NPS Excludes Management Participation from Stewardship Code 72 Hyundai Motor Decides to Invest in Car 66 Korean Gov't Moving to Toughen Rules on Holding Companies Sharing Start-Up in Australia 68 Will the New LG Chairman Change the Group’s Conservative Management? 73 VisualCamp Successfully Attracts 69 'Asiana Chairman Was Not Honest in Press Conference': Meal Supplier Says Investment of 1.85 Billion Won 74 Venture Capital Invigoration Is Key to SME & STARTUP Faster Economic Growth 70 Korea's Fresh Venture Investment Reaches Record High in 1H 71 ‘Korean Startup Town’ to Be Built in India SCIENCE & TECHNOLOGY 76 World's First Antarctic Microbial Blood Preservative Developed Agelas Extracts Effective in Treating Looking for Liver Cancer a house, apartment or office? 77 Researchers Develop Artificial Nerves Real Estate & Relocation Co, LTD. that Move Dead Insects’ Legs Korean Research Team Discovers a Way We look forward to helping you to find your next dream property anywhere in Seoul. to Enhance Plant Productivity

1. Residential or Commercial Property Searching 3. After Service - Ability to explore and reserve a variety of properties - Moving arrangements and furniture set-up Event - Recommendations of suitable properties - Interior decoration and design - Enrollment in fire, theft and other types of insurance 78 ‘Robot World 2018’ to Offer Direction 2. Contract 4. Support for the Fourth Industrial Revolution - Careful review of all related documents - Registration of residence at the local district office, etc - Negotiation of drafting terms and other conditions - School enrollment for children, etc - Closing lease agreement in contract - Assistance for opening a bank account, etc Lifestyle 80 K-beauty Fever in Mexico and Europe Korea's Largest Cruise Terminal to Open in Incheon Next April 81 Lotte World Adventure to Develop ) www.rentcorea.com email. [email protected] Head Office 02 730-0001 Theme Park-Type VR Corporate Headquarters : RentCorea B/D 1F~2F, #36-1, Seongbuk-dong, Seongbuk-ku, Seoul, Korea. Shinsegae Chosun Hotel to break into Registration No.209-06-83139. Permit No.9230000-1709. The President/Realtor. Kiwan, Sung. hotel business on Jeju Island

05 Korea’s Most Influential Business Monthly Since 1983 To Our Readers S. Korea, Publisher & Editor-in-Chief: Park Jung-hwan Nation Hard Managing Editor: Youn Won-chang, Matthew Weigand General Editor: Lee Kwang-soo Culture/Tourism Editor: Choi Mun-hee Supplementary Editor: Lee Song-hoon to Run Business Reporter: Cho Jin-young, Marie Kim, Jung Suk-yee, Jung Min-hee, Michael Hurh, Sara Rai Contributing Writers: Seok Joon, Suh Bo-yun, Gho Chang-soo Designer: Jang Seung-eun International Liaison: Sara Rai On July 9, South Korean President Moon Advertising Manager: Jung eui-jung Administration Manager: Jung Min-hee Jae-in attended Samsung Electronics’ new Circulation Manager: Lim Moon-joo smartphone factory completion ceremony in Published By : BusinessKorea Co., Ltd. : 301 Samdo Building, 12-1 Yeoido-dong, Yeongdeungpo-gu, Seoul, Korea 150-010 Noida, Uttar Pradesh Province in northern India. While greeting President Mailing Add.: 301 Samdo Building, 12-1 Yeoido-dong, Yeongdeungpo-gu, Seoul, Korea 150-010 Moon, Samsung Electronics vice chairman Lee Jae-yong bowed deeply at the Tel: (02)578-3220 Fax: (02)578-3224 Government Registration Number: RA-2743 Dated March 18, 1983. waist several times. I wonder how Indian Prime Minister Narendra Modi, who Printed by Hwashin Printing Tel: (02)2277-0624 saw the scene, would think of it. Did he think it’s just a courtesy for the leader of the nation? Overseas Representatives Australia Samsung Electronics invested US$650 million in the Noida plant. It is McLean Media Representations Pty., Ltd. P.O.Box 544, Newtown NSW 2042, Australia the biggest mobile phone manufacturing plant in the world. With the comple- Tel: (612) 519-6455, Fax: (612) 577-1614 Belgium tion, the new plant will produce 120 million mobile phones a year. This will Staf Wuyts, AD International Bld. Lambermont 140 B-1030 Brussels, Belgium create 35,000 jobs in India. President Moon mentioned the Noida plant as “a Tel: (02) 216-0730, Fax: (02) 216-4632 Canada symbol of mutual growth cooperation between India and South Korea” at the Globe Media International 444 Front Street West, Toronto, Ontario, Canada M5V 2S9 ceremony. Tel: (416) 585-5415, Tlx: 06-219629, Fax: (416) 585-5275 Finland However, Samsung, which created such a strong diplomatic asset for the Seppo Lehtinen, Seppo Lehtinen Oy Fredrikinkatu 33 B, 00120 Helsinki, Finland nation, wasn’t treated properly. When cutting tapes, vice chairman Lee was Tel: (90) 611471, 647412, Tlx: 12-2814 sigco sf, Fax: (90)609114 Germany pushed aside. President Moon and Prime Minister Modi stood at the center. Franz Brunsing, Industrial Export Services Buttgenweg 18, D 4000 Dusseldorf 11, Federal Republic of Germany Minister Hong Jong-hak of the Ministry of SMEs and Startups (MSS) and Tel: (0211) 59 26 22, Tlx: 8587465 SERV D, Fax: 49-211-59-611-43 Hong Kong Foreign Minister Kang Kyung-wha stood by President Moon and then Vice Serina Cheung, Managing Director, Media Services Network 10/F Flat A, Sun Hey Mansion, 72 Hennessy Road, Wanchai, Hong Kong Chairman Lee. Only people directly involved will know whether the power Tel: 529-3677, Fax: 866-2398 Indonesia Yoly de Rivera made such a request or Samsung voluntarily did so studying the pleasure of P.T. MEDIANET INTISARANA Kerayoran Baru, Jakarta Selatan 12110, Indonesia the power. Tel: 7202587, 7202488 Fax: 7202651 Italy Not long before the ceremony of Noida plant was held, Taiwan’s Foxconn, Carlo E. Calcagno, Studio Calcagno Srl, International Media Representative the world's largest contract electronics manufacturer, had its groundbreaking Via Copernlco, 22-20125, Milano, ltaly Tel: (392) 689-4891 Fax: (392) 607-0773 ceremony for the LCD production complex in Wisconsin of the United States. Japan Japan Advertising Communications The ceremony was attended by US President Donald Trump, Vice President Three Star Building, 3-10-3 Kanda Jimbocho Chiyoda-ku, Tokyo 101 Tel: (3) 3261-4591, Fax: (3) 3261-6126 Mike Pence and House Speaker Paul Ryan. In short, the first, second and third Netherlands A.A. Van der Graaf, Office Manager in the power ranking in the US were all present at the event. A photo shows Publicitas b.v., Maassluisstraat 414, 1062 GS Amsterdam, Netherlands Tel: 020-178795, Tlx: 11656 PUBAM NL, Fax: 020-174414 that Foxconn chairman Gou Tai-ming stood at the center of the picture shovel- Philippines Mr. Paul Ligones, ASPAC ing taken on the groundbreaking ceremony. President Trump stood on the left P.O.Box 7226, Domestic Airport Post Office Tel: 827-3950, 827-4477, Tlx: 64838 LTA BCPN, Fax: (632) 817-5802 and House Speaker Ryan on the right. Chairman Gou was always stood at the Singapore Hoo Siew Sai center. Major Media Singapore Pte Ltd., 6th Floor, 52 Chin Swee Road Singapore 0316 No government has not treated the host of similar events at home and Tel: 7380122, Fax: 7382108 Sweden, Norway and Denmark abroad this way before the Moon Jae-in government came to power. The Sten Janson, Business Books in Saro AB Gihlsrovagen 19, S-43040 Saro, Sweden Tel: 46-31936220, Fax: 46-31151333 leading role at the Noida plant completion ceremony was treated poorly by Switzerland Joseph Pollet, Managing Partner its own country. Vice chairman Lee’s 90-degree bow is a company’s bow to IPP International Publications Partners P.O.Box 3329, CH-4002 Basel Tel: 061/35 27 66, Fax: 061/35 24 88 political power at the moment when he is still in trial after getting caught up Taiwan Lewis Int’l Media Services Co., Ltd. in a domestic political scandal against his will. It is also a bow to the power Floor 11-14, No. 46, Sec. 2, Tun Hua South Road, Taipei, Taiwan, Republic of China that mobilized all the related government agencies to raid a company more Tel: 886-2-7075519 or 7087727, Fax: 886-2-7098348 Thailand than 10 times and harass it despite repetitive rejections of warrants. The power Anthony Sharma, Thai Representation Ltd. Thai Representation-867 58 Sukhunvit 101, Prakanong, bangchak, Bangkok made the host a guest. South Korea is now such a country. The ruling power 10260. Thaliand Tel: 662-3320503-4, 662-3319690-2 Fax: 3319303 which gained power due to candle- United Kingdom Anthony Tumer, Managing Director, The Colin Turner Group light vigils that voiced “Is this is the City Cloisters, 188-196 Old Street, London EC1V 9BX Tel: 71-490-5551, Tlx: 261140 TURNER G, Cable: TURNERSYND nation?” brought dishonor interna- LONDON ECI Fax: 71-490-2271 tionally to a company which has a U.S. Mrs. Clair Chun / U.S. Correspondent better brand image than the nation. Park Jung-hwan, 390 17th ST NW #4065 Atlanta, GA, 30363 Tel:770-880-6722 Email:[email protected] Is this a nation really? Publisher & Editor-in-Chief

06 focus A Local Asset Management Firm Calls for Eviction of Macquarie from Domestic Market By Yoon Young-sil

tor investment in infrastructure construc- tion and when interest rates were high. MKAM is also at the heart of the debate as it runs a separate portfolio entity to manage each of the 12 projects. Platform Partners stressed that investors in MKIF had to pay a total of 16.8 bil- lion won (US$15.03 million) in wages to 110 employees of the 12 portfolio entities, excluding the wages paid to the employees of the asset management firm. Some of employees of MKAM moved to the separate subsidiaries and the rate of wage increase for the separate subsidiar- ies reached 49 percent over the past five

Platform Partners Asset Management Co, a minority shareholder of Macquarie Korea Infrastructure Fund, years, leading to a burden on investors. called for the eviction of Macquarie Korea Asset Management from the Korean market, making an issue of the In response to these assertions, excessive fees paid to it. MKAM said that the average invest- domestic activist institu- way, Yongin-Seoul Expressway and ment earnings rate has come to 9.2 per- tional investor and a minor- Incheon Grand Bridge. cent and the average dividend rate has Aity shareholder of Macquarie Established in 2015, Platform Part- reached 5 percent to 7 percent after 2006, Korea Infrastructure Fund (MKIF) is ners is a small and mid-size infrastruc- countering the argument that high pay pushing for the eviction of Macquarie ture management firm with assets worth eroded profits. The company also said Korea Asset Management (MKAM), the 500 billion won (US$447.23 million). that its pay is relatively higher than other project management entity of the fund, Platform Partners argues that MKIF domestic funds but it is a management making an issue of its high labor costs. pays fees to MKAM and wastes its company specializing in infrastructure, According to investment banking money on unnecessary expenses by pay- which cannot be seen in the nation, and (IB) industry sources on June 26, Plat- ing additional fees to Macquarie Infra- has more work to do to run infra proj- form Partners Asset Management Co. structure and Real Assets (MIRA), the ects, including reduction of charges and (PPAM), which owns a 4.9 percent stake actual manager of MKIF. MIRA operates securement of liquidity, than other man- in MKIF, sent a letter to the fund’s board a portfolio entity for each of the infra- agement firms. It added that it has sepa- of directors, asking to hold an extraor- structure projects it manages. rate subsidiaries for each private capital dinary general stockholders' meeting in Platform Partners argues that MKIF project according to the domestic laws order to either change the MKIF man- made an unfair contract with MKAM and its labor costs are about 700 million agement firm from MKAM to Koramco and has paid it a total of 535.3 billion won (US$62,612) per person, which is Asset Management or cut its wage costs won (US$478.8 million) in dividends close to the industry average. by a tenth. since 2006, which accounts for 32.1 per- MKAM currently manages MKIF, cent of the total dividend payout. Dispute over Macquarie Escalating which is listed on Korea Exchange and The 12 private sector-funded infra- manages 12 infrastructure projects with structure projects run by MKIF had Yet, Platform Partners requested private-sector investment. Its assets terms favorable to investors as they were MKIF to provide it with additional data include Incheon International Airport promoted at a time when the Korean related to the disputed issues and made Expressway, Seoul-Chuncheon Express- government sought to attract private sec- an allegation that MKAM has made

08 focus

sweetheart deals with an affiliate of Mac- also pointed out that MKIF signed pri- for its demand that the fund cut its com- quarie Group. vate contracts with outsourcing service missions and performance-related pay to At the heart of the controversy are providers. MKAM, the fund’s project manager. six issues – professionalism of the fund’s In response, MKIF said that the According to investment banking employees, the structure and size of the Cheonan-Nonsan expressway suffered a (IB) industry sources on July 22, an insti- fund’s labor costs, average salary of the severe shortage of cash in the past and tutional investor that has more than a 5 employees at the 12 portfolio entities, chose KPCF through an auction where percent of stake in MKIF recently sug- sale of the Cheonan-Nonsan expressway four institutional investors participated. gested that the fund lower its manage- rest area, double payment of wages to Based on this, the company managing ment commissions and performance- MKIF officials working at the 12 portfo- the highway was able to pay unpaid related pay to MKAM. lio entities, and road operation and main- interests on subordinated loans and An official from the investor said, tenance costs. improve its cash flow. MKIF also said “We have conducted an internal review Some shareholders point out that that it received advisory service from after Platform brought up the issue. We only two to three out of the 27 employ- a subsidiary of Macquarie Group only believe that the current cost for operating ees at MKAM are actually involved in once in 2012. It also stressed that it pays the toll roads invested by MKIF has fall- the management of MKIF, with others road operation and maintenance costs en significantly compared with the initial involved in the management of other with approval from the board of directors period of investment. As the investment funds. As a result, MKIF has been virtu- and its accounting books are audited by period is lengthened, the commissions ally neglected. In particular, they argue an outside accounting firm. paid to the fund management company that MKIF employees and executives, An official from Platform Partners should get lower.” who have been managing the fund since said, “Macquarie clarified its position As of the end of March, MKIF inves- 2012, were reassigned to the 12 portfo- through a press release without respond- tors include UK-based Newton Invest- lio entities, increasing the labor costs of ing to its demand for convocation of a ment Management Limited with an 8.2% MKIF, which already spends more than general meeting of stockholders. If the stake, Hanwha General Insurance Co. 40 billion won (US$35.59 million) a year structure of wages cannot be reformed by and Shinyoung Asset Management Co. on wage costs. the board of directors, the management with a 6.1 percent stake each, and Mac- In addition, the sale of the Cheonan- company should be changed.” Another quarie Group with a 3.6 percent stake. Nonsan expressway rest area to Korea official from another institutional inves- Platform Partners argues that the 11 Private Concession Fund (KPCF), anoth- tor said, “We will clarify our stance after toll roads and one port invested by MKIF er fund run by MKAM, has become an hearing opinions of both sides, including needed a lot of operational capabilities issue. KPCF signed a long-term lease Macquarie.” at the early stage of investment but now contract for 20 years at 169.8 billion won Platform Partners needs to enlist the make stable profits without additional (US$151.07 million) in January 2013 but support of other investors to have MKIF input as more than 10 years have passed. relent it to another company for 20 bil- accommodate its demands. But major An official from Platform said, lion won (US$17.79 million) in 2017. MKIF investors, including the Govern- “Macquarie Group operates 8 infrastruc- Platform Partners argues that MKIF suf- ment Employees Pension Service, Teach- ture funds around the world. Among fered 11.5 billion won (US$10.23 mil- ers Pension, Public Officials Benefit these funds, seven have cut management lion) of losses in the process and, as a Association and Korea Post, UK-based commissions or eliminated them alto- result, dividend payouts to shareholders investor Newton Investment Manage- gether after 2012. Only MKIF in South decreased. ment Limited, Hanwha General Insur- Korea still maintains the initial payment Platform Partners argued that MKIF ance Co. and Shinyoung Asset Manage- structure and management firm for 12 paid tens of billions of won in consul- ment Co., said that they were not aware years now.” tancy and brokerage fees to a financial of Platform Partner’s claims. advisory service firm affiliated with the Macquarie Group, separate from the fund PPAM's Shareholder Activism management fees paid to MKAM. Draws Support from an MKIF It also argued that the operation costs Shareholder for private-sector funded roads have increased 4.9 percent a year on aver- Under the circumstance that the two age, although they could be cut with the sides are expected to have a proxy battle introduction of information technology at the general stockholders' meeting to (IT), such as Hi-Pass, and the improve- be held as early as next month, Platform ment in road management equipment and Partners has succeeded in eliciting sup- pavement materials. Platform Partners port from some shareholders of MKIF

09 national

Caught in the Crossfire US-China Trade War Threatening S. Korea’s Exports By Jung Suk-yee

Deputy Prime Minister Kim Dong-yeon (left) and U.S. Treasury Secretary Steven Mnuchin shake hands after a meeting during the G20 financial ministers’ meeting held in the United States from April 19 to 21 (local time).

he South Korean economy is in danger as the trade Last year, China’s imports from the U.S. totaled US$149.7 bil- war between the United States and China is showing lion. Tno signs of easing. With 40% of South Korea’s total The EU, in the meantime, is considering imposing retalia- exports relying on the two superpowers, a worst-case scenario tory tariffs if the U.S. pushes ahead with its plan to restrict the may lead to a drop in exports of no less than US$36.7 billion. import of cars. The U.S. investigation on imported cars’ impact On July 10, the Donald Trump administration officially on national security is likely to be wrapped up in September. announced that it would impose additional 10% tariffs on Chi- South Korea is taking a direct hit under the circumstances. nese imports worth US$200 billion. According to the Korea At present, its exports to China and the U.S. account for 24.8% International Trade Association, a tariff increase of 10 percent- and 11.9% of its total exports, respectively. Intermediate goods age points by the U.S., China and the EU leads to a 6% decline account for 78.9% of South Korea’s total exports to China, and in global trade volume and a 6.4% decline in South Korea’s some of the goods are used for exports to the U.S. China may exports. The latter, US$36.7 billion, is equivalent to 2.2% of import less from South Korea if the trade war goes on, causing a South Korea’s nominal GDP. decline in domestic consumption. Earlier, the U.S. decided to impose tariffs on Chinese The Hyundai Research Institute recently said that a 10% imports worth US$50 billion. In all, U.S. import tariffs will decline in U.S. imports from China is estimated to cause South cover Chinese imports worth US$250 billion. The combined Korea’s exports to China to drop by US$28.26 billion, which is amount is close to half of China’s exports to the U.S., which equivalent to 19.9% of South Korea’s exports to China for last totaled US$505.5 billion last year. As of 2016, the average year. It also points out that the trade war will compromise finan- import tariff rate of the U.S. was 3.5%. cial stability. “The won may appreciate by moving in the same China is likely to impose a tariff on every product imported direction as the yuan with uncertainties mounting in financial from the U.S. while raising non-tariff barriers at the same time. markets,” the institute explained.

10 national

Korea-India Cooperation S. Korea, India Agree to Open Additional Markets Including Service Sector by Jung Suk-yee

ings to that end in order to reduce import restrictions and further expand their bilateral trade. At present, a total of 30 import restrictions against South Korean products are in effect in India, which is second only to the United States in terms of the number of such restrictions. The 30 include 20 against chemical prod- ucts and seven against steel. Both are South Korea’s major export items and the restrictions are hindering the bilateral trade to a large extent. KB Financial Group and Bank of Baroda, in the meantime, agreed to set up a digital payment system for mobile pay- ment and so on. South Korean auto parts manufacturer autoGen and Mahindra & Mahindra, the fourth-largest automak- er in India, promised to work with each Park Yong-man, chairman of the Korea Chamber of Commerce & Industry (KCCI), delivers an opening speech at the India-Korea Business Forum held in New Delhi, India on July 9 (local time). other for vehicle weight reduction. Also, the Korea Chamber of Com- outh Korea and India reached substantial contribution to their bilateral merce & Industry (KCCI) and the Feder- a comprehensive agreement trade amid global trade protectionism. ation of Indian Chambers of Commerce Son additional commodity and During President Moon Jae-in’s four- & Industry (FICCI) adopted a joint state- service market opening within the frame- day state visit to India, the South Korean ment for more bilateral economic coop- work of the Comprehensive Economic government and South Korean com- eration. The statement was joined by 16 Partnership Agreement (CEPA). panies signed MOUs with their Indian South Korean and 17 Indian entrepre- According to the agreement, South counterparts in various fields. neurs, including KCCI Chairman Park Korea and India will open their agricul- For example, South Korea’s Ministry Yong-man, Korea Employers Federation tural and fisheries and petrochemical of Trade, Industry & Energy and Minis- Chairman Sohn Kyung-shik, Samsung markets including mangoes and synthetic try of Science & ICT concluded an MOU Electronics Vice Chairman Yoon Boo- resin. Since the initiation of negotiations with India’s Ministries of Commerce & keun, Hyundai Motor President Chung for CEPA improvement in 2016, the two Industry and Science & Technology to Jin-haeng, FICCI Chairman Rashesh countries have had six official negotia- organize a future vision strategy group Shah, and Mahindra Group Chairman tions and multiple working-level talks. for cooperation related to Industry 4.0. Anand Mahindra. South Korean President Moon Jae- The group will be led by the Korea Insti- According to the statement, the two in and Indian Prime Minister Narendra tute for Advancement of Technology, the sides will organize a working-level group Modi met with each other and issued a National Research Foundation of Korea, for cooperation in the five fields of auto- joint statement on July 10, promising to and the Global Innovation & Technology mobile, infrastructure, electronic and accelerate future negotiations for CEPA Alliance of India. information technology, startup founda- improvement. The Ministry of Trade, The Trade, Industry & Energy Min- tion, and innovation ecosystem. In addi- Industry & Energy of South Korea said istry and the Commerce & Industry Min- tion, they will launch joint projects for that the joint statement has a significant istry signed an MOU for trade remedies- innovative technologies such as artificial meaning for the two countries’ strategic related cooperation, too. According to the intelligence, the Internet of Things, and partnership and is expected to make a MOU, the two will hold regular meet- advanced manufacturing.

11 national

Concerns Linger over Exports S. Korea’s Current Account Surplus Reaches Eight-month High by Jung Suk-yee

outh Korea’s current account surplus hit an eight-month Shigh in May this year based on a huge goods account surplus that benefitted from a global semiconductor boom. The current account surplus target for the first half, US$28 billion, is expected to be met with ease if the current pace continues. According to the Bank of Korea, the current account surplus The goods account surplus in May this year added up to US$11.39 billion, the larg- est since November last year. totaled US$8.68 billion in May, extending South Korea's surplus streak to the 75th consecutive month. The surplus jumped a first five months of this year is US$22.27 billion. lot from the previous month’s US$1.77 billion attributable to a Although the central bank’s target for the first half is expect- large increase in dividend payment. ed to be met, the export side is posing some concerns. Accord- In May, the goods account surplus added up to US$11.39 ing to the Ministry of Trade, Industry & Energy, South Korea’s billion, the largest since November last year. Likewise, com- monthly exports are estimated to have totaled US$51.23 billion modity exports totaled US$53.78 billion to reach the highest last month, down 0.089% from a year earlier. Its service account level since September 2017. Commodity imports added up to deficit that has continued since the THAAD conflict between US$42.39 billion. South Korea’s current account surplus for the China and itself did not disappear in May.

FDI in S. Korea Hit a New High in the First Half Record High Inward FDI By Jung Suk-yee

he Ministry of Trade, Industry and Energy announced Ton July 4 that the reported amount of foreign direct investment (FDI) in South Korea totaled US$15.75 billion in the first half this year, up 64.2% from a year ago. The amount of FDI that actually arrived totaled US$9.46 billion during the same period, posting a year-on-year growth of 76.4%. Foreign direct investment (FDI) in the Korean manufacturing sector rose 155% from For reference, the previous high in terms of reported FDI a year ago, led by joint investment for participation in the global value chain and investment related to Industry 4.0 technology. was US$10.56 billion, which was posted in the first half of 2016. The ministry explained that the new high recorded at this US$1.71 billion, led by investments in the fields of e-commerce, time is based on South Korea’s robust economic fundamentals. cloud computing, biopharmaceuticals, etc. The reported and South Korea’s monthly exports recently topped US$50 billion actual investments from China jumped 360% and 558.8% to for four months in a row and durable goods consumption is on US$2.2 billion and US$0.72 billion, respectively. the rise in the country with the local semiconductor and petro- The investment in the manufacturing sector rose 155% from chemical markets enjoying a boom. In addition, investments in a year ago, led by joint investment for global value chain partic- key materials, components and equipment such as auto parts, ipation and facility expansion related to Industry 4.0 technology. semiconductor wafers and precision machinery are showing a The rate of increase in the service sector was 25.3% and invest- solid growth and global IT and mobile companies are increas- ment in information and communications technology, fintech ing their investments in South Korea as a test bed for their new and digital content led the growth. information security platforms and mobile games. Greenfield investment showed a growth of 62.7% with more Investments from traditional partners such as the United investment made in major industries like automobile and semi- States, the EU, China and Japan are increasing along with conductor and the service sectors including real estate and logis- those from the Middle East and the Greater China Region. For tics. M&A investment increased by 71.2% based on a number of example, the actual investment from the U.S. increased 163% to large-scale M&A deals.

12 Estimating the Treasure to Be Worth 22 Bil. Won Dongah Construction Claiming Rights to Sunken Russian Vessel Donskoii By Michael Herh

A file photo of the sunken Russian warship Donskoii

ongah Construction, which announced in the early even after delisting. It held a press conference on June 2003 to 2000s that it had discovered an object believed to announce the discovery of an object believed to be the Dons- Dbe the sunken Russian battleship Donskoii, claimed koii. However, due to the creditors’ objection, it did not salvage rights to the ship as the first discoverer. the ship and the period of permission for salvage work ended in Dongah Construction said on July 19, "We discovered the 2014. Donskoii in 2003, and it was announced to the world at a press Dongah Construction said, "What Shinil Group has done is conference. We have the rights of the first discoverer as we just to go to the spot that we found first and take clearer pictures found the ship through a normal route with permission from the with improved equipment. If Shinil, which is not authorized to Pohang Ocean Service.” excavate, takes just a single gold coin from the ship, it’s theft.” The company said, "It should be discussed what legal rights The company added, “The reason we said “an object the first discoverer has. Shinil Group recently claimed to be the believed to be the Donskoii” instead of clearly stating that the first to find the warship 113 years after its sinking. We need to object was the Donskoii was that it was less than 100 years after correct the false claim.” the ship sank in 1905. We needed to avoid dispute over owner- Dongah Construction, which was a listed company, was ship with Russia. It was clear, however, that we had already delisted as a result of the court's bankruptcy ruling, but has been found the sunken vessel.” operating normally after the restructuring process. Yearly sales Dongah Construction said, "Shinil Group claims that the in last year's audit report was 140 billion won. value of the Donskoii is 150 trillion won. I wonder how they With the news of discovering the Donskoii, Dongah Con- will pay 15 trillion won of the excavation deposit (10% of the struction’s stock price rose for 17 consecutive days from estimated value of the treasure). We estimate there would be December 15, 2000 to January 4, 2001. It continued explora- about 500kg of gold in Donskoii, which is worth 22 billion tion with the Korea Ocean Research & Development Institute won.”

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Prerequisites for Reshoring of Korean Firms More Incentives Needed for Companies Returning Home By Jung Min-hee

ack in 2013, the South Korean government announced Bthat the nation's GDP would increase by up to 45 tril- lion won (US$40 billion) if South Korean companies engaged in manufacturing activities in China in five different industries returned to their home country. The next year, the Act on Assistance to Korean Off-shore A Hyundai Motor plant in Mexico Enterprises in Repatriation was enacted. Since then, 67 South from close to 0% to 20% or so. The figure jumped from around Korean companies have expressed their will to come back and 30% to over 50% when it comes to overseas automobile produc- 47 have actually come back. The act is effective until the end of tion. this year. In this context, the government decided to expand incentives These days, a number of large corporations and their part- for returners to cover large as well as non-large corporations. ners supplying components and materials are leaving South This has to do with the fact that most of the non-large compa- Korea. According to the Korea Chamber of Commerce & Indus- nies that have gone abroad did so to follow their larger partners try, South Korean companies employed 533,000 workers abroad and it is practically impossible for the former to return with in 2005 and the number more than tripled to 1.625 million in the latter remaining abroad. In other words, the outcome of the 2015. During the same period, the number of South Koreans Moon Jae-in administration’s job policy depends on how many working for non-South Korean companies in South Korea edged large South Korean corporations will come back. up from 179,000 to 271,000. The tax law is scheduled to be amended within this year for This trend is particularly conspicuous in the manufacturing more tax credit for investment in new growth technology. Assis- sector. For example, the ratio of overseas semiconductor pro- tance for returners is slated to be overhauled in the second half duction jumped from less than 10% to 20% between 2008 and as well. The government is hoping that the number of returners 2016. Likewise, the ratio of overseas display production rose will increase at least to some extent based on such measures.

Scholar Invitations Visa Rules on Foreign Scholars Eased By Jung Suk-yee

tarting from next month, foreign scholars coming to SSouth Korea to give lectures at the invitation of a non- profit organization will be able to enter the country without a short-term employment visa. The South Korean government announced on July 22 that foreigners invited for public and academic purposes can use a short-term visit visa, such as C-3, B-1 and B-2, instead of C-4 Foreigners invited for public and academic purposes can use a short-term visit visa, such as C-3, B-1 and B-2, instead of C-4 from August 1. under certain conditions from August 1. At present,the C-4 visa is required for foreigners staying those invited by a non-profit organization such as the central for a short time in South Korea to make money. Local govern- government, a local government, a government agency and a ment agencies and research institutes have pointed out that not college and doing an activity such as lecturing for seven days or a few foreign professors and scholars have turned down their less at up to five organizations. invitations for lectures and research consultations due to the visa B-1 and B-2 are applied to those from countries subject to a problem. visa waiver agreement or no-visa entry.C-3 visa issuance at dip- According to the new rule, the visa exemption is applied to lomatic offices is required otherwise.

14 Pressure on North to Accelerate Denuclearization U.S. Issues Warning against Companies Trading with N. Korea by Jung Suk-yee

he Donald Trump administration has issued a warn- Ting against companies and countries violating the UN sanctions on North Korea. Experts point out that the warning is intended to control the flow of cash into the North and put pres- sure on it to accelerate denuclearization. The U.S. State Department made public on July 23 the names of 239 companies engaged in illegal trade with North The U.S. State Department disclosed a list of 42 countries providing entry permis- sion for North Korean workers, including China and Russia. Korea, telling them to stop their activities. It also revealed a list of 42 countries providing entry permission for North Korean twice the transaction amount. Still, it mentioned that the warn- workers, including China, Russia, Singapore and Algeria. In ing has nothing to do with possible new sanctions. addition, the State Department pointed out that the North has In the meantime, Mark Lambert, acting deputy assistant sec- circumvented sanctions by using China and Russia in tampering retary of state, visits South Korea on July 25. On the face of it, with country-of-origin certificates. his visit is to discuss negotiation strategies. However, some point According to the department, anyone violating the sanc- out that it is to present new sanction guidelines and turn down tions can be criminally charged and subjected to a fine of the South Korean government’s recent request for exemption US$295,141 for each violation or the fine can be equivalent to from the sanctions that is limited to inter-Korean exchange.

Prerequisites for Investment Will AIIB Invest in N. Korea Infrastructure?

by Jung Suk-yee

f the Asian Infrastructure Investment Bank (AIIB) decides Ito participate in infrastructure investment in North Korea, a cross-border cooperation where South Korea, North Korea, China and Russia participate will be the most likely. If the Asian Infrastructure Investment Bank (AIIB) decides join a government guarantee project as a financing provider to participate in infrastructure investment in North Korea, it is with another MDB or financial institution, or attract capital by likely to invest in cross-border cooperation projects where South launching a North Korean infrastructure development fund,” the Korea, North Korea, China and Russia can share profits, a South researcher explained. Korean researcher said. He also said that there are some prerequisites for the AIIB’s Lee Hyun-tae, a researcher at the Korea Institute for Inter- infrastructure investment in the North, such as irreversible denu- national Economic Policy, has written a report on the possibility clearization, lifting of UN sanctions, and profitability check and implications of AIIB’s investment in North Korea’s infra- based on project risk assessment, cost analysis, etc. The prereq- structure. Lee said that the AIIB projects could also be linked to uisites also include North Korea’s will to cooperate and approv- the trilateral transportation and energy infrastructure projects of al by the board of the AIIB. both Koreas and China and of both Koreas and Russia. “With the North extremely short of money for infrastructure Launched in January 2016, the AIIB is a multilateral devel- development, the South Korean government needs to encour- opment bank (MDB) that has 87 member countries. At present, age the AIIB to invest in the North,” he went on to say, adding, the AIIB is engaged in 28 projects with a combined value of “At the same time, the government needs to help North Korea US$5.34 billion. accede to international financial organizations such as the IMF “If China decides to invest in infrastructure in the North, and the World Bank so that it can attract more public and private the AIIB may provide its Project Preparation Special Fund, capital for development.”

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Huge Losses from Overseas Resource Projects Korea’s 3 State-run Resource Developers Lose Nearly 16 Tril. Won from Overseas Projects By Jung Suk-yee

he nation’s three state-run resource corporations – Korea National Oil Corporation (KNOC), Korea Gas TCorporation (KOGAS) and Korea Resources Cor- poration (KORES) – have voluntarily disclosed the huge losses they incurred undertaking overseas resources development proj- ects over the past decade. Past inspections by the Board of Audit and Inspection and lawmakers have only partially exposed the three companies’ losses from overseas resources development projects under the Lee Myung-bak government. But the three disclosed the whole truth on July 26. They said in unison, “We admit that our resource development projects have been poorly managed, causing huge losses. We deeply South Korea’s three state-run resource corporations disclosed the whole truth apologize for it.” The combined losses of the three corporations’ about their poorly managed overseas resource development projects during the Lee Myung-bak government. overseas resources development projects reached a whopping 15.9 trillion won (US$14.19 billion) as of the end of last year. in Mexico’s Boleo copper mine, which incurred US$1.17 billion According to the reports submitted by the three corpora- (1.31 trillion won) in losses. tions, they managed the projects badly, inflated the rate of The KNOC posted the largest losses at 9.7 trillion won returns on investment and didn’t properly review investment (US$8.66 billion), followed by KORES at 3.8 trillion won plans. The ethical standards of the officials at the three state-run (US$3.39 billion) and KOGAS at 2.4 trillion won (US$2.14 corporations were terribly lax. The Ministry of Trade, Industry billion). KOGAS had the biggest debts at 29 trillion won and Energy (MOTIE), which had to conduct supervision on (US$25.88 billion), followed by the KNOC at 17.1 trillion won them, sat on its hands on that matter. Eventually, trillions of (US$15.26 billion) and KORES at 5.4 trillion won (US$4.82 won of precious taxpayer's money was lost under the pretext of billion). Accordingly, the task force advised the three corpora- resource development. tions to carry out a higher level of restructuring than now. The results of the voluntary inspection were announced on The task force recommended that the government pressure July 26 in a joint briefing by the MOTIE and the three com- the corporations to carry out a thorough restructuring process panies at the Government Complex Sejong. The government before providing financial support. It also advised the govern- task force created to reform the nation's programs for overseas ment to link retention of the corporations’ executives, including resources development recommended the three corporations to presidents, to their performance in achieving the restructuring carry out severe restructuring. goals and restrict the provision of new loans and surety for sub- The KNOC, KOGAS and KORES had invested 41.4 trillion sidiaries. It also said the three corporations should sell existing won (US$36.95 billion) in 169 resources development projects in resource development assets that are not lucrative and strategi- 51 countries by the end of 2017. They recovered only 14.5 trillion cally less important. won (US$12.94 billion) from the investments. The three firms The task force didn’t say what to sell but asked to sell the suffered losses of 15.9 trillion won (US$14.19 billion), while their assets behind closed doors to prevent them from being sold at total debts amounted to 51.5 trillion won (US$45.96 billion). giveaway prices. In this regard, it advised them to transfer the Major investment failures included the KNOC’s acquisi- assets to domestic private companies to minimize the outflow of tion of Canada’s Harvest Energy, which resulted in US$2.47 national wealth. The government has decided to focus on press- billion (2.76 trillion won) of losses, the KOGAS investment in ing matters first. It will carry out a large-scale restructuring, sell Canada’s West Cutbank gas field, which caused 170.9 billion off non-performing assets and reporting officials responsible for won (US$152.52 million) in losses, and the KORES investment the losses to the prosecution.

16 Benefiting 200,000 Moms in Paraguay South Korea Builds Hospital for Moms and Children in Paraguay By Jung Min-hee

he Korea International Cooperation Agency "KOICA will continue to strengthen development and coopera- (KOICA) has built a hospital for moms and children tion based on the 3P principle -- people, peace, and prosperity.” Tin Asunción, the capital of Paraguay. The official name of the hospital is Korean-Paraguayan San KOICA said a donation ceremony was held at the hospital Pablo Hospital for Moms and Children. KOICA said the hos- on July 19 with the presence of Lee Mi-kyung, the chief director pital has three floors and 139 beds, and will help more than of KOICA, and Maria Theresa Baran Washilchuk, the deputy 200,000 mothers give birth to their babies. minister of Health and Welfare of Paraguay. According to the World Health Organization (WHO), the "We would like to thank Korea for its efforts to improve the maternal mortality rate in Paraguay is 95 per 100,000, which health environment for mothers and children in Paraguay," said is higher than the average of Central and South America by 66. Washilchuk. "The hospital will contribute greatly to improving The average infant mortality rate in Central and South America the quality of life for the people of Paraguay and will be a mile- is 5 per 1000 population, but Paraguay has 24. stone in the development of bilateral cooperation.” The Paraguayan government called the Korean government KOICA’s Lee said, “We expect that the new hospital will to help solve this problem, and KOICA has invested US$8.47 play a major role in achieving the goal of zero maternal mortal- million since 2013 in building the largest hospital that special- ity rate and neonatal mortality rate in Paraguay." She added, izes in maternity care.

Officials standing in front of San Pablo Hospital for Moms and Children are, from left to right, Ye Seung-ah, the deputy chief of Paraguay Office of KOICA; Ahn Min-shik, the ambassador to Paraguay; Vicente Akunya, the director of San Pablo Hospital; Lee Mi-kyung, the chief director of KOICA; Maria Theresa Baran Washilchuk, the deputy minis- ter of Health and Welfare; Shin Man-shik, the chief of Paraguay Office of KOICA; Lee Dong-ok, the professor of the Korea Development Institute, Jeong Young-sun the head of Central and South America of KOICA.

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South Korean President Moon Jae-in regards India as a key pillar of his New Southern Policy. His visit to India is expected to lead to a significant increase in South Korea’s investment in the country.

A Key Pillar of New Southern Policy Korean Investment in India Expected to Increase Significantly By Jung Suk-yee

outh Korean President Moon for India from Baa3 to Baa2, which was the government’s budget for 2018 to Jae-in will meet with Samsung the first upward adjustment in 13 years. 2019. The market is expected to grow SElectronics Vice Chairman The country has a population of approxi- 6% a year from 2015 and reach 18 tril- Lee Jae-yong at a ceremony celebrating mately 1.3 billion and those aged 24 or lion won in 2025. the completion of the company’s mobile less account for 44% of the population. Most of the infrastructure develop- phone and consumer electronics manu- The Indian labor market is very ment projects in India allow a foreign facturing plant in Noida, India on July attractive as well. India’s official lan- direct investment of 100% and a number 9. The President is currently staying guage is English and it has a large num- of South Korean companies are joining in India with his economic delegation. ber of skilled IT workers. According to the projects. In June last year, the South He regards India as a center of his New Bloomberg, India is likely to become a Korean government promised the Indian Southern Policy and his visit is expected country with the largest number of work- government to provide a financial assis- to lead to a significant increase in South ing age population in the world in 2020. tance of US$10 billion for infrastructure Korea’s investment in India. The number of middle class population is development, including US$1 billion India posted an economic growth estimated to increase from 300 million to from the Economic Development Coop- of no less than 7.7% in the first quar- 550 million between this year and 2025. eration Fund (EDCF). ter of this year alone. According to the India is a business-friendly country Samsung Electronics, in the mean- World Bank, India is expected to con- where deregulation is accelerating, too. time, initiated the expansion of its plant tinue a high growth track for the time Last year, India jumped from 130th to in Noida in June last year at a total being, growing at least 7% a year based 100th in the Doing Business survey of investment of 860 billion won (US$774 on an increase in investment and private the World Bank. The country’s infra- million). As a result of the facility expan- consumption. At present, India is show- structure market is very promising given sion, the plant’s monthly mobile phone ing stable consumer prices along with a the central government’s eagerness for and refrigerator manufacturing capacities decline in fiscal deficit. In November last development. Infrastructure investment have been doubled to 10 million units year, Moody’s adjusted its credit rating accounts for 24.4% (97 trillion won) of and 200,000 units, respectively.

18 Grow Rate Slowing S. Korea’s Exports Top $50 Bil. for Fourth Consecutive Month in June

By Jung Suk-yee

for the 21st consecutive month. General machinery exports topped US$4 billion for the fourth consecutive month for the first time. Likewise, petro- chemical and petroleum product exports topped US$4 billion and US$3 billion for seven and eight months in a row, respectively. Experts point out though that the performance is not entirely optimistic. “It is based on a global economic recov- ery, a boom in the global semiconductor industry, rising international oil prices and so on rather than the competitive- ness of South Korean companies them- selves,” one of them mentioned, adding, “Few items contributed to the perfor- mance except for semiconductors and South Korea’s exports topped the US$50 billion mark for four months in a row in June, although the growth rate computers benefitting from the ongoing edged down. IT industry boom and petrochemical and petroleum products benefitting from ris- outh Korea’s monthly exports “Last month was the first time the ing oil prices.” exceeded US$50 billion for monthly exports exceeded US$50 billion Besides, semiconductor exports are Sfour months in a row for the for the fourth consecutive month and likely to fall in the second half. The first time in history. Although its export four times within one year,” the ministry Korea Institute for Industrial Economics growth rate edged down last month, added, continuing, “The daily average & Trade (KIET) recently forecast that the rate for the first half continued to was US$2.38 billion, the highest since South Korea’s semiconductor export increase. Still, a heavy reliance on semi- October last year.” It went on to say, growth rate would fall from 42.5% to conductor exports and sluggish exports “Although the export unit price edged 15.9% from the first to second half of from the automobile and shipbuilding down in June this year, an increase in this year. Moreover, automobile exports sectors did not disappear. export volume more than offset the posted a decline of 9.9% last month. The Ministry of Trade, Industry decline, and the cumulative exports The ministry also explained that & Energy announced on July 1 that increased 6.6% and hit an all-time high South Korea ranked seventh in the world South Korea’s monthly exports totaled of US$297.5 billion in the first half.” in terms of exports for the first four US$51.23 billion, down 0.089% from Semiconductors, petrochemi- months of this year, down one notch a year ago, last month. According to cal products, petroleum products and from a year earlier due to a strong euro, the ministry, the slight decline can be computers showed double-digit export but its export growth was higher than attributed to less business days and growth. Specifically, semiconductor the global average and those of major the US$7.37 billion-worth ship export exports, which totaled US$10.85 billion economies during the same period. contract concluded in June last year. in May this year, reached a record high South Korea’s monthly imports It explained that last month’s figure is of US$11.16 billion with a year-on-year added up to US$44.91 billion, up 10.7% the fifth-highest in history in terms of growth of 39% last month. This had to from a year earlier. Its trade surplus export value in spite of the year-on-year do with a stable memory chip price that totaled US$6.32 billion and it remained decline. led to an increase in exports continuing in the black for 77 months in a row.

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Interview with Mayor of Incheon City Mayor Park Pledges to Make Incheon a ‘Special Peace City in Northeast Asia’

By Michael Herh

How do you feel about being sworn in The number of election promises has as new mayor of Incheon? been adjusted from 200 to 148. The First of all, I am deeply grateful to construction of a new city hall building citizens for their overwhelming support and the Songdo Waterfront project have in the local election. I think that citizens been sent back to the drawing board. sent me a lot of support as they really What are the reasons? wanted a new Incheon and changes in There is a misunderstanding. Rough- city administration. I will carry out ly 200 campaign promises were reduced municipal administration with a greater to 178 by the transition team. The 178 sense of responsibility, taking into con- pledges included 30 for wards and coun- sideration their expectations. ties. However, these promises were not You said in your inaugural address reviewed by the transition team as they that you would open a new era for need to be coordinated with new heads Incheon and make the city special. In of wards and counties. So we announced what aspect will Incheon become special? that we had reviewed 148 pledges except Incheon has been under a host of reg- those for wards and counties. But it was ulations because it is part of the Seoul erroneously reported that the total num- metropolitan area. Yet it has been a mar- ber of pledges has been adjusted to 148. Park Nam-chun is sworn in as the seventh popularly elected mayor of Incheon Metropolitan City during the ginal city and suffered discrimination as The expression of "review" used by inauguration ceremony at the IDC Center of Incheon it is not Seoul. Incheon citizens feel that the transition team for some projects City Hall on July 2. their lives have been tough and take little does not mean that the projects will be pride in their city. canceled or discontinued. This means By a special city, I mean that Incheon that we will push forward with them after will no longer remain a city marginalized taking into account financing methods, ark Nam-chun from the in the outer area of Seoul. I will do my project periods and project scales among ruling Democratic Party best to renew Incheon citizens’ pride in others. They include projects that I have P took office as the mayor the city by making Incheon the center of promised. In the future, we will collect of Incheon Metropolitan City on peace and cooperation in the West Sea. the opinions of citizens to implement July 2. In his inauguration address, In this new era of Incheon, citizens, these projects. Mayor Park promised that he would not the mayor, will be at the center of municipal administration. I would like How will you take care of pending enhance the value of Incheon and the to help them take pride in being Incheon issues such as the landfill site of the pride of its citizens through policies citizens by placing top priority on making Seoul metropolitan zone? based on fairness, communications, them happy. I will show that Incheon citi- Many local issues including the and innovation. He also pledged to zens are the protagonist in the new era. landfills of the Seoul metropolitan area make Incheon a “Special City for remain unresolved, causing friction The ruling and opposition parties have Citizens” where three million citizens between the involved local governments. alternately produced Incheon mayors. One reason is that the related local gov- take the initiative in running the city. Aren’t there any problems in terms of the ernments, including the Incheon city gov- BusinessKorea sat down with Mayor sustainability of municipal administration? ernment, have been obsessed with show- Park to hear about his plans to lead We will succeed good policies of the ing results to the electorate and hastily the city. The following are excerpts former municipal government but correct implemented projects without taking into from an interview with him. -- Ed. its mistakes and take up the slack. account various opinions and interests.

20 Particularly, since local issues The city council’s oversight of the indiscriminately while pushing for the involve diverse interests of citizens, a municipal government is expected to creation of a zone to better preserve heri- more careful and prudent approach is ease as the ruling party has secured a tage from the port-opening era. needed. I will not make decisions arbi- majority in the council. What relation- Privately owned buildings are the trarily and pay a lot of attention to the ship are you going to forge with the city biggest problem. This is because it process of persuading citizens. council? Please tell us about your plans is difficult to stop demolition work. In to cooperate with the city council. the end, Incheon City will have to buy Including potential debts, Incheon City’s Checks and balances are necessary them or take them over by offering their debts exceed 15 trillion won. What is for the future of the municipal govern- owners substitute lots, but this approach your plan to enhance the city’s financial ment. We will continue to respect the obviously has limits. soundness? city council as a partner in municipal The city government will have to Improving the city’s financial sound- administration so that we can maintain preserve buildings that urgently need ness is quite a challenging task that a healthy relationship of checks and bal- protection by using its budget, but it is requires in-depth studies. The transition ances with it. We will also create a sys- also urgently needed to persuade private team additionally found out that Incheon tem that is constantly monitored by citi- owners. We will offer them incentives to City had more potential debts than zens under a public-private cooperative preserve their buildings voluntarily. expected. We will come up with a more governance arrangement. concrete and sustainable solution to the To this end, I am planning to establish Would you explain about your strategy financial soundness issue within a short an organization directly controlled by the to grow Incheon into a Northeast Asian period of time. mayor, which is aimed at achieving joint hub? The previous municipal government governance, innovation, and communica- We will make Incheon a "special city could reduce debts thanks to a temporary tions at the same time. We will also con- of peace in Northeast Asia" in line with spike in local tax revenues. The prob- tinuous joint governance by establishing the coming era of peace and prosperity lem is that property taxes and acquisi- a system that monitors and evaluates the on the Korean Peninsula. We are plan- tion taxes accounted for the largest por- level of joint governance. ning to remove tension from the sea off tion of the increased tax revenues. This Incheon has rich cultural heritage Incheon to turn it into a fertile fishing is because only real estate transactions from the period of port opening in the ground. We will push for the construc- increased without an economic boom and late 19th century. Recently, some build- tion of an inter-Korean peace road from the growth of household income. ings from this period have been disman- South Korea’s Yeongjong Island, which The enhancement of the city’s finan- tled, spawning calls for the preservation has the world's best international airport, cial soundness is not an easy task. In the of the remaining buildings. Are there any to Kaesong and Haeju in North Korea. first place, the municipal government plans or measures to preserve them? Then the road will be used to transport should not have started projects with Some citizens are calling for the goods from Incheon through Pyongyang, debts. But there is no use crying over preservation of modern cultural heritage then China and then to Europe. spilt milk. We will prepare and implement following the demolition of Aegyeongsa measures for the city’s financial sound- Building last year. It is contradictory for Finally, what do you want to say to your ness by studying the matter in depth. Incheon City to remove cultural heritage citizens with regard to municipal admin- istration? As stated in my inaugural address, I will put communications and cooperation at the top of my agenda for municipal administration. Citizens will empowered to take part in municipal administration. We will not make any arbitrary decisions or make citizens a rubber stamp. We will run the city in a citizen-friendly way by listening to the voices of all three mil- lion citizens and apply their opinions to administration. If citizens take part in municipal administration more active- ly and indicate our mistakes if there are any, we will be able to make a meaning- ful change in Incheon. I look forward to Park Nam-chun (left), the new mayor of Incheon, is talking with Mami Mizutori (right), special representative of the UN secretary general for disaster risk reduction at the reception room of the city hall on July 9. receiving your steady support.

21 COVER STORY

New Drug Development Korean Gov’t to Inject 2 Tril. Won into Biotech Industry While Easing Regulations

By Jung Suk-yee

he Korean government is July 24, the three government ministries hearing with experts from the industry, set to launch a 2 trillion won – the Ministry of Health and Welfare academia and government and complete T(US$1.78 billion) project to (MOHW), Ministry of Science and ICT a preliminary feasibility study by the end help domestic biotech companies devel- (MSIT) and Ministry of Trade, Indus- of November at the latest with an aim to op new drugs. The move is intended to try and Energy (MOTIE) – will jointly inject 2 trillion won (US$1.78 billion) of revitalize the domestic biotech industry, launch a tentatively named “National budget in the next 10 years. which was recently hit by a string of bad New Drug Development Support Proj- The National New Drug Develop- events. ect” as early as next month. ment Support Project will replace the According to industry sources on They are planning to hold a public ongoing pan-governmental full-cycle

22 cover story

new drug development project run by the three ministries. The industry wel- comes the government’s decision as the size of the project has significantly expanded from the current 33 billion won (US$29.31 million) for three years to 2 trillion won (US$1.78 billion) for ten years. The new project illustrates the incumbent government’s push to pro- mote the bio industry. The government has created the Healthcare Special Sub- committee under the Presidential Com- mittee on the Fourth Industrial Revolu- tion. The South Korean government will launch a tentatively named “National New Drug Development Support The presidential committee recently Project” as early as next month. announced a deregulation package for the medical device sector, which has the establishment of subsidiaries. With technology start-ups by establishing a been called “the incubator of regula- the deregulation, many hospitals are holding company under the Korea Uni- tions.” expected to establish subsidiaries in the versity, instead of the hospitals. Hospitals Some say that the government should bio and healthcare sectors. belonging to a school corporation are in establish a pan-governmental control The Ministry of Health and Welfare a better situation than those run by con- tower in charge of the bio industry as announced on July 19 plans to allow glomerates, as they can use their school soon as possible as it takes more than research hospitals to set up high-tech in creating start-ups. Seoul Asan Medical 10 years to develop new drugs. This is holding companies dedicated to commer- Center and Samsung Seoul Hospital that because the current structure that sepa- cializing medical technology patents and belong to a foundation or social welfare rates basic science governed by the incubating business start-ups. Currently, organization are bound by the inheri- MSIT, clinical trial by the MOHW, com- only universities are allowed to set up tance and gift tax law, which prohibits mercialization by the MOTIE and licens- technology holding companies. them from holding more than 5% of a ing by the Ministry of Food and Drug An official from the Ministry of domestic company. As a result, the medi- Safety cannot be seen as effective in pro- Health and Welfare said, "The Ministry cal staff of these hospitals usually starts moting the biotech industry. of Trade, Industry and Energy will revise businesses themselves as individuals. An official from the Korea Biotech- its regulation on technology transfer to This is drawing criticism that while over- nology Industry Organization said, “The allow research hospitals to build high- seas medical institutions come into the domestic bio industry has faced a series tech holding companies from the second ring as “heavy weight” fighters, Kore- of bad events due to both internal factors half of the year." an doctors enter the ring as “flyweight” and external factors. The bio industry The Ministry of Health and Welfare fighters. cannot prosper if the government policy has been operating a research-oriented The Ministry of Health and Welfare lacks consistency. So, the government hospital system since 2013 to promote predicts that when hospitals can set up should set up a unified control tower the commercialization of ideas from hos- technology holding companies, they will before providing policy support and pro- pitals. Large university hospitals in the be able to establish bio and healthcare motion.” metropolitan area like Severance Hos- companies with ideas from hospitals. pital and Kyungbuk University Hospital Then the profits created from these com- Korean Gov't Eases Medical have been designated as research hos- panies will go back to the hospitals, creat- Regulations pitals. So far, 67 companies have been ing a virtuous cycle. The Mayo Clinic in founded based on the ideas suggested by the US receives more than two technolo- Domestic research hospitals such the staff of research hospitals. However, gy proposals for commercialization every as Seoul National University Hospital, none of them are subsidiaries that were day through the Mayo Clinic Ventures, Samsung Seoul Hospital and Seoul Asan invested directly by hospitals. The cur- and commercializes about 25% of them. Medical Center will be able to establish rent medical law restricts hospitals from By 2016, there were 136 companies venture businesses in the field of bio- establishing subsidiaries. founded by Mayo Clinic Ventures. Of health. So far, domestic hospitals have For this reason, Korea University these, Mayo Clinic Ventures owns stakes had difficulties in launching new busi- Anam Hospital and Korea University in 81 companies. Profits from technology nesses due to the medical law prohibiting Guro Hospital have been supporting transfer exceed 540 billion won.

23 cover story

Right Time to Invest in Bio Korean Refineries, Chemical Firms Look to Biotech for Future Growth

By Choi Mun-hee

orean refineries and chemi- cal companies are turning Ktheir attention to the bio- pharmaceutical market. Experts say that now is the right time for these compa- nies to invest in biotech, a major future growth engine, as they have accumulated enough profits from their prosperous businesses. The SK Group recently acquired AMPAC, a US bio-pharmaceutical con- tract development and manufacturing organization (CDMO). The acquisition price is estimated at 800 billion won (about US$714 million) including 500 billion won for recapital- ization and 300 billion won for acquisi- tion financing. Korean refineries and chemical companies are ramping up investment in the biotechnology sector to drive their future growth. With the acquisition, SK Group owns SK Biopharm, SK Biotec, and AMPAC shin Securities, said “SK will soon energy, water and biotech as its mid- to in the bio sector. Experts predict that the emerge as a CDMO with the production long-term growth engines. We will make synergy they will create will have a posi- capacity of 1 million liters if it combines an active effort to find new business tive influence on their future earnings. the production facilities of Irish BMS opportunities including M&As especially The SK Group has been active in (about 400,000 liters) acquired last year in the bio sector." the bio-pharmaceutical business. Last and the US AMPAC facilities of about LG Chem acquired Farm Hannong year, SK Biotech bought Bristol-Myers 600,000 liters. They will be able to in April 2016 for 400 billion won and Squib’s (BMS) Irish production facil- strengthen the group’s bio business and absorbed LG Life Sciences in the follow- ity at 170 billion won. Earlier this year, create synergy effects in cooperation ing year. Chey Tae-won, chairman of the SK with its bio subsidiaries such as SK Bio- It was interpreted as a move to make Group, said he would invest 2 trillion pharm and SK Biotec.” achievements in red biotech including won in the healthcare sector for three LG Chem, a flagship of the Korean new medicine following green biotech. years. chemical industry, also views the bio In fact, LG Chem has recently launched The SK Group's pharmaceutical busi- business as a next-generation growth Eucept, Enbrel's etanercept-based bio- ness is handled by SK Chemicals. SK engine and is actively supporting it. similar product, in Japan. At the moment, Chemicals established SK Bioscience LG Chem announced last year that LG Chem is the only company that sells last month by splitting the vaccine busi- it would advance into three biotech sec- Enbrel’s biosimilar in Japan. ness division in order to strengthen its tors: red (pharmaceutical and vaccine), According to the Financial Supervi- expertise. green (agrochemical) and white (energy). sory Service's electronic disclosure sys- SK has transformed itself a compre- It aims to become the world's leading bio tem, LG Chem plans to spend 1.1 tril- hensive pharmaceutical company that company by achieving sales of 5 trillion lion won on R&D this year, up 20% from encompasses all activities ranging from won by 2025, 3 trillion won in green bio- the previous year. Out of this, 140 billion drug R&D to production, sales and mar- tech and 2 trillion won in red biotech. won will be invested in bioscience. keting. Park Jin-soo, vice chairman of LG OCI has also chosen the bio-phar- Yang Ji-hwan, a researcher at Dae- Chem, said, "LG Chem has selected maceutical business as its new growth

24 engine. The company established a bio-pharmaceutical joint venture (JV) with Bukwang Pharmaceuti- cal this month. OCI and Bukwang Pharmaceutical plan to jointly invest more than 10 billion won every year in developing new drugs. GS Caltex, Korea’s second larg- est refinery following SK Innova- tion, is also focusing on biochemi- Pharma Business Fever cal as a new growth engine, while diversifying its business portfolio S. Korean SMEs Scramble into non-refining sectors. GS Caltex started the construc- to Acquire Foreign Biotech Firms tion of a pilot plant for the produc- By Choi Mun-hee tion of biobutanol in its plant in Korean refineries and chemical companies are ramping up investment in the biotechnology sector to drive their Yeosu in 2016. The plant, which future growth. cost 50 billion won, will produce about 40 billion tons of biobutanol n increasing number of South listed biotechnology firm headquartered per year. Biobutanol is considered AKorean small and medium- in Germany, by purchasing its 1.65 mil- to be an alternative energy source sized companies are pushing into the lion shares, or 6.72 percent, for 30.3 bil- for fuel such as oil that will be biotech industry by acquiring promising lion won (US$27.99 million). Medigene exhausted in the future. but undervalued foreign pharmaceutical currently works on immunotherapies These oil refineries and chemi- venture companies. which are recently regarded as next-gen- cal companies are known to have According to industry sources on eration anti-cancer treatments. enough cash thanks to robust market June 13, Feelux Co., a manufacturer of These companies are primarily conditions over the past few years. lighting products, announced on June 12 interested in commercializing the new LG Chem's cash and cash equiva- that it decided to take over 100% stake in drugs that have been developed by their lents in the first quarter of this year Liminatus Pharma, LLC, a pharmaceuti- acquired firms. They are following in were 2.91 trillion won, the highest cal R&D company in the U.S., for 16.1 the footsteps of SillaJen Inc. and HLB level ever. SK Holdings' cash equiv- billion won (US$14.87 million). The Co. that are now considered representa- alents in the first quarter stood at company also bought a 62.34% stake in tive biotech companies on the KOSDAQ about 8 trillion won and GS Caltex Viral Gene Inc., a U.S.-based bio venture market. SillaJen has obtained the source about 1 trillion won, respectively. firm that develops vaccines for colorectal technology for Pexa-Vec, a treatment for "Currently US chemical com- cancer, for 37.5 billion won (US$34.64 liver cancer which is its representative panies are expanding their ethane million) in February. FEELUX showed pipeline, by acquiring U.S. bio venture, cracking centers (ECC) in large its will to drive future growth through Jennerex Biotherapeutics Inc. quantities. For fear of oversupply, biotech by acquiring two anticancer treat- HLB, Korea’s only manufacturer of Korean chemical companies cannot ment developers in about five months. lifeboats, also took over LSK Biophar- expand their facilities. I think this is There are a lot more Korean manu- ma Inc., a U.S.-based biotech firm that why domestic chemical companies facturers which joined the pharmaceuti- developed Rivoceranib, a targeted agent chose the bio sector as an invest- cal industry the same way as Feelux did. for gastric cancer, in 2015. ment alternative,” said a researcher In April, SFC Co., which produces plas- Currently, SillaJen ranks second of energy sector at a securities firm. tic films, took over a 24.48 percent stake in terms of market capitalization on the A chemical industry official in AIVITA Biomedical Inc., a U.S.-based KOSDAQ with 5.45 trillion won US$5.03 said, "The bio market is expected company specializing in innovative stem billion), while HLB comes in fifth with to expand in the future, and there cell treatments for cancer and immuno- 3.8 trillion won (US$3.51 billion). is enough room for investment. As logical and brain diseases, for 15.4 bil- An official from the industry said, global demand for chemical prod- lion won (US$14.23 million). The com- “It is desirable that more and more com- ucts is forecast to steadily increase pany is also planning to establish its bio panies are pushing into the bio market. until 2020, chemical companies will affiliate in the near future. However, it is too early to conclude that be able to secure a cash surplus and In May, IT service provider Tong- all these companies will be success- seek to use it for acquiring bio com- yang Networks Corp. become the largest ful since the chance of success for new panies.” shareholder of Medigene AG, a publicly drugs is merely 0.02%.”

25 cover story

Hub of Bio Indusry Korean Bio-Health Venture Companies Gathering in Osong By Choi Mun-hee

orean bio-health venture companies are establishing research centers and production facilities in Osong KBio Technopolis. North Chungcheong Province and Cheongju City have recently signed an investment agreement with six companies including G2GBIO, Optolane and Bio Prism. The aggregate amount of investments pledged by these companies totaled 108 billion won. When executed, they will create a total of 223 jobs. G2GBIO is an innovative bio company with advanced new drug technology for dementia treatment. Dementia remedies on the global market come in the form of oral tablets, patches, and melting tablets. They are inconvenient as patients have to take them once or twice a day. However, G2GBIO’s new medicine is an injection type and has significantly increased the duration of the effect of the medicine to over a month. It is currently under- Lee Dae-hoon (right), president of NH Nonghyup Bank, holds a meeting with going clinical trials and is expected to enter the global market in Nguyen Dong Tien (left), vice foreign minister of the Central Bank of Vietnam, dur- 2019. ing his visit to the Vietnam's central bank in Hanoi on May 8. Optolane is a company that researches and develops molec- ular diagnostic devices, biosensors, and diagnostic agents. The antimicrobial coating market for chronic disease treatment once company is working on molecular diagnostic devices that auto- it commercializes the wound dressing technology that heals matically carry out the whole diagnosis process from DNA wound and have antimicrobial and skin regeneration effects. extraction to molecular diagnosis, and therefore can be easily Earlier on July 20, Anygen, the only Korean producer of used in primary care hospitals (clinics and public health cen- medical peptide (human hormone biomaterials involved in the ters). It is planning to roll out the new devices within this year. regulation of biological signal transmission and function con- Bio Prism is a contact research organization (CRO) for cell trol), held a ceremony to commemorate the completion of Any- and animal experiments, and is developing target cancer drugs gen Peptide Pharm Osong at the Osong Biotechnology Complex and medical devices. It has the aspiration to change the land- and began full-fledged production. scape of domestic endoscopes where imported products account Anygen is a company established in 2000 as an in-house for 96%. It has taken over the patented fluorescent molecu- venture by Kim Jae-il, a professor of the biotechnology depart- lar image endoscopic illumination device technology from the ment of the Gwangju Institute of Science and Technology Advanced Medical Device Development Support Center of the (GIST). Since then, it has been committed to the manufacture Osong Medical Innovation Foundation. of peptide-based raw material medicine and development of Jungkos, a cosmetics research and production company, has new drugs. It gained licenses for six items and was successfully set up a skin science research institute to develop differentiated listed in on the KOSDAQ in December 2016. products. Currently, it is developing 1,477 products, including Anygen Peptide Pharm Osong plans to recruit 20 research- toners and sunscreens that have been approved for functional ers and 30 production workers from local residents. Peptides to use. be produced at the Osong plant will be supplied to global phar- Osbio plans to build a platform for production and distri- maceutical companies through an exclusive sales contract with bution of organic medical foods and health-related functional Interchem of the US, the world's leading seller of raw material foods. It is studying the positive effects of water celery extracts medicine. on cancer and chronic diseases such as hypertension and diabe- An official of the North Chungcheong provincial govern- tes. ment said, "We will continue to attract bio companies to further Regencare researches and develops wound dressings and strengthen the status of the province as the center of the bio cosmetics for skin diseases. It is expecting to lead the global industry."

26 Bubble Bursting Or Growing Pains? A String of Bad Events Raises Questions about Growth Potential of Korean Bio Industry By Choi Mun-hee

string of bad events in the South Korean bio indus- license deal for a non-alcoholic hepatitis treatment candidate try are fueling concerns that a “K-biotech stock bub- with Dong-A ST Co. Able” might burst. In addition, Hanmi Pharmaceutical Co. decided to cease the According to industry sources on July 23, SillaJen Inc., one development of Olita, a lung cancer treatment, in April after an of South Korea's top biotherapeutics companies, has encoun- exclusive sales licensing deal with BoehringerIngelheim Phar- tered criticism from its shareholders as executive officers have maceuticals Inc. was canceled in September 2016. left the company one after another. SillaJen posted an announce- Recently, there is a growing controversy over the morality of ment on its website assuring shareholders of its fundamental bio company top management. Following SillaJen, Nature Cell management ability but it is getting an icy stare from the market. Co. has taken a beating after CEO Ra Jeong-chan was arrested The prolonged controversy over Samsung BioLogics Co.'s on charges of stock price manipulation on the 18th. Accordingly, accounting fraud allegations is also becoming a drag on K-bio- distrust of the bio industry as a whole, which was caused by the tech stock growth. Financial authorities have deliberated on late announcement incident of Hanmi Pharmaceutical in 2016, Samsung BioLogics’ accounting fraud allegations for nearly two was rekindled. months but have yet to reach a final judgment on the key issue However, some watchers of the biotech industry say that the of whether the company intentionally committed accounting recent series of unfavorable factors is a kind of growing pains. fraud. Accordingly, the situation is highly likely to be prolonged. They say a process of “picking out precious stones” is going A series of cancelled technology export contracts also casts on and companies with competitive edge will survive and bring a cloud on South Korean biotech companies’ growth prospects. about good results after all. Illegal activities committed by some In November last year, US-based pharmaceutical firm Tobira companies will also serve as a momentum to strengthen the Therapeutics canceled a US$61.5 million (about 70 billion won) industry’s self-cleaning ability in the end.

The South Korean bio industry has recently been hit by a string of unfavorable factors that raised questions about its growth potential.

27 Money

Consolidate Supervision Takes Effect Non-bank Financial Groups Need to Expand Capital under New Rule

By Yoon Yung Sil

s consolidated supervision of non-bank financial groups takes effect from July 1, the seven groups Asubject to the new regulatory regime suffer a sharp drop in their capital adequacy ratios. Accordingly, these groups are expected to expand their capital and sell their stakes in sub- sidiaries, which in turn will affect their their corporate gover- nance structures According to the simulated results of the impact of the new capital regulations disclosed by the Financial Services Com- mission (FSC) on July 1, the seven financial groups will see their capital adequacy ratios drop significantly. But they are not required to expand their capital at the moment as their capital adequacy ratios all exceed the minimum ratio of 100 percent. But Samsung, Hyundai Motor, Mirae Asset and Hanwha groups will have to expand their capital soon as their capital adequacy ratios drop to a low level. Samsung Life suffers a sharp drop in its capital adequacy ratio under the consoli- According to the simulated results, the seven groups – Sam- dated supervision regime that took effect on July 1. sung, Hanwha, Kyobo Life, Mirae Asset, Hyundai Motor, DB and Lotte – will see their capital adequacy ratio decline by 44.8 tronics shares or expand its capital in order to reduce the risk. It percentage points to 156.7 percentage points. The FSC applied is also connected with Samsung Group’s governance structure the third level of the total assessment framework to the simula- reform. When Samsung Life sell its stake in Samsung Elec- tion. tronics stocks in a bid to meet the standards, it can weaken the For Samsung, the current capital adequacy ratio stands at owner family’s control of Samsung Electronics. 328.9 percent, a figure that is obtained by dividing its eligible The current capital adequacy ratio of Mirae Asset is 307.3 capital of 57.14 trillion won (US$51.27 billion) by the required percent but it can decrease to 150.7 percent when considering capital of 17.38 trillion won (US$15.59 billion). However, when the overlapping capital. Mirae Asset owns stocks of its subsid- the new capital regulations are applied, the company's capital iaries by using funds raised through the issuance of bonds by adequacy ratio falls to 221.2 percent. Moreover, when “con- Mirae Asset Capital, a de facto holding company of the group. centrated risk,” a risk that arises when a financial company's The authorities consider such capital as the overlapping capital. assets are concentrated in a specific area, is taken into account, However, the FSC came up with the results after considering Samsung Life Insurance’s capital adequacy ratio drops to 110 these its capitals for now since the fact that Mirae Asset Daewoo percent. Samsung Life Insurance and Samsung Fire & Marine and Naver exchanged treasury shares has a lot of controversial Insurance own about 29 trillion won (US$26.02 billion) worth issues. If 500 billion won (US$448.63 million) worth of Naver of Samsung Electronics shares. Therefore, when Samsung Elec- shares owned by Mirae Asset Daewoo are not considered the tronics becomes insolvent, the risk will be transferred to the two eligible capital, Mirae Asset’s capital adequacy ratio will drop to sister companies, according to financial authorities. some 140 percent. Financial regulators said Samsung has surpassed the limit In addition, the capital adequacy ratio of Hanwha went of concentrated risk of 19 trillion to 20 trillion won (US$17.05 down to 152.9 percent, Kyobo Life 200.7 percent, Hyundai billion to 17.95 billion). When a company exceeds the limit of Motor 127 percent, DB 168.7 percent and Lotte 176 percent. As concentrated risk, it needs to secure more required capital. The Hyundai Motor, Mirae Asset and Hanwha don’t have enough authorities believe that Samsung Life’s capital adequacy ratio money, recording around 150 percent of the capital adequacy can decrease to 110 percent considering all the factors. In this ratio, they are more likely to be under pressure to expand their case, Samsung Life should either sell its stake in Samsung Elec- capitals in the future.

28 MONEY

Amid Number of 1 Trillion Won KOSDAQ Companies Drops Sharply By Yoon Young-sil

s the KOSDAQ stock index suffered a sharp downward Acorrection, the number of KOSDAQ-listed firms with a market capitalization of 1 trillion won (US$896.86 million) or The number of KOSDAQ-listed companies with a market capitalization of at least more has also decreased sharply. The figure reached an all-time one trillion won (US$896.86 million) has sharply decreased amid a downward stock market correction. high in April this year but has fallen by 30 percent in just three months. Some experts attribute the decline to the absence of blue- According to the Korea Exchange (KRX), the number of chip companies newly listed on the KOSDAQ market. Early trillion won KOSDAQ companies came to 31 as of July 3. The this year, cafe24 Corp., the first company to go public under the figure showed a steep decline compared to early this year. In so-called Tesla standards, and Kolon TissueGene Inc. joined the April, the figure hit an all-time high of 44. However, it dropped 1 trillion won club right after their listing. But there have been by 13 in just three months as the KOSDAQ market went no such firms since then. Except the two, no companies with a through a correction. market capitalization of more than one trillion won (US$896.86 The KOSDAQ index reached 930 at the end of January but then million) have been listed in the past year. fell to 900 in April and 880 in June. The index closed at 795.71 on As the number of trillion won companies has dropped, the July 3, up 0.75 percent from the previous trading day. It showed a number of bio firms that belong to the club has greatly reduced whopping 16 percent decline from the previous high point. as well. The figure dropped from 20 in April to the current 10.

S. Korea’s Foreign Exchange Reserves Exceed US$400 Billion Enough to Avert Financial Crisis? By Jung Suk-yee

outh Korea’s foreign exchange reserves topped US$400 Sbillion in June for the first time. According to the Bank of Korea on July 4, Korea's forex reserves reached US$400.3 billion at the end of last month by Debate has been rekindled regarding the optimum level of South Korea’s foreign exchange reserves. gaining US$1.32 billion from May. For reference, the amount was US$3.9 billion during the foreign exchange stabilization bonds. 1997 Asian financial crisis and US$200.5 billion during the Some experts point out that the amount is not that much global financial crisis in 2008. considering the fact that the reserves are a kind of contingency Under the circumstances, debate has been rekindled regard- plan and the cost of a financial or foreign exchange crisis over- ing the optimum level of South Korea’s foreign exchange whelms the amount in most cases. They mention Argentina as reserves. According to the IMF’s criteria, the optimum level an example. In March this year, Argentina’s foreign exchange is US$381.4 billion to US$572.1 billion. Yet it is more than reserves totaled US$61.73 billion, slightly less than the opti- US$600 billion according to those of the BIS. mum level of US$65.23 billion recommended by the IMF. Still, Debate is also underway with regard to the opportunity cost the country could not avoid a bailout. related to the forex reserves. Trillions of won a year is required In the meantime, the foreign exchange authorities of South for South Korea to maintain its forex reserves. In addition, its Korea are regarding the current forex reserves as appropriate. government debt increases every time the government issues

29 MMONEYONEY

A Series of Big IPOs Scheduled Multiple Major IPOs around the Corner in Seoul Bourse By Jung Suk-yee

Major IPOs in the second half of this year are likely to exceed 3.1 trillion won (US$2.8 billion).

series of big initial public goes public on the KOSPI early next CJ CGV Vietnam Holdings applied offerings (IPOs) are sched- month. Its lead managers are Shinhan for a listing examination last month and Auled in the Seoul bourse in Investment Corporation and Daishin is expected to enter the KOSPI in Octo- the second half of this year. Securities and the estimated size of the ber this year. The lead managers are According to industry sources, Hyun- IPO is 233.6 billion won (US$210 mil- Shinhan Investment Corporation and dai Oilbank is planning to go public on lion) to 267.2 billion won (US$240 mil- Hanwha Investment & Securities. The the KOSPI in October and is currently lion). Demand forecasting for institution- fully-owned subsidiary of CJ CGV post- working with NH Investment & Secu- al investors is scheduled for July 17 and ed a share of 45.3% in the Vietnamese rities and Hana Financial Investment to 18 and general investor subscription is film market as of the end of March this that end. The size of the IPO is estimated scheduled for July 23 and 24. year. at two trillion won (US$1.8 billion) and Lotte Data Communication Compa- Bodyfriend is preparing to follow suit the company’s enterprise value is esti- ny, which is a fully-owned subsidiary of with Mirae Asset Daewoo and Morgan mated at eight trillion won (US$7.2 bil- Lotte Holdings, initiated its IPO prep- Stanley as its lead managers. The mas- lion). aration process last month by submit- sage chair manufacturer’s enterprise In the KOSDAQ, Kakao Games ting its report to the Financial Services value is estimated at up to three trillion already obtained an approval from the Commission. Its lead manager is Mirae won (US$2.7 billion). Korea Exchange last month with Korea Asset Daewoo and the size is estimated “The major IPOs in the second half Investment & Securities as its lead man- at 121.3 billion won (US$109 million) of this year are likely to lead to a total ager. The company is scheduled to be to 144.9 billion won (US$130 million). offering value exceeding that of the listed next month with an estimated IPO Demand forecasting for offering price second half of 2017, 3.1 trillion won value of 124.0 billion won (US$111 mil- determination, subscription, and listing (US$2.8 billion),” said SK Securities, lion) to 192.8 billion won (US$173 mil- are scheduled for July 11 and 12, July adding, “The recent relaxation of KOS- lion). 17 and 18, and late this month, respec- DAQ listing requirements is expected to Low-cost carrier (LCC) T’way Air tively. facilitate the offerings as well.”

30 MONEY

The Korean insurance industry claims that a simultaneous introduction of the IFRS 17 and K-ICS will place a huge burden on insurance companies.

A Subtle Change in Stance Will S. Korean Gov’t Phase in IFRS17 and K-ICS in Insurance Industry? By Yoon Young-sil

ill South Korea’s financial regulator introduce place a huge burden on the insurance sector. The K-ICS is a new the International Financial Reporting Standards system that calculates the ratio of risk-based capital (RBC) by W(IFRS 17) and the Korean Insurance Capital evaluating insurers’ assets and liabilities based on market value. Standard (K-ICS) to the domestic insurance industry at the Insurance companies say that a simultaneous introduction of the same time in 2021? Industry watchers say a subtle change has K-ICS and the IFRS 17 will have an impact not only on their been detected in the regulator's stance on the matter. profitability but also on their survival. Accordingly, the insur- The insurance industry requested again on July 5 that the ance industry has been calling for a phase-in of the IFRS 17 and IFRS 17 and the K-ICS be flexibly adopted. It has continu- the K-ICS systems. ously asked for a delay. It said the systems should be phased To increase the ratio of RBC in preparation for the IFRS in, considering the preparedness of insurance companies. The 17 and the K-ICS systems, the insurance industry is trying to financial authorities initially turned a deaf ear to the insurance increase its available capital (the numerator of RBC) by issu- industry’s request that a simultaneous introduction of the IFRS ing subordinated security bonds and consol bonds, but there 17 and the K-ICS be postponed. However, the insurance indus- is a limit with such efforts alone. Europe, which has similar try hopes that the financial regulator would change its stance as regulations on capital with South Korea, has also introduced Choi Jong-ku, chairman of the Financial Services Commission the IFRS 17 and the Solvency II, which is a similar system to (FSC), said during a seminar a day earlier, “We will introduce the K-ICS, with time differences, according to the insurance the two systems without imposing a big burden on insurance industry. companies.” An official from the industry said, “I heard that Europe also The insurance industry has said that the financial regulator discusses ways to delay the introduction of the IFRS 17. The should either phase in or postpone K-ICS’s implementation, South Korean government should reconsider the simultaneous claiming that a simultaneous adoption with the IFRS 17 will adoption of the IFRS 17 and the K-ICS systems as well.”

31 MONEY

Preference for Risk-free Assets Foreign Investors’ Korean Bond Holdings Hit Record High

by Yoon Yung Sil

ith an increasing prefer- ence for risk-free assets Wdue to a trade dispute between the United States and China, foreign investors’ South Korean bond holdings hit a record high. According to a report on the over- the-counter bond market trend for June published by the Korea Financial Invest- ment Association (KOFIA) on July 6, the foreign ownership of domestic bonds came to 110.56 trillion won (US$99 bil- lion) at the end of June, up 2.12 trillion won (US$1.9 billion) from a month ago. This is because there has been an increasing preference for risk-free assets due to the global trade dispute between the G2 and a continuous reversal of for- ward exchange rates and Korean won exchange rates has boosted foreigners’ arbitrage. Foreigners net bought a total of 7.5 trillion won (US$6.73 billion) worth of bonds – 4.08 trillion won (US$3.66 billion) of government bonds and 3.23 The aggregate dividend payout of 537 companies or 72 percent of the 745 companies listed on the main Kospi trillion won (US$2.9 billion) of monetary market amounted to 21.8 trillion won (US$20.34 billion) in 2017, hitting a five-year high. stabilization bonds – in the past month. The figure increased more than 2 trillion bond issuance came to 579.5 trillion won to 8.42 trillion won (US$7.55 billion), won (US$1.79 billion) from 5.3 trillion (US$541.64 billion) last year, down 2.8 while that of special bonds and monetary won (US$4.75 billion) a month earlier. trillion won (US$2.62 billion), or 0.5 per- stabilization bonds decreased 6 percent Shin Dong-soo, an analyst from Eugene cent, from a year ago. The bond issuance and 14.7 percent, respectively, to 13.81 Investment & Securities Co., said, “For- market slightly shrunk compared to the trillion won (US$12.39 billion) and eigners’ investments in won-denominat- previous month as the issuance of govern- 5.2 trillion won (US$4.67 billion). The ed bonds grew despite the increase in a ment bonds, special bonds and monetary total amount of bank debenture issuance reversal in the Korea-U.S. rate gap, cur- stabilization bonds decreased. The total came to 19.57 trillion won (US$17.55 rency depreciation in emerging countries amount of South Korean bond issuance billion) over the same period, up 16.1 and concerns over capital outflow. came to 56.11 trillion won (US$50.32 percent due to a large-scale bond issu- Foreigners net purchased 34 trillion billion) in June, down 4.69 trillion won ance of the Industrial Bank of Korea. won (US$30.44 billion) worth of won- (US$4.21 billion) from a month ago. The With upcoming meetings for monetary denominated bonds last year but they balance of the bonds stood at 1,901. 11 policies around the world and business’ bought 33 trillion won (US$29.54 bil- trillion won (US$1.71 trillion). weaker demand for issuance before a rise lion) of them in the first half of this year The total amount of government in the rate of interests, 6.9 trillion won alone, strengthening the selling trend. bond issuance dropped 41.1 percent from (US$6.19 billion won) worth of corpo- The total amount of South Korean 14.29 trillion won (US$12.81 billion) rate bonds were newly issued.

32 MONEY

Regardless Criticism Foreign Financial Firms Send Nearly 7 Tril. Won to Headquarters for Past 5 Yrs.

by Yoon Yung Sil

oreign financial companies advertising costs, trade mark fees and billion) of money to their headquarters operating in South Korea have consulting fees. in the last five years. Foreign insurance Ftransferred 1.2 trillion won In particular, foreign banks trans- companies also remitted 1.19 trillion (US$1.08 billion) worth of funds a year ferred 3.46 trillion won (US$3.1 bil- won (US$1.07 billion), while foreign on average to their headquarters durign lion) of money to their headquarters in asset management companies transferred the past five years, according to data the past five years, accounting for over 391.5 billion won (US$351.03 million). released by the Financial Supervisory half of the total remittances. Standard In this regard, Park said, “Regardless Service (FSS). Chartered Korea transferred the most at of endless criticism, foreign financial The financial regulator submitted the 878.8 billion won (US$788.37 million), companies continue to make a preda- data to Rep. Park Yong-jin, a lawmaker followed by HSCB at 830.2 billion won tory remittance to their headquarters. of the ruling Democratic Party of Korea (US$744.77 million), Citibank Korea at I am planning to set up a legal system and a member of the parliamentary 471.3 billion won (US$422.8 million) that can force them to reinvest a certain National Policy Committee, on July 8. and JP Morgan at 162.8 billion won portion of profits in the domestic mar- According to the data, foreign finan- (US$146.05 million). ket and create jobs at the regular session cial firms sent a total of 6.78 trillion won The payout ratio of foreign banks is of the National Assembly in the future. (US$6.08 billion) for five years from about twice the size of domestic banks. With a continuous emphasis on capital 2013 to the first quarter of 2018. They also tend to transfer almost full expansion to brace for the introduction The FSS surveyed a total of 100 amount of dividends to their headquar- of the Basel III and the IFRS, I will ask firms, including 40 banks, 11 securities ters. the FSS to look into whether foreign companies, 28 insurance companies and In addition, foreign securities com- financial companies have problems with 23 asset management companies. Since panies wired 1.74 trillion won (US$1.56 financial soundness. the figures of insurance companies are excluded in the first quarter, the actual amount for five years will reach nearly 7 trillion won (US$6.28 billion). The amount of foreign financial companies’ remittances to their head- quarters came to 1.03 trillion won (US$920.57 million) in 2013, 810.6 bil- lion won (US$727.52 million) in 2014, 1.58 trillion won (US$1.42 billion) in 2015, 1.34 trillion won (US$1.2 billion) in 2016 and 1.39 trillion won (US$1.25 billion) in 2017. The figure stands at 1.23 trillion won (US$1.1 billion) a year on average. Foreign financial firms sent 631.2 billion won (US$566.25 million) of money in the first quarter of this year alone, which is more than half of the annual average in the last five years, as profits, commissions, including data pro- Standard Chartered Korea has remitted the largest amount of funds to its headquarters among foreign financial cessing fees, headquarter expenses, like institutes operating in Korea.

33 MONEY

A Cause of Stock Price Fluctuations KOSDAQ Venture Funds Fuel Bio Stock Bubbles The Kosdaq Venture Funds, which have been created to vitalize small and medi- By Yoon Young-sil um-sized companies, have become the main force that disturbs the stock market.

io companies that were listed on the stock market this (IB) industry sources, the offering price of six venture companies, year saw their stock prices go up for a while before which went for a public offering on the Kosdaq market after April Bfalling sharply below the listing prices. when the Kosdaq Venture Funds was released, was set surpassing Behind this abrupt price movements were the Kosdaq Venture the offering price band. Considering the fact that only six out of 50 Funds, which were created under a government policy to vitalize companies listed on the Kosdaq market last year saw their offering venture companies. prices exceed the expected band, there is a sharp increase in the These funds joined the scramble among institutional investors number of companies that show excessive offering prices in a short to purchase publicly offered bio stocks, pushing their prices above period of time. However, these companies all showed a brief rise in market estimates. However, their overblown stock prices plum- stock prices after the listing and then a nosedive. meted after the listing amid concerns about bubbles. In this regard, experts say that the Kosdaq Venture Funds have Market experts point out that the Kosdaq Venture Funds have excessively boosted offering prices and this has led to market dis- become the main force that disturbs the market. tortion. An official from the securities industry said, “When indi- In particular, there is growing concern over the possibility that vidual investors invest in stocks for public subscription, they have healthcare companies that plan to file for an initial public offer- no choice but to refer to institutions’ demand forecast competition ing (IPO) later this year could be undervalued in the market as rates. Individual investors invested in relevant companies’ shares, the investor sentiment for bio firms has cooled off amid the recent driven by high competition rates of institutions, and this led to a financial authorities’ investigation of Samsung BioLogics Co.’s large short-term increase after the listing on the Kosdaq market. alleged accounting fraud. However, the drop in stock prices grew further after institution According to the Korea Exchange (KRX) on July 18, eight bio investors went on a selling spree.” companies, which were listed on the Kosdaq market in the first half As the rate of return on invested stocks in a public offering fell, of this year, saw their stock prices decrease 33.25 percent on aver- the Kosdaq Venture Funds also shows poor earnings rates. Out of age from the date of the listing until the 18th. Osteonic Co., which 12 Kosdaq public offering venture funds, only “Asset One Public was listed on February 22, recorded the biggest drop of 53.44 per- Offering Kosdaq Venture Firm” of Asset One Co. made a profit at cent. Only Enzychem Lifesciences Corp. showed an increase in 4.09 percent between the date of the launch and the 13th. The rate stock price at 6.57 percent. ICURE Pharm Inc., which made a of return on “KTB Kosdaq Venture” of KTB Asset Management debut in the Kosdaq market on the 12th, also saw its stock price Co., which attracted the largest amount of funds, stood at minus drop 18.98 percent during the four trading days from the 13th. In 3.46 percent and other public offering funds showed a loss as well. addition, OliX Pharmaceuticals Inc., which was listed on the same As investors' confidence for bio companies have been shrunk day, posted an 8.99 percent decrease from the opening price. owing to the recent Samsung BioLogics issue, the outlook for mar- The Kosdaq Venture Funds are considered one of the factors ket evaluation of bio firms, which plan to go public in the second that make bio companies’ share prices fluctuate. The government half of the year, is also dim. A considerable number of bio compa- established the funds in April with an aim to promote small and nies, such as Union Korea Pharm Co., Hana Pharm Co., Avellino mid-size firms through the stock market. The funds are required to Labs Ltd. and S.Biomedics Co., are seeking to list on the stock invest 15 percent of their assets in venture companies' new stocks market later this year. However, they are expected to have difficul- and 35 percent in new and old stocks of Kosdaq-listed companies ties in attracting investment since the corporate evaluation of bio that outgrew the venture company title less than seven years ago. firms has been becoming stricter, mainly accounting standards, due The Kosdaq Venture Funds have been popular since the launch to the recent Financial Services Commission (FSC)’s investigation day as they allow investors to invest in IPO stocks and give tax into Samsung BioLogics. ICURE, which was listed on the 12th, benefits. As a result, money has flowed into stocks for public sub- the day the FSC announced the investigation results of Samsung scriptions, including bio shares. BioLogics, saw its stock price fall for four consecutive trading The offering prices of bio firms that recently went public were days until 18th, except for the day of the listing, showing the frozen excessively higher than usual. According to investment banking investment sentiment for bio firms.

34 Helping Firms Go Global KDB, Korea Eximbank Provide 8.7 Tril. Won to Korean Firms for Overseas Expansion

By Yoon Young-sil

The Korea Development Bank and the Export-Import Bank of Korea provided financial support totaling 8.7 trillion won (US$7.71 billion) to South Korean companies last year.

he Korea Development Bank lion (1.13 trillion won) in 2016 to pro- trillion won (US$1.66 billion) in loans to (KDB) and the Export-Import vide loans to Korean companies oper- small and medium-sized companies last TBank of Korea (Korea Exim- ating in developing countries under a year through its “On-lending” program. bank) provided financial support totaling joint financing program with multilateral The On-lending program is an indi- about 8.7 trillion won (US$7.71 billion) development banks (MDBs), the Green rect financing system in which the Korea to South Korean companies last year to Climate Fund (GCF) and export credit Eximbank provides policy funds to help them push into the global market. agencies (ECAs). financial intermediaries, which in turn According to financial authorities In addition, the bank is planning to provide the funds to companies that were and banking industry sources on July provide 2.5 trillion won (US$2.21 bil- chosen through their own screening and 16, the KDB extended 6.8 trillion won lion) to 200 future mid-sized firms and review procedures. (US$6.02 billion) to domestic firms for mid-sized firms to help them enter the After starting the first lending pro- their overseas expansion last year. Of global market under the “KDB Global gram with Woori Bank in September the total, 400 billion won (US$354.3 Challengers 200” program. The program 2015, the bank provided 59.7 billion won million) was overseas direct investment is designed to help small and medium (US$52.88 million) in 2015, 968.9 bil- loans that directly went to the parent sized companies with growth potential lion won (US$858.19 million) in 2016 companies in Korea, while the remain- go global. and 1.87 trillion won (US$1.66 billion) ing 6.4 trillion won (US$5.67 billion) The KDB provides not only loans in 2017. was offshore loans that were provided to but management support to companies The Korea Eximbank has set aside foreign branches of domestic firms and selected for the KDB Global Challengers 2.4 trillion won (US$2.13 billion) for the local financing that was provided by the 200 program. KDB experts provide them On-lending program this year, up 500 bank’s overseas branches. with advice on mergers and acquisitions billion won (US$442.87 million) from a In particular, the KDB set aside (M&As) and other issues. year earlier, and increased the number of special funds amounting to US$1 bil- The Korea Eximbank extended 1.87 financial intermediaries to 12 as well.

35 MONEY

Foreigners net sold their Korean stocks worth 715 billion won (US$643 million) in June alone, extending their net selling streak to three months.

Selling Spree Foreign Investors Continued to Dump Korean Stocks in June By Yoon Young-sil

ell Korea" has become a reality after the US foreign investors' exodus will be prolonged. benchmark interest rate exceeded that of Korea "The escalation of the US-China trade conflict is fueling "Sin March. a general preference for safe assets and avoidance of risky The Financial Supervisory Service (FSS) said on July 16 assets," said Lee Chang-sun, a senior research fellow at the LG that foreign investors sold their Korean stocks worth 715 billion Economic Research Institute. “Compared to the US economy, won in June, extending their net selling streak to three months. the Korean economy is in worse shape and consumer prices Foreign investors net bought 123 billion won worth of are low. I think foreign investors regard Korean stocks as risky stocks in March but net sold in April (2.204 trillion won) and assets." May (380 billion won) after the reversal in the benchmark "Foreign investors’ selling of Korean stocks will depreciate interest rate between Korea and the US in March. the Korean won, making it difficult to expect a rebound of the Foreign investors net sold Korean stocks amounting to Korean stock market," Lee said. "However, we expect some about 3.3 trillion won in the April-June period. The aggregate rebound to come as foreign investors are unlikely to maintain value of their stock holdings decreased to 596.9 trillion won. their selling spree until the end of the year." Analysts say that the won-denominated interest rate (for- Foreign investors' bond investment has continued a net eign exchange swap rate) fell due to the reversal and foreign inflow since January, with their balance reaching 110.562 trillion investors have started arbitrage to earn profits from currency won as of the end of June. The balance accounted for 6.4% of trading and offset low interest rate income in Korea. the total listed bonds, the highest ratio ever. It seems that foreign The problem is that the base rate gap between Korea and investors increase bond investment because bonds are a relative- the US increased to 0.5 percentage point due to the US Fed’s ly safe asset compared to stocks. The balance increased by 3.266 rate hike of 0.25 percentage point in June. There is concern that billion won in May and by 2.06 trillion won in June.

36 Amid Selling Spree by foreigners. British investors came in second with 47.9 trillion won (US$42.43 billion), or 8 percent, followed by Lux- Only Asian Investors Net embourgian investors with 38.3 trillion won (US$33.92 billion), or 6.4 percent, Singaporean investors with 31.7 trillion Purchase S. Korean Stocks won (US$28.08 billion), or 5.3 percent, and Irish investors with 23.8 trillion won By Yoon Young-sil (US$21.08 billion), or 4 percent. Unlike stocks, foreign investors nvestors from Asian countries net sold 81 billion won (US$71.74 mil- have continued to make an investment net purchased 1.8 trillion won lion) worth of domestic stocks. in bonds. They net invested 2.06 trillion I(US$1.59 billion) worth of Kore- On the other hand, Asian investors won (US$1.83 billion) in listed bonds an stocks in June, while net selling by net purchased 1.8 trillion won (US$1.59 last month. As bond investment has foreign investors in general reached 715 billion) worth of Korean stocks, bet- flowed into the market for six months billion won (US$633.3 million). ting that the domestic stock market after January, the amount of foreign Amid a trade war between China would rebound. By country, Singapore holdings in South Korean bonds came and the United States, foreign investors net bought 1.39 trillion won (US$1.23 to 110.6 trillion won (US$979.63 billion) except those from Asian countries are billion) worth of stocks, while Australia as of the end of last year. This was the selling off stocks in the South Korean and Oman net purchased 120 billion won largest amount of bonds ever owned by market. (US$106.29 million) and 106 billion won foreign investors. However, the size of According to the data released by the (US$93.89 million), respectively. net investments decreased to 2.1 trillion Financial Supervisory Service (FSS) on The aggregate value of listed stocks won (US$1.86 billion) from 3.3 trillion July 16, Europe was the biggest net seller owned by foreign investors stood at won (US$2.92 billion) in May. Asian in June with 1.24 trillion won (US$1.1 596.9 trillion won (US$528.7 billion) as investors were also the largest buyers of billion), followed by the Cayman Islands of the end of last month, taking up 31.9 bonds. Asian countries purchased 1.2 tril- with 299 billion won (US$264.84 mil- percent of the total market capitalization. lion won (US$1.06 billion). They were lion) and Canada with 267 billion won US investors held the largest amount followed by Europeans with 900 billion (US$236.49 million). The US, which of stocks, valued at 249.3 trillion won won (US$797.17 million) and Americans accounted for nearly half of the total for- (US$220.81 billion), which accounts for with 500 billion won (US$442.87 mil- eign ownership of Korean stocks, also 41.8 percent of all Korean stocks owned lion).

Investors from Asian countries net purchased 1.8 trillion won (US$1.59 billion) worth of Korean stocks in June, while foreign investors in general net sold 715 billion won (US$633.3 million).

37 MONEY

SHI the Most Shorted Stock on Seoul Bourse Short Sellers Target Samsung Group Affiliates By Michael Herh

with its affiliates. Analysts said that as the share price of Samsung Electronics fell from 2.5 million won to the 50,000 won level following the stock split, it became easier for institutional investors to short the company’s shares. In addi- tion, they noted Samsung Electronics became a good target due to the block deals carried out by Samsung Life and Samsung Fire & Marine to sell part of their Samsung Electronics sharehold- ings. In fact, on May 30 when it was known that Samsung Life and Samsung Fire & Marine would each sell their Samsung Electronics shares via a block deal, the short selling volume of Sam- sung Electronics reached six times of the 462,271 shares recorded on the previous day of May 29. Samsung Life Insurance and Sam- sung Fire & Marine Insurance reduced Samsung Group affiliates are among the most shorted stocks on the Seoul Bourse this year. their stakes in Samsung Electronics under the Financial Industry Restructur- amsung Group affiliates have price of new shares in April. ing Act, which bans financial companies been the main targets of short Participants in the market analyzed of large business groups from holding Ssellers so far this year, data that investors who hold warrants, the more than a 10% stake in non-financial from the Korea Exchange show. right to participate in a capital increase affiliates. Samsung Heavy Industries record- with consideration, tend to short shares The stock price of Samsung Elec- ed the highest short selling volume of mechanically. Short sellers with warrants tronics, which hovered at around 50,000 72,500,309 shares this year, dwarfing can make more profits by pulling down won after the stock split, is now staying those of other companies. LG Display, the issuance price of new shares. The at around the 46,000 won level. which came in second, recorded 47.44 stock price of Samsung Heavy Indus- In addition, there has been steady million shares. In the same period last tries, which hovered at around 9,000 won short selling of Samsung Engineer- year, Samsung Heavy Industries also at the beginning of the year, is currently ing shares as a rumor has been around ranked first with 48.93 million shares. staying at the 6,000 won level. that the company would be merged with This year, the volume surged about 50%. Samsung Electronics and Samsung Samsung Heavy Industries. Market analysts say that Samsung Engineering are among the stocks which Other stocks that suffered heavy Heavy Industries became a target of short rank high in terms of short selling vol- short selling this year included Ehwa sellers in the process of a capital increase ume. Samsung Electronics placed fourth Technologies Information, Doosan Infra- with consideration. Short-selling volume with 3,8892,654 shares. The company core, Hyundai Merchant Marine, Pan exceeded two million shares in one day had suffered attacks from short sellers Ocean, Mirae Asset Daewoo and Cell- ahead of the confirmation of the issuance due to a stock split and issues related trion.

38 ICT

Cooperation in AI Speakers, Game Solutions Samsung, Tencent Forge an Alliance to Face Apple and Google by Michael Herh

amsung Electronics, a leading information technology (IT) Scompany representing Korea, and Tencent, a leading Chinese IT com- pany, will forge an alliance to face Apple and Google in developing artificial intel- ligence (AI)-based devices. According to the investment bank- ing industry on July 28, Samsung Elec- tronics and Tencent are jointly investing in AI speakers and game development. "At the beginning of this year, Samsung Electronics and Tencent agreed to jointly invest in AI speakers and game solutions. The two are now discussing practical business affairs," an IB industry official Samsung Electronics and Tencent have agreed to jointly invest in artificial intelligent speakers and game solutions. said. "They are expected to set up a joint venture company." between Samsung Electronics and Ten- most ideal AI-related products and ser- Samsung Electronics is expected to cent is to take the lead in the smart home vices," said an official at Tencent. seek to recover its share of the smart- market. In particular, AI speakers are the This year, Samsung Electronics will phone market in China, which dropped core of the smart home sector that could load its voice recognition service Bixby to 3%, by using Tencent as its partner. make or break IT companies. AI speakers into its AI speaker. The Korean IT giant Tencent is also looking to find a break- are expected to play the role of a hub for is also considered to be somewhat late in through in online gaming which accounts indoor and outdoor home appliances with making a foray into the AI speaker mar- for more than 70% of its sales. Tencent smartphones in the future. The coopera- ket. Samsung may be able to turn around earned 167.5 billion yuan in online tion between Samsung Electronics and its sluggish smartphone business in games, more than 70% of its estimated Tencent, the two world-class IT play- China if it can combine smartphones and sales of 239.4 billion yuan last year. ers, started with a common understand- smart speakers through cooperation with The cooperation between Samsung ing that they are late comers in the smart Tencent. In 2014, Samsung Electronics Electronics and Tencent will meet the home market. was No. 1 in terms of smartphone mar- two companies' needs. Samsung Elec- Tencent's cooperation with Samsung ket share in China, but its market share tronics is expanding its Bixby service, an Electronics is intended to take a leap in dropped to the 3% level in the fourth AI assistant, not only into mobile phones AI, an area where it lags behind its Chi- quarter of last year. but into home appliances, displays and nese rivals Baidu and Alibaba. Tencent The two companies are also consid- more. Tencent is leading the global mar- is the world's largest game company and ering advancing into the global market ket as well as the Chinese market in the largest Internet platform company in beyond Korea and China. Google, the internet platforms, an area where Sam- China. But it has been slow in develop- world's largest IT company, is already sung Electronics is weak. Mobile mes- ing AI to such an extent that it began to keen on selling the Android-based AI senger Wechat of Tencent has 980 mil- present its AI strategy only in its finan- speaker Google Home. In addition, the lion monthly active users (MAUs). Ten- cial report of the second quarter of last HomePod from Apple and the Echo from cent is currently using its AI technology year. Tencent is currently investing in Amazon are competing for initial market in the news sector and plans to expand it five US AI companies. "The combination control. In Korea, Naver and Kakao are into autonomous vehicles in the future. of Samsung's smartphone technology and fiercely competing in order to preempt The ultimate goal of the alliance Tencent's internet platform will create the the AI speaker market.

40 ICT

To Incubate System Chip Start-ups Korean Gov't Launches System Semiconductor Design Support Center by Michael Herh

The Korean government has launched the System Semiconductor Design Support Center to provide support for entrepreneurs to start business in the system semicon- ductor field.

he Korean government has and Energy said. tute and receive guidance on technol- launched the System Semi- A system semiconductor is a semi- ogy development and entrepreneurship. Tconductor Design Support conductor that analyzes and processes They can also get support for technolo- Center to help entrepreneurs launch data. System semiconductors are thought gy transfer from research institutes and business in the system semiconductor to constitute the core of such new tech- universities and for prototype produc- field by providing support for technol- nologies as artificial intelligence (AI) tion. ogy development and marketing. and internet of things (IoT) that spear- The Ministry of Trade, Industry and An opening ceremony was held at the head the Fourth Industrial Revolution, Energy plans to utilize the 200 billion Korea Semiconductor Industry Associa- but the domestic industrial ecosystem won of the semiconductor growth fund to tion in Seongnam, Gyeonggi Province, has not reached the global level. There secure start-up funds and attract invest- on July 31. was only one Korean start-up in the sys- ment. Vice Minister Lee In-ho said, "We “We will provide support to start-ups tem semiconductor field this year. will continue to offer support to Kore- in terms of office space, capital, technol- The future start-ups who enter the an semiconductor design companies to ogy and marketing so that entrepreneurs center can move into the Research Cen- secure the next generation technology can start business only if they have ter for Semiconductor Platform of the and position themselves as the core of ideas,” the Ministry of Trade, Industry Electronic Components Research Insti- innovation growth."

41 ICT

Keys to Success of Foldable Phones Competition Heating Up for Leadership in Foldable Smartphone Development By Youn Won-chang

specialized media outlet. Based on pat- ents registered by LG Electronics, the full-screen display is folded in half like a diary. Huawei and Apple took this approach, too. A tablet is horizontally folded only to become a smartphone size. Some part of the screen on a fold- able smartphone of China's Oppo is folded. The foldable model consists of three parts. Some parts combines with the main body and the remaining part becomes the cover. Their shapes are predictable, but the times of their launches and their quality will hold the key to their success in the market. Foreign news outlets are expect- ing Huawei to be the first company to launch a foldable smartphone. TechRadar

The shapes of foldable phones are predictable, but the time of their launches and their quality will hold the key to reported that Huawei was highly likely their success in the market.imposed on Chinese products by the US government. to launch a foldable smartphone this November at the earliest and to use LG's he competition for leader- Journal (WSJ), Samsung Electronics is organic light-emitting diode (OLED) dis- ship in foldable smartphones developing a foldable smartphone under plays in the foldable smartphone. "Even Tis expected to intensify the code name of "Winner." According if Huawei launches the foldable smart- toward the end of this year. According to patent information that has been made phone in November, it will commercial- to the smartphone industry on July 30, public so far, the smartphone is vertically ize it in 2019, checking responses from Samsung Electronics is set to launch folded. The screen is larger than current the market," TechRadar said. a foldable smartphone early next year, smartphones but can become smaller Samsung Electronics is keeping while LG Electronics, Huawei, and when it is folded. The model is similar mum about the launch date of its fold- Oppo also obtained patents on foldable to past foldable smartphones but when its able smartphone. However, the company smartphones. The smartphone industry screen is folded, when it is bent. The rear is clarifying its position that it does not is paying a lot of attention to the shapes camera is located outside even after the think highly of its launch date. "Although of foldable smartphones and who will smartphone is folded so the rear camera rumors went around several times in the launch a foldable model first. may be used for various purposes. The market, I heard that the department in It is possible to predict what foldable fully opened screen size is about 18.79 charge of developing a foldable smart- smartphones will look like. Observing cm (7.4 inches), 2.54 cm (1 inch) larger phone is putting its utmost efforts into the patents registered by these compa- than the Galaxy Note 9 (about 6.4 inches enhancing the quality of the product," a nies, Samsung is likely to come up with a or 16.25 cm) to be unveiled in New York Samsung official said, smartphone that can be vertically folded. City on August 9 (local time) On the other hand, Strategy Analytics On the other hand, LG Electronics and LG Electronics' foldable smart- (SA), a global market research firm, esti- Huawei belong to the horizontally fold- phone is shown via a concept image. In mates that the size of the world's foldable able smartphone group. the image, the foldable model is hori- smartphone market will increase from According to major foreign news zontally folded, according to Lets Go 3.2 million units in 2019 to 50.1 million media outlets such as the Wall Street Digital, a information technology (IT)- units in 2022.

42 Breaking YouTube’s Dominance S. Korean Internet Portals Aim for Video Sharing Market By Youn Won-chang

outh Korean Internet portals, function as well as a “movie editor” TV has joined hands with France’s such as Naver Corporation function that can help users easily sepa- food startup “Chef Club” and Japan’s C Sand Kakao Corporation, are rate voices, edit captioning and extract Channel to provide cooking and beauty seeking to break YouTube’s dominance still images, by the end of October. “how to” video content. of the domestic video sharing market. Kakao TV has introduced “Biz Sta- Kakao has been offering a video on According to industry sources on tion,” a profit management platform that demand (VOD) service for films through July 25, Naver and Kakao are planning allows content creators to directly apply Kakao Page starting from the beginning to strengthen their video sharing services ads to their videos and live broadcasts, of this year. Users can now stream a free in the second half of this year. The two set up sponsorship, and collectively 10-minute preview or purchase content companies will incorporate YouTube’s manage their import and account details. by splitting them up into 5 to 10 minute strong points, including continuous play When Kakao TV users add a video segments. Reflecting the popularity of and user participation, in their new ser- channel as a plus friend in KakaoTalk, “snack culture,” or consumption of con- vices. they can also see the live broadcast of tent in a short period of time, Kakao is Due to YouTube’s dominance, the the channel and updated video direct- pursuing a strategy to expand its users video sharing services of Naver and ly on KakaoTalk. Creators can secure with mobile content. Kakao have been sluggish. According to viewers through plus friends of Kakao- An official from the internet industry a report titled “2017 OTT user behavior Talk. said, “Given the current situation that analysis” released by the Korea Infor- In addition, Naver and Kakao are YouTube has an absolute market share, mation Society Development Institute making an effort to secure diverse con- Naver and Kakao are planning to absorb (KISDI), the utilization rate of You- tent. Naver is seeking to secure “how to” their existing users as video content Tube stood at 33.7 percent last year, up video content, a move that reflects the users through their key platforms. The 2.7 percentage points from the previous trend of video services playing the role mobile video service market will be get- year. The figure has been on a steady of search engines. To this end, Naver ting more competitive.” rise. On the other hand, the utiliza- tion rate of Naver dropped 2 percent- age points to 6.6 percent over the same period, while that of Kakao was only 1.8 percent. To shatter the current market struc- ture, domestic Internet portal websites will take various measures in the sec- ond half of the year. Recently, Naver has greatly reinforced its video content ser- vices via blogs. The company has disclosed a profes- sional creation tool that allows users to edit video content with ease. It has also introduced a continuous video player function based on individual video con- tent search and recommendation tech- nology. Moreover, Naver will strengthen its video infrastructure by the end of Naver and Kakao are planning to strengthen their video sharing services in the second half of this year to end the August and add a video content search monopoly of YouTube in the domestic video market.

43 ICT

Mobile Carriers Call For Easing Net Newtrality Debate over Network Neutrality Rekindled as 5G Era Approaches

By Michael Herh

he debate over network neu- trality between telecom oper- Tators and Internet and con- tent providers is heating up again as the launch of world's first 5G mobile service imminent draws near. Mobile carriers are insisting that the net neutrality principle be eased so that the huge cost for building 5G networks could be shared among telecom opera- tors, internet service providers (ISPs) and content companies. On the other hand, ISPs and content producers such as Naver, Kakao and oth- ers are saying that the net neutrality prin- ciple should be maintained. Shin Yong-hyun, a lawmaker of the Bareunmirae Party and a member of the Science, Technology, Information and Local mobile carriers are insisting that the net neutrality principle be eased so that the huge cost for building 5G Telecommunications Committee of the networks can be shared. National Assembly, held a debate on the issue at the National Assembly on July to invest in 5G and IoT networks. One is weakened, small content companies 19 to discuss the directions of net neu- example is the US abolition of its net- or start-ups would not be able to sur- trality policies in the 5G era. work neutrality policies.” He said tele- vive. "Currently, the principle of network In Korea, President Moon Jae- com networks have so far been forced neutrality is not clearly defined by law in virtually expressed his intention to to play the role of pipes only, but in the in Korea. Loose regulations in the form maintain net neutrality by pledging to Fourth Industrial Revolution, networks of a guideline provide flexibility to tele- expand basic network rights. In June, should be regarded as a platform that communication operators. As a result, however, the debate was reignited as provide innovative services using slicing Korean internet business companies are the United States officially revoked the technology. paying the highest network use fees in principle of network neutrality. In par- Network slicing is a 5G technology the world." ticular, the debate is expected to heat that can divide one network into multiple The government is taking a prudent up as the three mobile carriers will start networks to provide customized services attitude over the issue. "There are pros commercial 5G services in March of for automobiles, medical purposes, and and cons about changing the net neutral- next year. mobile devices. Network slicing tech- ity principle. Now is not the right time In the debate, mobile operators and nology can vary service speeds. "If cur- for the government to express its opin- internet companies waged a war of rent network neutrality is thoroughly and ions." said Kim Jung-ryul, head of the words. "Net neutrality regulations can strictly applied, a contradictory phenom- Telecommunication Competition Policy lead telecom operators to reduce invest- enon will take place – setting the same Department at the Ministry of Science ment in networks," said Ryu Yong, head price for a wide variety of products and and ICT. "We are monitoring policy of a team at the Korea Telecom Opera- services,” Ryu said changes in countries where net neutrality tors' Association (KTOA). “Countries In response, Chae Jae-pil, an official policies began. The government cannot around the world are overhauling old of the Korea Internet Companies Asso- stop new technologies such as network regulations to induce telecom operators ciation argued that if network neutrality slicing from being introduced."

44 trade procedure is complex, there are a large amount of commissions and high security costs during the procedure. However, the application of block- chain technology to trade finance will help streamline the trade procedure, reduce additional costs and enhance security. "Currently, trade finance is mostly manual work, and there is much work to share data in trade finance," said a researcher at the Korea Institute for Finance. "The application of blockchain technology will enable the automation of documents in opening letters of credit and producing customs clearance and purchase documents, making it possible to deliver trade information to many peo- ple quickly."

A service that applies blockchain technology to financial certification will be rolled out in August in South Korea. Overseas remittance is also a sector that requires the application of block- chain technology. Currently, for over- Preventing Forgery and Corruption seas remittances, you need the foreign account number and name of the receiver, the name of the receiver’s bank, and the Korean Banks to Roll out bank’s swift code which is the bank’s international identification code. Over- seas remittances using a swift code cost a Blockchain-based user time and money because it has to go through the user and various institutions Authentication Service such as a domestic bank and an overseas bank. By Michael Herh The application of blockchain tech- nology can save users time and cost for service which applies block- vice and the service is close to its com- remittance. "In order to efficiently trans- chain technology to financial mercialization. fer money abroad, it is necessary to have Acertification will be rolled However, some people point out that a network system that can easily share out next month. Experts say that it is the Bank Sign Service is not significantly related information. The current swift necessary to expand the applications of different from existing financial authen- code system is closed and ineffective," blockchanin technology to trade finance tication certificates and the application said an official at an international finan- and overseas remittance to make the of blockchain technology in the finan- cial center "Blockchain technology will most of the new technology. cial sector should be urgently extended eliminate an unnecessary relay proce- According to the banking industry on beyond the simple security certification dure." July 18, Bank Sign, Korean banks will sector. Especially, a prevailing opinion Currently, Korean banks are in the jointly introduce a blockchain-based is that blockchain technology needs to toddler’s stages in using blockchain authentication service next month. The be applied to trade finance and overseas technology related to these fields or they Bank Sign Service aims to prevent forg- remittance. have not discussed the matter yet. Some ery and corruption through agreements In the case of trade finance, the cur- banks in Korea recently completed tech- among participants and distributed stor- rent procedure is quite complex and costs nical tests for overseas remittance, but age, which are the characteristics of much time and money. In order to trade, a there are no concrete plans to commer- blockchain technology. The banking company has to go through more than 10 cialize the technology. On the other hand, industry started to develop it last year complicated steps such as signing a con- overseas banks such as those in Japan by forming a consortium with the Korea tract, applying to open a letter of credit, are said to reach a high level in the com- Federation of Banks taking the lead. In sending the letter of credit and notifying mercialization of international financial late April, bank employees tested the ser- of the arrival of the letter of credit. As the transactions based on blockchains.

45 ICT

Simultaneous Release of 5G Services Korea’s Three Mobile Carriers to Roll out 5G Services On Same Day Next March By Youn Won-chang

orea’s three mobile carriers network requires a substantial amount of money should be primarily used to have called on the govern- investment,” adding, “Government sup- expand 5G infrastructure. Kment to provide support, port, such as tax reduction or VAT refund, Vice chairman Ha Hyeon-hoe of such as tax benefits and easing the net- is necessary.” He continued to emphasize, LG U+, who has made his first public work neutrality rules, for commercial- “Given that the US has abolished the appearance after becoming appointed as ization of 5G services that is expected to principle of network neutrality, we also the CEO of LG U+ on July 16, spared cost up to 20 trillion won (US$18 billion) need a new approach. There’s a need to his words as he was still adjusting to the of investment over the next five years. consider introducing zero-rating in prepa- new position. “We will work hard to pro- While promising to provide support ration for a rapid increase in data usage.” vide services that exceed expectations,” for 5G-related projects, the Ministry of Although the South Korean govern- he said, adding, “We will synchronize the Science and ICT (MSIT) suggested that ment’s position is to maintain the prin- release of 5G services as proposed by the the three carriers release 5G services ciple of net neutrality, which prohibits government and jointly develop technol- simultaneously on “Korea 5G Day” next discrimination of telecommunication ser- ogies related to handsets.” March to avert excessive competition vices against content providers, mobile Yoo said, “For South Korea to among them to become the first to launch carriers argue that the principle needs to become the world’s first country to com- service. The three operators accepted the be relaxed in the 5G market, where there mercialize 5G service and secure the ministry’s proposal. is no adequate revenue model. upper hand in the global market, there’s Minister Yoo Young-min met with Noting that the three mobile carri- a need to prevent excessive competition the CEOs of the three companies at Mar- ers have paid a huge amount of money among mobile carriers to release service riott Hotel in Yeoido, Seoul on July 17 to for the use of frequencies, Park of SK ahead of others.” He added that the three discuss issues related to the commercial- Telecom said the government needs to companies have endorsed his proposal ization of 5G services. The CEOs were use the money to foster manpower that that they roll out their services simultane- president Park Jung-ho of SK Telecom, can increase user benefits. As the gov- ously on Korea 5G Day. chairman Hwang Chang-gyu of KT and ernment has secured 3.618 trillion won The three CEOs refrained from com- vice chairman Ha Hyeon-hoe of LG U+. (US$3.25 billion) from the three com- menting on the use of Huawei equipment Hwang said, “Launching 5G service panies through the auctioning of 5G for their 5G networks, which has recently is quite burdensome, as building a 5G frequencies, many experts say that the become an issue. LG U+, which declared the adoption of Huawei equipment at MWC Shanghai last month, declined to provide any definite answers. SK Tele- com president Park said his company is having a tough time deciding on adopting Huawei equipment. Minister Yoo flatly said, “The issue is up to each company.” Meanwhile, some criticized that it is too much interference for the govern- ment to push the three telecommunica- tion companies toward synchronizing the release of 5G commercial services. If any of the three companies delays 5G com- mercial service for some reason, others will inevitably have to also delay their Minister Yoo Young-min (second from right) talks with president Park Jung-ho of SK Telecom (right), chairman service release even if they have com- Hwang Chang-gyu of KT (second from left) and vice chairman Ha Hyeon-hoe of LG U+ (left), at a meeting to dis- cuss ways to commercialize 5G services at Marriott Hotel in Yeoido, Seoul on July 17. pleted their preparations.

46 Compatible with All Hyundai-Kia Vehicles Google Launches Android Auto in Korea At the launch of Android Auto held on July 12 in KiaBit 360 in Apgujeong-dong, Gangnam-gu, Seoul, Lawrence Kim, the lead product manager of Google Android Auto, explains the main features of Android Auto, the automobile app that Google developed with Hyundai-Kia Motors and Kakao.

By Cho Jin-young

oogle has released an auto- The key feature, navigation, is based Google App, Kakao Navi, and Google mobile app, Android Auto, on Kakao Navi from Kakao Mobility. TTS app. When you install all the apps, Gin partnership with domestic This is the first time Android Auto has agree to terms of use, and sign in, you companies such as Hyundai-Kia Motors been linked to an app other than Google can use Android Auto right away. and Kakao Mobility. Map or apps of Ways, Google's subsid- Voice recognition is activated when Google officially announced the iary, for navigation. you press the voice recognition button release of Android Auto at a press con- This is because Google does not pro- on the steering wheel or the microphone ference on July 12 at KiaBit 360 in vide navigation service in Korea as it is icon on the Android Auto screen or say Apgujeong-dong, Gangnam-gu, Seoul. not allowed to use Korean digital maps. "OK Google". Android Auto is an app that connects The music playback function is avail- "We use wired connection for the the car screen with an Android smart- able through domestic music services time being as wireless connection phone and provides various functions. such as Melon, Genie, and Bugs. causes the battery problem of the mobile The functions available through "We thought Korea was an impor- phone,” said Chu Kyo-woong, the devel- Android Auto include navigation; com- tant market," said Laurence Kim, the opment director of Hyundai-Kia Motors munication (making calls, text messag- lead product manager of Google Android Infotainment Division. “We expect to ing); media playback (Melon, Bugs, Auto. "We will add more features and have other navigation apps in addition to Genie, etc.); and Google Assistant (voice keep improving the current features." the Kakao Navi." support). Kim, who is a Korean-American, Google Assistant mounted on said, "We have a lot of South Koreans on Android Auto will support Korean, Android Auto Team and Google Assis- which is the first language other than tant Team. They gave Korea a higher pri- English that it supports since the launch ority so we decided to release the service of Google Assistant in 2015. sooner in Korea than in other countries." Android Auto will be compatible To use Android Auto, you turn on with all vehicles of Hyundai-Kia Motors. Android Auto in the car navigation set- Hyundai-Kia Motors applied Google's ting and connect your smartphone to the Android Auto for the first time in the USB terminal of the car. This will open A photo of running Android Auto service on a world in 2015 in the US. pop-ups to download Android Auto, Hyundai vehicle

47 ICT

Price Rise Slowing Down Is Global Memory Chip Boom Coming to an End?

By Cho Jin-young

The increase in prices of memory semiconductors such as DRAM and NAND flash chips is slowing down.

he prices of memory semiconductor chips such as a whole used to exceed 30% back in the 2000s but dropped to DRAM and NAND flash chips are likely to fall or 10% or so recently. This implies no substantial increase in pro- Tshow a limited increase in the second half of this duction is possible without facility expansion. However, facility year, according to market research firm DRAMeXchange on expansion is not easy as Chinese suppliers are making large- July 2. scale investments for massive production. “The increase in price is slowing down although the demand The problem is that South Korea’s exports are excessively for DRAMs for servers is still on the rise and the demand for dependent on semiconductors. According to the Ministry of mobile chips is increasing based on seasonal factors,” said the Trade, Industry & Energy, the ratio of South Korea’s semicon- firm, adding, “The rate of increase is estimated at 3% or less in ductor exports to its total exports rose from 15.7% to 21.8% the second half as the process yield of major suppliers such as between June 2017 and June 2018. Samsung Electronics is being stabilized regarding 10 nm-class process technology.” It went on to say, “The spot price is show- Seeking Breakthrough from Non-memory Expansion ing signs of falling and the NAND flash supply and demand are likely to be balanced in the third quarter to result in no increase With the current boom in the global semiconductor industry in price.” coming to an end, South Korean semiconductor manufacturers When it comes to DRAMs for PCs (DDR4 4Gb 512Mx8 are making various efforts to expand their non-memory busi- 2133MHz), the price rose at a rapid pace until early last year, by ness. 25.33% in late October 2016, 38.66% in late January 2017, and For example, the foundry business unit of Samsung Elec- 12.36% in late April 2017 to be specific. However, the rate of tronics is partnering with ARM for MRAM development while increase stood at 6.13% in January and 3.41% in April this year. working more closely than before with Mentor Graphics with The price of NAND flash chips (128Gb 16Gx8 MLC) has regard to 7 nm and 8 nm LPP foundry solutions. In addition, moved sideways since October last year. Still, a drop in price is Samsung Electronics and Qualcomm are stepping up their coop- likely to result in market expansion from mobile and server to eration in the field of 7 nm foundry. Its foundry business unit is PC, which means the growth of the market is likely to continue aiming to more than double its sales to at least US$10 billion for a while. In addition, the profitability of major South Korean this year. suppliers is unlikely to be affected by a decline in price. This is The company is seeking new opportunities in the system because they already enhanced their production efficiency by semiconductor industry as well by, for example, developing its means of 10 nm-class process technology and their operating own mobile GPU and working with mobile developers, self- profit ratio is already as high as at least 50%. driving vehicle developers, etc. Likewise, SK Hynix is expand- Nonetheless, the semiconductor sector’s contribution to ing its non-memory business by establishing a joint venture with South Korea’s total exports is predicted to fall. Both Samsung a Chinese company. Electronics and SK Hynix are failing to show a significant “Irrespective of the recent boom with few precedents, the increase in production, unlike in the past, due to difficulties memory semiconductor industry is basically prone to fluctua- related to microfabrication technology, and this is why it is said tions common to process industries,” said an industry expert, that their recent export growth is based on a rise in price rather continuing, “Both SK Hynix and Samsung Electronics are likely than an increase in supply. to diversify their business portfolios to non-memory for more Samsung Electronics’ bit growth for this year is estimated exports while maintaining their comparative advantages with at 20%. That of the South Korean semiconductor industry as microfabrication technology.”

48 Widening Gap with China S. Korea to Make Massive Investment in Nano Technology By Cho Jin-young

ith China's sharp rise in area is narrowed to one or two years, giv- will promote R&D by investing 600 nanotechnology ranging ing rise to a crisis for Korea. According billion won for 10 years from 2020 to Wfrom original technol- to the Ministry of Science and ICT, gaps 2030. The Ministry of Science and ICT ogy to industrial areas, the South Korean between Korea and China are only one is planning to accelerate the project on a government will make massive invest- year in the material sector, 1.7 years in full scale through a preliminary feasibil- ment by making a national nano industry the device sector, 1.3 years in the nano- ity study. road map to increase the competitiveness bio sector, 1.8 years in the nano-energy In addition, the Ministry of Trade, of related industries such as semiconduc- sector and one year in the nano-technol- Industry and Energy will go ahead with tors and materials. ogy sector. the development of nanomaterials and The Ministry of Science and ICT The Ministry of Science and ICT process technologies for the five major announced July 9 that the ministry will and the Ministry of Trade, Industry new industries such as electric vehicles, invest in technology in earnest while pre- and Energy initially pushed forward autonomous cars, IoT appliances, new paring "The Third National Nanotechnol- with an R&D project to cost 1 trillion energy industries, bio-health, semicon- ogy Map (2018-2027)" with 10 related won, but were excluded from prelimi- ductors and displays. In the long term, ministries. nary feasibility studies for the first half. the ministry will develop element tech- Nanotechnology is considered basic As a consequence, the two ministries nology by selecting 30 future technolo- technology for automobiles, materials, are planning to apply for a preliminary gies based on nanotechnology. The 30 IT, energy, and other industries and the feasibility study again in August. If the technology includes personal portable core link in industrial convergence. Nan- project passes the a preliminary feasibil- artificial intelligence at the level of otechnology is the linchpin of future core ity study, a mega project which will cost human brains, a communication environ- technologies such as sensors, batteries, at least one trillion won will be imple- ment where speed is unlimited, a drone autonomous vehicles, chips for human mented for 10 years from 2020 to 2029. which flies without charge, an electric organs, and the internet of things. In the fields of nanotechnology and vehicle that can run from Seoul to Busan In particular, China is rapidly rais- materials with a high level of industrial on a five-minute single charge, an explo- ing its competitiveness through a com- competitiveness but a low basic research sion-free battery and artificial organs bination of basic research and industrial level, the Ministry of Science and ICT without a rejection. growth. Through its abundant research staff and aggressive budget investment, China is publishing the largest number of international papers on nanotechnol- ogy (SCI) in the world. From 2013 to last year, China ranked first dominantly in the world with SCI papers nearly twice those of the US which ranks second in the world over the past five years. China is also investing heavily in the nano- material and semiconductor industries through its 13th five-year plan and Chi- nese Production 2025 strategy which were established in March 2016. In the meantime, the number of SCI theses and thesis impact index are on the decline in Korea, and the gap between The South Korean government will make massive investment in nanotechnology under the Third National Korea and China in the core industry Nanotechnology Map (2018-2027).

49 ICT

Severe Competition for Dominance Competition Getting Severe to Secure Leadership in AI Speaker Ecosystem By Cho Jin-young

he smart speaker market competition has begun at Thome and abroad. Using an artificial intelligence (AI) platform, smart speakers recognizes the voice of users and allows them to stream music, search information and check news. In particular, smart speaker develop- ers are in a tough competition to pre- occupy the smart speaker ecosystem. As part of their strategy, they are plan- ning to open smart speaker AI-based platform application program interface (API) and software development kit (SDK) to the public in the second half of the year so that anyone can develop various services using their own AI platforms. Lee Sang-ho, head of service plat- form business division at SK Telecom, said, on July 11, “We will open our AI- based platform ‘Nugu’ to the public in SK Telecom's smart speaker “Nugu Candle” October and create our SDK at the same time so that the platform can be used in company first used Bixby in its premium launched a smart speaker for the first any devices or services. We were initially smartphone “Galaxy S8” in March 2017. time in the world. The firm used its AI planning to open them in May or June Bixby is available in smartphones, such platform “Alexa” in its smart speaker this year but we ran behind schedule due as the Galaxy S8, Galaxy Note 8, Gal- “Echo.” Amazon opened “Alexa Skills to continuous reviews and modifica- axy S9, at the moment. In addition, it has Kit” to encourage people to create ser- tions.” recently used Bixby in its TV, air condi- vices and functions using Alexa. The ICT industry watchers predict that AI tioners and washing machines. number of Alexa Skills is estimated at will lead the ICT ecosystem in the future. Kakao Corp. plans to officially dis- more than 30,000. The figure increased In short, the leader of the AI ecosystem close an “open builder,” which enables to 15,000 in just one year from 1,000 will dominate the ICT industry in the anyone to create chatbots using its AI in the second quarter of 2016, and it future just like Apple and Google, which platform “Kakao I,” in the second half of exceeded 30,000 at the moment. led the application ecosystem, have the year. The company will also release Mercedes-Benz also announced the grown after smartphones have appeared. the results produced through cooperation Alexa Skill that allows owners to lock or Currently, the AI technology is applied with Hyundai Motor Co. and its smaller unlock the vehicle or to start the car. A to only smartphones and speakers but affiliate Kia Motors Corp., GS Engineer- fan of Arsenal Football Club from Eng- it is expected to be extensively used to ing & Construction Corp. and POSCO lish Premier League created the Alexa autonomous vehicles and smart cities in Engineering & Construction Co. in order Skill that give information that usu- the future. later. ally appeal to fans before a game starts, Samsung Electronics Co. will also Foreign companies are also mak- including players who have injuries and introduce “Bixby 2.0,” which opens the ing a move quickly to dominate the AI player lineup, as well as provide com- API of the Bixby AI platform, soon. The ecosystem in advance. Amazon.com Inc. ments after the games.

50 A Seismic Change in OLED Market? Chinese Firms Seeking to Undermine Samsung’s Dominance in OLED Market By Michael Herh

hina’s BOE has been forecast to sup- level by benchmarking Samsung Display. It is even said that BOE is using the ply small and mid-sized OLEDs to same equipment as Samsung Display. In particular, BOE headquarters and CApple. This is because Apple has fol- partner companies are reportedly keen on securing competent Korean engi- lowed a strategy to lower parts prices by diversify- neers to such an extent that 2,000 Korean engineers are working at BOE and ing its suppliers since it began to produce smart- its partners. China Star is planning to start mass production of sixth-genera- phones with an LCD display. tion flexible OLEDs beginning in 2019 by investing about six trillion won in BOE’s entry into the market implies that a production facilities only. seismic change is being made in the OLED mar- In the display industry, experts say that Chinese display manufacturers’ ket where Samsung Display has enjoyed a market technology and production capacities are not at a level to threaten Samsung share of 90% or higher. Display. However, they expressed concern that OLED panel prices would In addition to BOE, China Star (CSOT) and drop and a supply glut would take place. "It will take at least one or two years EverDisplay are also bent on investing in small- for Chinese companies to raise their OLED yields and increase their techno- and medium-sized OLEDs, intensifying market logical competitiveness," said Seo Won-hyeong, head of the Industry Sup- competition. port Division at the Korea Display Industry Association. "If Chinese display In particular, the display industry is paying manufacturers catch up with their Korea counterparts in terms of technology, more attention to BOE than any other Chinese dis- OLED prices may plummet." play company these days. BOE, which has already According to market researcher HIS Markit, the small and medium-sized started mass production of small- and mid-sized OLED market is expected to expand to 600 million units a year this year. OLEDs since the second half of last year, has Taking into consideration the fact that the small and medium-sized OLED already been selected as an OLED supplier for the market was 420 million last year, the market is expected to grow 50% this world's third-largest smartphone maker, Huawei. year. In 2018, Samsung Display plans to produce 500 million units, and the BOE's OLEDs will be loaded into the Mate 20 remaining companies will produce 92 million. "An increase in the number of Pro, a Huawei flagship smartphone to be launched competitors in the small and medium-sized OLED market is an opportunity in the second half of this year, which is draw- rather than a crisis as the market size will swell," said a representative of Sam- ing much attention as a case that proves BOE’s sung Display. "Samsung's market share may shrink a little but differences in technological excellence. Moreover, it is said that competitiveness due to Samsung’s technological advantage may bring more BOE will build an OLED line for Apple in B11 opportunities to Samsung." Factory currently under construction. It is also a threat to Korean display companies that Chinese display makers which have produced small and medium-sized OLEDs earlier than BOE are aggressively ramping up production. Even if they lag behind Korean companies in terms of technology, they can secure funds for new invest- ment based on the large stable domestic market. In fact, Tianma which shipped 1.3 million units of small and mid-sized OLEDs last year raised its shipment target to 10 million units this year. Visionox plans to ship 20 million units of small- and mid-sized OLEDs this year after shipping 3 million units last year. Chinese display manufacturers are acceler- ating the development of human resources and Chinese Display makers such as BOE, China Star (CSOT) and EverDisplay are bent on investing in massive investment. BOE is raising its technology small- and medium-sized OLEDs.

51 Industry

A Tariff Bomb of 2 Tril. Won Hyundai, Kia to Face Huge Extra Burden When US Imposes Tariffs on Imported Cars

By Jung Min-hee

companies are slapped with tariffs of up to 2 trillion won (US$1.78 billion), Hyundai Motor will see its operating profits halve and Kia Motors will turn to losses. The problem is that such a tariff bomb focuses on sport utility vehicles that are popular in the US market. The Hyundai Tucson sold 114,700 units in the US last year. It has a price tag of US$22,550 (25.6 million won). With a 25 percent tariff, Hyundai will face US$646.8 million (734 billion won) of burden. The Kia Soul sold 115,700 units and the Sportage sold 72,800 units last year. The competitiveness of the two models will also rapidly drop. This is why the two companies are Hyundai Motor and Kia Motors would be hit by a tariff bomb of 2 trillion won if the US decides to imporse a 25 per- forecast to increase production in the cent tariff on imported vehicles. US in order to avoid duties. The ratio of Hyundai Motor cars produced in the yundai Motor Co. and its (US$2 billion) and 2.45 trillion won US to its US sales decreased from 65 smaller affiliate Kia Motors (US$2.18 billion) of losses, respec- percent in 2015 to 47 percent this year, HCorp. would each face up tively, when the US levies a 25 percent while that of Kia Motors fell from 41 to 2 trillion won (US$1.78 billion) of tariff. When the tariff rate decreases to percent to 31 percent. When the US puts extra burden when the United States 10 percent, Hyundai Motor will have to more pressure on the two companies, decides to impose a 25 percent tariff on shoulder 1.09 trillion won (US$973.67 they are expected to move their produc- imported cars, a local brokerage said on million) of extra burden and Kia Motors tion lines for the Tucson and even the July 26. 1.09 trillion won (US$969.21 million). Kia Soul to the US. HI Investment & Securities Co. pre- The US accounted for 15 percent of In this case, however, political prob- dicted that Hyundai Motor would have the total sales of Hyundai Motor as of lems will occur in South Korea. The to pay 1.44 trillion won (US$1.27 bil- last year, almost the same as the domes- decision can cause strong resistance lion) more in tariffs and Kia Motors 2.1 tic market, which accounts for 16 per- from the labor union and fuel public trillion won (US$1.85 billion). The esti- cent. For Kia Motors, the US accounted anger in the Gwangju region where the mates were based on the manufacturer's for 20 percent of the total sales last year, Soul and the Sportage are produced. The suggested retail prices (MSRP) of the almost similar to the 19 percent taken up Gwangju City released a report at the models sold in the US market and a won- by the domestic market. Hyundai Motor National Assembly on July 16 claiming dollar exchange rate of 1,135 won. and Kia Motors posted 4.57 trillion won that 600 companies would go belly up, Korea Investment & Securities Co. (US$4.08 billion) and 660 billion won killing 32,000 jobs, when Kia Motors also said that Hyundai Motor and Kia (US$589.02 million) in operating prof- decreases output by 50 percent due to Motors would face 2.24 trillion won its, respectively, last year. When the two the US tariff imposition.

52 Industry

outh Korea is aiming to become one of the four intel- Slectual property powerhouses of the world, but the South Korean gov- ernment’s protection of intellectual prop- erty rights still has a far way to go. It is still frequent that a large corporation steals technology from a smaller com- pany and a company with patent rights has to waste money and time without any substantial compensation in patent infringement lawsuits. Multiple bills for technology steal- ing prevention and patent owner protec- tion are currently pending in the National Assembly. Experts point out that those bills should be passed without delay to promote technological development by startups and foster a sound entrepreneur- ial ecosystem. Punitive damages are regarded as one of the most urgent measures for pat- ent holder protection. According to the Korean Intellectual Property Office, the average amount of damages was 78 mil- lion won (US$70,200) in domestic pat- ent lawsuits from 2009 to 2011 whereas the average amounts to 10.2 billion won (US$9.1 million) in the United States. This is why some South Korean compa- nies appropriate technology irrespective of the patent law. The average amount of damages was 78 million won (US$70,200) in domestic patent lawsuits from 2009 to 2011 Besides, at present, non-large compa- whereas the average amounts to 10.2 billion won (US$9.1 million) in the United States. nies have a very lower chance of winning against larger stealers in patent infringe- Patent Law Needs Revision ment lawsuits. According to Liberty Korea Party lawmaker Lee Hyun-jae, the former won only 10.1% of their law- Patent Right Protection suits against the latter from 2009 to 2003 whereas the latter won approximately 40% of their suits against the former. in S. Korea Still Far From In this regard, multiple lawmakers are trying to amend the patent law in var- ious ways. For example, according to a Adequate bill proposed in August last year by The Minjoo Party lawmaker Won Hye-young, By Jung Suk-yee a patent infringer has to pay a compensa- tion equivalent to 300% of the loss of the agreement between the ruling and oppo- violators are to be criminally charged,” victim. Lawmaker Hong Eui-rak from sition parties as some civil law experts said Hannam University professor Kim the same party proposed a bill last month are claiming that punitive damages are Kwan-shik, adding, “Given that patent to increase the compensation to 1,000%. against South Korea’s legal systems and law violators face no criminal charges Such bills are hardly being discussed philosophies. “In the legal system of in the United States, punitive damages though. South Korea, no recompense can exceed in South Korea may lead to an excessive Hurdles still remain even after an the actual amount of loss and patent law punishment.”

53 Industry

Good Performances Continuing S.Korea’s Petroleum Product Exports Hit a New High Again By Jung Min-hee

outh Korean oil refinery industry’s exports of petro- leum products in the first half of this year hit an all- Stime high for the fourth consecutive year. The Korea Petroleum Association announced on July 24 that SK Energy, GS Caltex, S-Oil and Hyundai Oil Bank exported 236.94 million barrels of petroleum products in the first half of this year with a year-on-year increase of 3.5%. The total export value added up to US$18.768 billion, up 32.6% from a year ago. The export value growth exceeding the export volume growth is because the unit export price increased 28.2% to US$79.2 per barrel based on a rise in oil price. The export margin increased 23% to US$11.2 per barrel as well. The largest export destination for the four companies was China, which accounted for 24% of the total export volume. It was followed by Australia (11%), Japan (11%), Singapore (8%) The South Korean government invests a total of 676.4 billion won (US$608 mil- lion) to develop pyro-processing and SFRs. and Vietnam (8%). China’s ratio rose five percentage points from a year earlier and ship fuel and air fuel exports to China “Petroleum product exports to Asian countries, gasoline and showed a significant growth.By product type, diesel oil exports diesel oil in particular, increased a lot based on China’s recent accounted for 35% of the total export volume, followed by air quota expansion,” said the association, adding, “The export vol- fuel (19%), gasoline (17%) and naphtha (9%). ume is likely to show some decline in the second half.”

Growing Rapidly S. Korea EV Market is Entering a Stage of Popularization By Jung Min-hee

he electric vehicle (EV) sales volume in South Korea exceeded 10,000 cars for the first time in the first Thalf of this year. This year’s total EV sales volume in the market is estimated at more than 20,000 units with new EVs scheduled to debut in the second half. According to industry sources on July 17, the sales volume for the first quarter totaled 11,866 units whereas it was 4,412 in the first half of 2017. The two most popular models are Hyundai Ioniq Electric and Chevrolet Bolt EV. In the first half, they were chosen by 4,488 and 3,133 customers to record a market share of 38% and 26%, respectively. GM is planning to supply 5,000 Bolt EVs in Hyundai Ioniq Electric and Chevrolet Bolt EV are leading the growth of Korean the South Korean market this year and they are already com- electrical vehicles market. pletely booked. GM Korea is asking the headquarters to supply more. and Renault Samsung Twizy (984). The Hyundai Kona EV, which debuted in May, is very popu- “The South Korean EV market is entering a stage of popu- lar as well. A total of 1,380 units were sold in just two months larization,” said an industry source, adding, “The annual sales and approximately 15,000 customers are currently waiting for it. volume can top 20,000 with new models such as the Kia Niro The top three were followed by Kia Soul EV (1,139 units sold) EV slated to debut in the second half.”

54 Barely Holding on An abrupt deterioration in business performance hits a hard blow to compo- nent producers, in particular, small and Korean Auto Parts mid-sized ones. According to DataGuide, among auto parts makers with over 100 billion won (US$88.11 million) of sales, Manufacturers Are Being only 7 percent are in operating loss, while among the companies with less than 100 billion won in sales, the ratio Driven into Dead End reaches 20 percent. By Jung Min-hee Small and mid-sized component man- ufacturers, which are barely holding on, do not have any opportunities to improve their competitive edge, for instance, by investing in technology for electric vehi- cles. The Industrial Bank of Korea (IBK) Economic Research Institute released a shocking report based on data from the Japan Automotive Products Association. It said that 2,886, or 28 percent, of the 10,211 South Korean auto parts produc- ers can go out of business when they fail to adapt to the era of electric vehicles. More specifically, all of the 1,920 engine component makers in South Korea could go belly up. It also said that 70 percent of the manufacturers of electrical devices for internal combus- tion engines and 37 percent of the power Korean automotive component producers have been put under pressure from clients to lower prices and haven’t been able to invest in technology development. transfer unit producers could also disap- pear. These estimates were based on the s a couple of Hyundai ery. The company has no competitors in Japanese case that illustrates an econom- Motor’s secondary vendors South Korea in the foam-injection mold- ic environment that Korea will face sev- Ahave failed to sell the com- ing sector and even Japanese parts mak- eral years in the future. panies and are facing bankruptcy, the ers cannot overtake it in terms of price In fact, the domestic auto parts indus- entire domestic car component industry competitiveness. However, MT Korea try imports collision avoidance and consisting of more than 10,000 firms has failed to sell the company because its control systems and autonomous cruise is seized by fear. Component produc- operating margin stands at only 5 percent control technology for high-end vehicles ers have been put under pressure from and the foam-injection molding area has from foreign firms. The level of Korea’s clients to lower prices and haven’t been relatively lower technology barriers. automobile technology stands at 78 to 83 able to invest in technology develop- In addition, ENA Industry Co., a sec- compared to 94 to 100 of major coun- ment. They have been barely getting by ondary parts supplier for domestic auto- tries, including the US, Japan and Europe. but are now losing their clients as well. makers that has also supplied automotive An official from the IB industry According to investment banking dustproof rubber parts to 40 global auto- said, “It’s mostly the secondary ven- (IB) industry sources on July 24, three makers, including Volkswagen Group dors that went bankrupt so far. How- companies that supply components to and Audi AG, is on the verge of bank- ever, it is widely known in the industry Hyundai Motor Co. and its smaller affili- ruptcy as it couldn’t pay its matured bills. that most of the primary vendors that ate Kia Motors Corp. are currently going The company succeeded in securing post hundreds of billions of won in through a restructuring process. MT various clients around the world since its sales are suffering from a lack of funds Korea has been supplying automotive inception in 1990 and its sales surpassed and have turned to losses. Most of them interior and exterior materials to Hyun- 100 billion won (US$88.11 million) in have failed to take out loans and had to dai Motor for 30 years, taking care of the 2015. However, ENA Industry saw its increase capital by issuing new stocks or whole process ranging from materials sales decrease for two years in a row and corporate bills or even convertible bonds, design to corrective action after deliv- its operating profits have turned to losses. running right into a dead end.”

55 Industry

Korean Gov't Eases Medical Regulations Korean Research Hospitals to Be Allowed to Establish Bio Ventures By Yoon Young-sil

invested directly by hospitals. The cur- rent medical law restricts hospitals from establishing subsidiaries. For this reason, Korea University Anam Hospital and Korea University Guro Hospital have been supporting technology start-ups by establishing a holding company under the Korea Uni- versity, instead of the hospitals. Hospitals belonging to a school corporation are in a better situation than those run by con- glomerates, as they can use their school in creating start-ups. Seoul Asan Medical Center and Samsung Seoul Hospital that belong to a foundation or social welfare organization are bound by the inheri- tance and gift tax law, which prohibits them from holding more than 5% of a domestic company. As a result, the medi- cal staff of these hospitals usually starts businesses themselves as individuals. Korean automotive component producers have been put under pressure from clients to lower prices and haven’t been able to invest in technology development. This is drawing criticism that while over- seas medical institutions come into the ring as “heavy weight” fighters, Kore- omestic research hospitals technology holding companies. an doctors enter the ring as “flyweight” such as Seoul National Uni- An official from the Ministry of fighters. Dversity Hospital, Samsung Health and Welfare said, "The Ministry The Ministry of Health and Welfare Seoul Hospital and Seoul Asan Medical of Trade, Industry and Energy will revise predicts that when hospitals can set up Center will be able to establish venture its regulation on technology transfer to technology holding companies, they will businesses in the field of bio-health. So allow research hospitals to build high- be able to establish bio and healthcare far, domestic hospitals have had difficul- tech holding companies from the second companies with ideas from hospitals. ties in launching new businesses due to half of the year." Then the profits created from these com- the medical law prohibiting the establish- The Ministry of Health and Welfare panies will go back to the hospitals, cre- ment of subsidiaries. With the deregu- has been operating a research-oriented ating a virtuous cycle. The Mayo Clinic lation, many hospitals are expected hospital system since 2013 to promote in the US receives more than two tech- to establish subsidiaries in the bio and the commercialization of ideas from hos- nology proposals for commercialization healthcare sectors. pitals. Large university hospitals in the every day through the Mayo Clinic Ven- The Ministry of Health and Welfare metropolitan area like Severance Hos- tures, and commercializes about 25% of announced on July 19 plans to allow pital and Kyungbuk University Hospital them. By 2016, there were 136 compa- research hospitals to set up high-tech have been designated as research hos- nies founded by Mayo Clinic Ventures. holding companies dedicated to commer- pitals. So far, 67 companies have been Of these, Mayo Clinic Ventures owns cializing medical technology patents and founded based on the ideas suggested by​​ stakes in 81 companies. Profits from incubating business start-ups. Currently, the staff of research hospitals. However, technology transfer exceed 540 billion only universities are allowed to set up none of them are subsidiaries that were won.

56 Safety-assured Devices Benefit Medical Device Stocks Get Big Boost from Korean Gov't Deregulation Initiative By Jung Min-hee

edical equipment stocks has received a big boost from the government’s announcement that it Mwould significantly ease regulations on medical devices and reduce the time it takes for new medical devices to enter the market. The beneficiaries of the government’s belated deregulation initiative are stocks related to advanced technolo- gies such as in vitro diagnostic devices, robot surgery, and 3D printing medical imaging. The KOSDAQ index fell 4.88 points (-0.61%) on July 20, but stocks related to medical devices rose including Infinite Healthcare (25.63%), Palmswell Bio (12.37%), Sewoon Med- ical (4.76%), I-sens (1.55%), and Inbody (0.38%). Medical device stocks attracted attention as the government announced Medical equipment stocks were given a big boost by the Korean government's ways to reform regulations on medical devices the previous day. recent deregulation initiative. The government has decided to shift from a positive regu- panies attracting attention are Curexo, which developed a robot latory approach to a negative system, allowing producers of that cuts the knee joints into artificial joints, and Infinite Health- safety-assured medical devices to bring their products to market care, which produces medical image information software. before undergoing a safety evaluation by authorities concerned. The domestic medical device market is continuously grow- This made Investors pay attention to produers of in vitro diag- ing in size. According to the FDA, the domestic medical device nostic equipment that has lower risk compared to other medical market last year was 6.19 trillion won, exceeding 6 trillion won devices. The new regulatory system will reduce the time for for the first time in history. Beyond the traditional dental medi- these devices to enter the market from a maximum of 390 days cal devices, it is getting more diverse to include laser treatment, to 80 days. diagnostic kits, and ultrasonic devices. Unlike pharmaceuti- I-sens produces a device that allows diabetic patients to cal and bio stocks, many medical equipment companies show measure their blood sugar level by themselves. In particular, the steady earnings. company is developing a continuous glucose monitoring system According to WISEfn, a financial information provider, the (CGMS), a technology that allows patients to measure their operating profits of I-sense and Seegene, manufacturers of diag- blood sugar level 24 hours a day. The patient whom President nostic devices, are expected to grow by 17.5% and 8.6% this year, Moon Jae-in met the previous day when he announced the regu- respectively. Choi Yoo-jun, a researcher at Shinhan Financial latory reform at Bundang Seoul National University Hospital, is Investment Corporation, said, "Unlike bio companies, which do also suffering from diabetes. not generate profits until the clinical tests of pipeline (new drug Palmswell Bio, a manufacturer of pharmaceutical raw mate- candidates) are finished, medical devices deliver stable results rials, received permission to export products as its subsidiary through exports. Its market capitalization is smaller than bio so it Cube Bio developed an in vitro cancer diagnostic kit using urine. won’t be able to replace bio totally, but it can be an alternative.” Genomic Tree, a company listed on Konex, plans to launch Some say that the healthcare industry is a matter of people's a product for early diagnosis of colorectal cancer within this health, and the pace of regulatory innovation will not meet the year using molecular diagnostic technology. expectations of investors. Kim Chung-hyun, a researcher at The government’s deregulation initiative is expected to Mirae Asset Daewoo, said, "The items targeted by the govern- allow advanced medical devices, including devices that use ment’s deregulation package were medical diagnosis and medi- artificial intelligence (AI), 3D printing, and robots, to enter the cal productivity enhancement devices. These have relatively low market sooner. safety concerns. One should not expect deregulation throughout The Korea Food and Drug Administration (FDA) plans to set the whole medical device industry.” The Presidential Office up a “Rapid Permission Guideline” for companies to get permis- stressed, "A negative regulatory approach will be applied only sion while developing state-of-the-art medical equipment. Com- to medical devices whose safety is proven."

57 Industry

Fraught with Difficulties S. Korea’s Two Big Shipbuilders Suffer from Severe Deficits By Jung Min-hee

oth Hyundai Heavy Indus- tries Co. and Samsung Heavy BIndustries Co. recorded mas- sive deficits in the second quarter. Vessel prices have rebounded and the number of orders won has increased. However, the two companies are expected to have difficulties in improving performance for a while due to a rapid rise in materials prices. Hyundai Heavy Industries announced on July 23 that it posted 175.7 billion won (US$154.87 million) in consolidated operating losses in the second quarter. The figure was up 42.9 percent from the previous quarter. Its sales increased 2.7 percent to 3.12 trillion won (US$2.75 billion) while its net losses decreased 7.5 percent to 233.7 billion won (US$205.99 million). An official from Hyundai Hyundai Heavy Industries and Samsung Heavy Industries are expected to have difficulties in improving perfor- Heavy Industries said, “The losses in the mance for a while due to a steep rise in materials prices. shipbuilding sector grew as the prices of materials went up further and the com- orders have increased, the number of year. The shipbuilding industry says that pany paid compensations to those who orders won has also grown than usual. it doesn’t make any profits even after signed up for voluntary retirement pro- Hyundai Heavy Industries only received building and selling a new ship due to grams despite the increase in prices for US$5.9 billion (6.69 trillion won) worth the growth in tick plate prices. In fact, ships.” of orders in 2016, showing the big- domestic shipbuilding companies receive Samsung Heavy Industries gest drop in orders won, but it obtained orders of mostly very large crude carri- announced on the same day that its US$10 billion (11.35 trillion won) ers (VLCCs) and the price of thick plates consolidated operating losses in the worth of orders last year and US$6 bil- account for 20 percent of the total VLCC second quarter came to 100.5 billion lion (6.81 trillion won) in the first half production costs. When the price of won (US$88.59 million), up 100 per- of this year alone. Samsung Hyundai steel rises 5 percent, the total shipbuild- cent from the previous quarter. Its sales Heavy also received US$6.9 billion (7.83 ing production costs increases about 1 stood at 1.35 trillion won (US$1.19 bil- trillion won) worth of orders last year percent. Since the operating margins for lion) over the same period, while its net and US$2.5 billion (2.84 trillion won) a newly built ship stands at some 1 per- losses amounted to 142.7 billion won this year after winning US$500 million cent, it is hard to get its money’s worth. (US$125.78 million). (567.25 billion won) in 2016. As steel producers are trying to With the price of vessels rebound- The problem is that profitability increase the price of thick plates once ing, sales slightly bounced back as well. is getting worse with the higher price again, shipbuilders are forecast to suf- Clarkson Newbuilding Price Index, of materials. The price of thick plate, fer for a while. South Korea’s top three which indicates the market conditions, which is one of key materials, is cur- steelmakers – POSCO Co., Hyundai has been on the rise from 121.8 in Janu- rently 700,000 won (US$617) after Steel Co. and Dongkuk Steel Mill Co. ary last year to 128 last month. As the two hikes from some 600,000 won – are seeking to raise the price of thick price of ships and the number of new (US$529) per ton in the first half of last plates in the second half of the year.

58 The Chinese government has initiated an anti-dumping investigation into stainless steel billets and hot-rolled stainless steel sheets from South Korea, Japan, Europe and Indonesia.

China Launches Anti-dumping Probe S. Korean Steel Companies Going Through Tough Times

By Jung Min-hee

he business environment of ministry found that the products from the facing worsening market conditions at South Korean steel compa- four regions recorded a market share of home as well. The domestic car market Tnies is deteriorating amid U.S. over 50% from 2014 to 2017. Last year, is shrinking and the demand for auto- import quotas and tariffs, EU safeguard the billets and sheets imported from the motive steel sheets is on the decline measures, and China’s investigation into regions accounted for 98% of China’s with the United States poised to impose steel products from four countries includ- total import volume of the same prod- high tariffs on imported cars. Besides, ing Korea. ucts. the shipbuilding industry is continuing The Chinese Ministry of Commerce The anti-dumping investigations are to struggle and the conflict between the announced on July 23 that it has initiated scheduled to continue for one year. “A shipbuilding and steel sectors over an an anti-dumping investigation into stain- preliminary determination is likely to be increase in thick plate price has yet to be less steel billets and hot-rolled stainless made in three to four months, with the resolved. The South Korean government steel sheets from South Korea, Japan, final tariffs for Korean exporters expect- may raise the price of electricity used for Europe and Indonesia. ed to be set through negotiations,” said industrial purposes and many other cli- Earlier, a Chinese company made an industry source. ents such as construction companies are a request for the investigations and the South Korean steel companies are going through hard times, too.

59 Industry

Triangular Alliance S. Korea to Work with US, UAE for Nuclear Power Plant Project in Saudi Arabia By Jung Min-hee

The South Korean government decided to partner with the U.S. and the UAE to win the nuclear power plant construction project in Saudi Arabia.

outh Korea will partner with value of 21 trillion won (US$19 billion) intergovernmental cooperation with the the U.S. and the UAE in order and the total contract value of the proj- United States first, and then the Korea Sto win a nuclear power plant ects for the 16 plants is estimated at no Electric Power Corporation and the construction project in Saudi Arabia. less than 100 trillion won (US$90 bil- Korea Hydro & Nuclear Power Corpo- The King Abdullah City for Atomic lion). ration seek a partnership with Ameri- and Renewable Energy (K.A.CARE) The Ministry of Trade, Industry & can nuclear power companies based selected the United States, Russia, Energy of South Korea decided to part- on South Korea’s APR-1400 reactor China, France and South Korea as pos- ner with the U.S. and the UAE to win and Westinghouse Electric Company’s sible candidates for the project on July 1. the project. The United States is current- AP-1000. In the UAE, South Korea suc- Saudi Arabia is planning to build ly discussing a nuclear power agreement cessfully built a nuclear power plant two nuclear power plants with a capac- with Saudi Arabia based on Section 123 in Barakah to win its trust. The South ity of 2.8 GW by 2030 and a total of 16 of the U.S. Atomic Energy Act and the Korean and UAE governments already nuclear power plants for 20 to 25 years UAE is a country very close to Saudi concluded an agreement for joint busi- to come. The upcoming project for the Arabia. ness in third countries’ nuclear power two plants has an estimated contract The ministry is going to discuss generation markets.

60 Seven out of South Korea’s 13 main industries showed a decrease in exports in the first half of this year.

Dimming Prospects for Manufacturing its sales in China fell to 53,371 units in May. Hyundai Heavy Industries Co. post- ed 123.7 billion won (US$110.55 million) S. Korea's Key Manufacturing in operating loss in the first quarter alone. Metal processing showed the biggest fall in production at 8.4 percent, followed by Industries in Structural Crisis textile at 3.8 percent, machinery at 2.4 percent and primary metal at 2.2 percent. By Jung Suk-yee The future is even more bleak. South Korea’s labor productivity remains the even out of South Korea’s South Korea’s exports dropped 0.7 per- same but its working hours have been 13 main industries posted cent overall. As the OCED noted, the reduced to 52. Taking a look at compa- Sa decrease in exports in the nation’s key industries are in a complex nies listed on European Commission’s first half of this year. The automobile and structural crisis. investment scoreboard, South Korea and shipbuilding industries are tottering, The same applies to the semiconduc- showed a 12.5 percent decrease from 80 while the steel and home appliance indus- tor industry. The industry is facing two in 2013 to 70 in 2016. To be sure, China tries are moaning. In contrast, China is snares – falling prices and China’s chase. and the US showed a growth by 88.9 hot on the trail. China has already over- The price of 8-gigabyte (GB) DRAM percent and 2.2 percent, respectively. As taken Korea in the smartphone and liquid chips has recently fallen to US$8.6 a result, the share for South Korea’s car crystal display (LCD) industries. Given (9,623 won) from US$9.6 (10,742 won) industry of the global market will shrink the situation, a trade dispute between the in December. With China’s aggressive from 5.2 percent in 2015 to 3.8 percent United States and China is dealing a fatal investment in the semiconductor indus- in 2025, while that of the shipbuilding blow to South Korea. try, its market share is expected to grow industry will decrease from 36.2 percent The Organisation for Economic to some 18 percent in 2025. to 20 percent over the same period. Cooperation and Development (OECD) The future of South Korea’s other Experts say that South Korea’s manu- said last month, “A boom in the semicon- key industries seems dimmer. The com- facturing industry has a linchpin missing. ductor industry is hiding South Korea’s bined market share for Huawei, Xiaomi Semiconductor items took up 38 percent weak points.” For a change in the share and Oppo in terms of global smartphone of US$28.3 billion (31.67 trillion won) of for the nation’s 10 export items of total sales in the first quarter this year stood at the last year’s trade deficits with Japan. A exports from 2014 to 2017, semiconduc- 25.2 percent, while Samsung accounted senior official from the government said, tor increased 6.2 percent, while display, for 20.5 percent of the market share. Sam- “South Korea’s manufacturing industry car and petroleum products, which are sung has a mere 1.3 percent share of the will not be able to survive after five or other key industries, decreased 1 percent, smartphone market in China. Hyundai 10 ten years without technologies that are 1.2 percent and 2.8 percent, respectively. Motor Co. finished outside the top 10 as differentiated from China.”

61 IR & Management

Preparations not Sufficient Concerns Grow over the Rush to Introduce Stewardship Code By Yoon Young-sil

Facing public opposition, the government has taken a step back from its earlier position that it would make the NPS participate in management of private companies by introducing the stewardship code.

oncerns are growing over the planned adoption of a recent Korean Air incident, “The NPS should play its role as the stewardship code by the National Pension Service second largest shareholder.” This remark spawned speculation C(NPS). In particular, critics say that the government that the government was trying to make Korean Air an example is rushing to introduce the stewardship code, though the current of the NPS intervention in corporate affairs in a bid to justify its laws have ambiguities regarding what kind of shareholder activ- next move to use the NPS as a means of chaebol reform. ities constitute intervention in the management of companies. Even NPS officials are confused by the government’s separa- According to the NPS on July 10, the Ministry of Health and tion of shareholder rights from intervention in management. An Welfare (MOHW) said clearly that the NPS would only exercise official from the NPS asked, “If the NPS recommends a non- its shareholder rights, not management rights, at a meeting for a executive director, how are we supposed to determine whether final review of the stewardship code a day earlier. The ministry it constitutes an intervention in management or not under the has taken a step back due to public opposition. Previously it current laws?” He added that if the NPS does not take action on vowed to make the NPS participate in the management of com- companies like Korean Air, it would not be able to do anything panies where it holds stakes with the introduction of the stew- regarding the remaining companies. ardship code. Strengthening the NPS’ shareholder rights was The government has also put the brakes on the NPS plans one of President Moon Jae-in’s campaign promises. He pledged to assign more than half of its voting rights to the asset manage- to make the NPS the play the role of a watchdog for conglomer- ment firms that manage its assets. The Health Ministry's recom- ates, or chaebol. mendation is that the NPS gives extra points to private asset The NPS has thus far only exercised its voting rights at gen- management companies that introduces the stewardship code eral shareholders’ meetings of the companies it has invested in. when it selects asset management companies for entrustment of It hasn’t proposed an agenda or any detailed plans to expand its assets. This would in fact force asset management companies dividends. This is because the NPS can face criticism for inter- to adopt the stewardship code. Critics question whether it would vening in management if it makes suggestions. However, Min- be effective even if asset management firms introduce the stew- ister of Health and Welfare Park Neung-hoo said during the ardship code.

62 MONEYIR & MANAGEMENT

An official from the industry said, “Only South Korea’s top two organizations now decide on the voting rights of most South two asset management companies will be able to keep employ- Korean listed companies. ees who are exclusively responsible for that work. The remain- As an alternative plan, the voting right advisory committee ing companies will purchase a 100,000 won (US$90) report per of the NPS recommended that the stewardship code is con- case from the private consulting companies specializing in exer- sidered only when the NPS decides on whether to transfer the cising voting rights and then copy everything it says.” voting rights to private asset management firms and consider The private voting right consultants don’t have a higher the rate of returns as before when to make a decision on gen- degree of specialization either. Institutional Shareholder Servic- eral asset management on consignment basis. It also recom- es (ISS), the world's leading provider of proxy advisory research mends that the NPS provide relevant costs to help private asset and voting recommendations and also provides consulting ser- management companies to introduce the stewardship code and vices to the NPS, has only two employees in charge of South promote private voting service consulting companies, such as Korea. In addition, the Korea Corporate Governance Ser- accounting firms or law firms. vice, which is most active in the area, usually has less than 10 The government will hold a public hearing on the 17th and employees. in charge of corporate governance structure which the National Pension Fund Management Committee will vote on is the most active sector in South Korea. Practically, only the the final plan at a meeting on August 26.

NPS Set to Act as a Steward Could NPS Prevent Corporate Owner Families from Lining Their Own Pockets? By Michael Herh

on issues other than those related to dividends, but it plans to act on issues that can damage shareholder value and corporate value. Companies that cross the red line on these issues will be pri- vately requested to fix the problems first. If they fail to address the problems, the NPS will take public action such as sending public letters to the companies or opposing the appointment of a director with the right to vote. If the stewardship code is implemented for these purposes, the government hopes that it could put the brakes on the practice of business groups to provide favors to the private companies run by the members of their owner families. Kim Sang-Jo, chairman of the Fair Trade Commission (FTC), who is called the pioneer of chaebol reform, calls for strict crackdown on such a practice and requested large con- glomerates to abandon it voluntarily, but there have been no he National Pension Service (NPS) has decided to signs of improvement. introduce a stewardship code and start exercising its In fact, according to CEO Score, a website that evaluates the Tshareholder rights against companies that undermine management performance of companies, in an analysis of 225 the interests of minority shareholders by funneling corporate subsidiaries belonging to 60 large corporations, which are sub- funds to their owner families. ject to the regulations on internal transactions, the scale of such The NPS will start implementing a stewardship code in practice reached close to 13 trillion won in 2017. late July. It plans to use its shareholder rights against business It is 13.6% of the total sales of these companies (94.9 trillion groups where corporate owner families line their own pockets won) last year, which is higher than the 12.1% of 2015, when through sweetheart deals between group affiliates and their pri- the regulation just started to be carried out. vately held businesses. Under the Monopoly Regulation and Fair Trade Act, a listed Currently, the NPS refrains from exercising its voting rights subsidiary of a large conglomerate with assets exceeding 5 tril-

63 MONEYIR & MANAGEMENT

lion won is subject to FTC sanctions if its transactions with a 20% stake. other affiliates within the group surpass 20 billion won or 12% These subsidiaries are highly likely to be used by chaebol of its annual sales. owner families to line their own pockets at the expense of their Out of the 225 regulated companies, 35 companies’ internal groups. transactions exceeded 50% their sales last year. Regarding this, Kim Sang-Jo, chairman of FTC, urged the According to the results of FTC's “2017 analysis of publicly members of chaebol owner families who participate in manage- held stocks,” out of the 57 business groups with assets worth ment to just own the shares of key subsidiaries and sell off their more than 5 trillion won, 38 (66% of the total) had at least one stakes in other affiliates. unlisted subsidiary where the owner family held more than 20% Kim said, "If it is difficult to sell the stakes, please separate of its shares. the subsidiaries. If you maintain the stakes of non-major unlisted This means that two out of three chaebol owner families subsidiaries and there is a controversy over internal transactions, have at least one unlisted subsidiary where they have more than you will be subject to FTC investigation."

Low Productivity Results in Low Profitability Korean Companies’ Profitability Stays at Lowest Level among 17 Nations

By Jung Suk-yee

he profitability of leading Korean companies was at the lowest level among major countries. This is Tbecause they lacked the ability to develop innova- tive products with high added value and had low productivity. On July 31, the LG Economic Research Institute released a report titled "Analysis of Business Performance of Korean Companies." The research center compared the performances of the top 3,000 global companies by country. The 115 Korean companies included in this list recorded 7.6% sales growth last year, placing Korea sixth among 17 major countries including the US, China, Japan and Germany. However, their profitability was low. Their operating profit to sales ratio arrived at 4.7%, placing Korea 16th. Their ratio was less than half of the ratio of US companies (11.3%) and more than 1 percentage point lower than that of Chinese com- panies (6.1%). In particular, that of other companies swelled Leading Korean companies’ operating profit to sales ratio arrived at 4.7%, placing from 7.3% in the 2010 to 2013 period to 7.6% in the 2014 Korea 16th among 17 major countries. to 2017 period while that of the Korean companies dropped to 4.6% from 5.2% in the same period. In terms of return on percent in 2016 and then dropped to 3.7 percent last year. Their assets, the Korean companies came in last. This means that return on operating assets also slid from 6.4% in 2016 to 5.5% they were not able to make proper profits for the money they in 2017. invested in production facilities and equipment. "Korean companies have a profit structure that is difficult A similar trend was shown when the scope of companies to respond flexibly to economic slumps as their profitability was expanded to cover all listed companies in Korea. Sales changes a great deal depending on changes in their business are on the rise, but profitability on the decline. Listed Korean environments," said Lee Han-deuk, a researcher at the LG Eco- companies’ sales growth recovered to 1.9% in 2015, 3.0% in nomic Research Institute. "A lack of the development of inno- 2016, and 5.0% in 2017 after bottoming out at 1.7% in 2014. vative products and low productivity also contributed Korean But their return on assets rose from 3.5 percent in 2014 to 4.1 companies’ low profitability.”

64 Local experts say Elliot Management is more likely to demand an increase in dividends or share price stimulus measures by blocking restructuring work in the future.

A Steward with Limited Roles NPS Excludes Management Participation from Stewardship Code By Yoon Young-sil

he National Pension Service has disclosed a plan to However, asset management companies that manage NPS introduce a stewardship code, a guideline on how to assets will be allowed to exercise its voting rights. When the Texercise its voting rights on companies where it has NPS selects or evaluates asset management companies, it will invested. give additional points to companies that introduce a stewardship According to the plan, the NPS will not exercise its share- code and exercise their voting rights. holder rights on issues such as that can be categorized as man- However, asset management companies will be allowed agement intervention. to write a stewardship code and set the standard for exercising While lowering the level of management participation, the voting rights independent of the NPS stewardship code. The NPS will gradually expand from the second half of this year the NPS will entrust its voting rights to medium and large sized list of companies that are required to set up dividend policies. management companies only for the time being as small and The Ministry of Health and Welfare and the NPS held a pub- medium-sized asset management firms lack the required exper- lic hearing on the plan for the introduction of the stewardship tise. The NPS will start entrusting its voting rights to asset man- code at the Korea Financial Investment Association building in agement companies from next year. The NPS will expand its Yeouido on July 17. Voting Rights Committee and set up a special committee for The disclosed plan does not allow the NPS to recommend consignee obligations. candidates of non-executive directors or auditors through share- The stewardship code will be phased in. The number of holder proposals, consign the operation of funds for manage- companies required to establish dividend policies will be dou- ment participation, and call for convocation of a general meet- bled from the second half of the year. Asset management com- ing of stockholders. These activities have been excluded from panies will be required to announce their policy on the exercise the plan due to concerns over management intervention. voting rights before the general meeting of stockholders.

65 IR & MANAGEMENT

Fair Trade Act to Be Revised Korean Gov't Moving to Toughen Rules on Holding Companies By Yoon Young-sil

The Fair Trade Commission (FTC) is moving to increase the equity stakes that a holding company is required to own in its affiliates.

s the Fair Trade Commission (FTC) is moving to panies that would have to increase their stakes in listed affiliates increase the equity stakes that a holding compa- under the toughened regulation include SK Holdings Co., Lotte Any is required to own in its affiliates and grandson Holdings Co., Hanjin Kal Corp., Celltrion Holdings Co., Kolon companies, conglomerate are looking for ways to adapt to the Corp., Korea Kolmar Holdings Co., Dong-A Socio Holdings expected change in regulations. Co. and Chong Kun Dang Holdings Corp. According to investment banking (IB) industry sources on Currently, Celltrion Holdings holds a 20.1 percent stake July 17, the special committee created for the revision of the in its main affiliate Celltrion, while Kolon owns a 20.4 per- Monopoly Regulation and Fair Trade Act is currently reviewing cent stake in Kolon Life Science Inc. Korea Kolmar Holdings a plan to raise the stakes that a holding company is required to and Chong Kun Dang Holdings have only a 23.2 percent stake have in an affiliate and grandson company from the current 20 in Korea Kolmar and a 21.2 percent stake in and Chong Kun percent for a listed affiliate and 40 percent for an unlisted affili- Dang, respectively. Hanjin Kal holds a 22.2 percent stake and ate to 30% for a listed affiliate and 50 percent for an unlisted a 29.6 percent stake in Hanjin Co. and Korean Air Lines Co., affiliate. respectively. The commission is deliberating two approaches to imple- In particular, SK Group is forecast to face a heavy burden menting the strengthened regulation: applying it only to holding under the revised rules. SK Holdings currently owns a 25.2 companies that are newly established or applying it to all hold- percent stake in its affiliate SK Telecom Co. and a 20.1 per- ing companies with a long grace period. cent stake in its grandson firm SK Hynix Inc. It will have to According to Mirae Asset Daewoo Co., major holding com- raise the stakes by 4.8 percentage points and 9.9 percentage

66 points, respectively. The cost to raise the stakes in the two Beverage from 11.5 percent and 18.3 percent to 21.4 percent companies is 919 billion won (US$815.08 million) for SK and 24.9 percent, respectively. Lotte Holdings holds a 22.1 per- Telecom and 6.44 trillion won (US$5.71 billion) for SK Hynix cent stake in Lotte Food Co. as well. However, it will have to based on their closing prices on July 13. In short, the group raise its stake to more than 30 percent when the new require- needs about 7.5 trillion won (US$6.65 billion) to meet the new ments are applied. regulation. An official from the IB industry said, “Even when the Jeong Dae-ro, an analyst at Mirae Asset Daewoo Co., said, requirements for stock ownership are strengthened, the FTC is “When the FTC strengthens the requirements of holding compa- expected to apply them to new holding firms or give enough nies’ stock ownership, SK Group will be forced to purchase and grace period. So, the new regulations will be softer than feared. cancel treasury stocks of SK Telecom and SK Hynix. It will be However, business groups will face more difficulty in maintain- also forced to restructure its business portfolio by merging affili- ing the holding company system and expanding their businesses ates and selling off non-core units.” through M&As.” Lotte Holdings will also need to increase its stakes in its Meanwhile, the FTC will hold a general meeting of the spe- affiliates. Lotte Group completed the stock exchange between cial committee for the revision of the Monopoly Regulation and Lotte Holdings and Lotte Chilsung Beverage Co. and Lotte Fair Trade Act this month to wrap up the ongoing review and Confectionery Co. last month. Accordingly, Lotte Holdings has submit its revision bill to the National Assembly in the second increased its stake in Lotte Confectionery and Lotte Chilsung half of the year.

First Overhaul in 19 Years S. Korean Gov’t Plans to Reform Holding Company System

he South Korean government is planning to Tstrengthen regulations on holding companies. It is moving to tighten the limit of debt ratio and prohibit holding companies from owning grandson companies that are irrel- evant to their main businesses. The Fair Trade Commission (FTC) announced on July 3 The Fair Trade Commission (FTC) has decided to reform the holding company an analysis of the current state of the holding companies that system for the first time in 19 years since its introduction. control 18 conglomerates. The FTC has decided to reform the current holding com- total sales of 18 holding companies on average, while the pany system for the first time in 19 years after its introduc- earnings beside dividends took up 43.4 percent. tion. The trade watchdog believes that stronger regulations In particular, Celltrion’s earnings beside dividends are needed because transactions with affiliates account for accounted for 100 percent of the total sales. Hankook Tire 55 percent of the total transactions of the surveyed holding also had an 84.7 percent of earnings beside dividends, fol- companies. lowed by Hansol with 78.8 percent and Kolon with 74.7 per- Furthermore, these holding companies own grandson and cent. In short, conglomerates made profits from royalty fees, great-grandchild companies that are irrelevant to their main real estate rents and management consulting fees instead of businesses. The FSC judged that the grandson and great- their main business. grandchild companies are lacking in corporate transparency The FTC also said the holding companies have expand- and are often used by group owner families as a means of ed the control of their affiliate companies by increasing the expanding their control and gaining personal benefits. number of grandson and great-grandchild companies. In fact, The subjects of investigation are large business groups the average number of firms affiliated with holding compa- including SK, LG, GS, Hanjin, CJ, LS, Kolon, Hankook Tire, nies showed a sharp rise from 15.8 per holding company in AmorePacific and Celltrion. 2006 to 29.5 in 2015. The number of subsidiaries of business Dividends of subsidiaries are the main source of revenue groups slightly increased from 9.8 to 10.5 over the same for the holding companies. According to the analysis results, period, while that of grandson companies more than doubled however, dividend incomes accounted for 40.8 percent of the from 6 to 16.5.

67 IR & MANAGEMENT

LG Group under New Leadership Will the New LG Chairman Change the Group’s Conservative Management? By Michael Herh

Koo Kwang-mo has become the chairman of the LG Group, Korea's fourth largest conglomerate in terms of assets.

oo Kwang-mo took office as chairman of LG Corp., vice chairman before taking office as chairman of the group. the holding company of the LG Group, on June 29 The young man's simple resume and lack of training contrib- Kat the age of 40. In 2006, Koo joined LG Electron- uted to the prediction. But the group's owner family stuck to its ics as an assistant manager of the company's financial division succession principle: the successor of the outgoing chairman and has since worked for 12 years. By becoming the chairman must be a chairman. They followed the precedents where honor- of LG Corp., he took the helms of Korea's fourth largest con- ary chairman Koo Ja-kyung took over the chairmanship of the glomerate with an asset of 123 trillion won (US$109 billion). group when he was a vice president and Koo Bon-moo directly His rise from a director to the post of group chairman is regard- became the chairman from the vice chairman position. ed as exceptional in light of the LG Group’s conservative man- Therefore, professional managers’ assistant has become agement style. important for new chairman Koo Kwang-mo. As Chairman Group officials say that the young chairman has inherited Koo Kwang-mo has no choice but to focus on grasping pending not just equities from the late chairman Koo Bon-moo but his issues of the LG Group for the time being, it is likely that a sys- pursuit of accountable management. They say that the young tem in which six professional managers are responsible for major man assumes the chairman's post to succeed the roles and affiliates will be strengthened. The six are LG Corp. vice chair- responsibilities of his late father. man Ha Hyun-hee, LG Electronics vice chairman Cho Sung-jin, The new chairman has plenty to do as the LG Group, which LG Display vice chairman Han Sang-beom, LG Household & has 70 affiliates with an aggregate sales of 160 trillion won a Health Care vice chairman Jung Suk-Yong, LG U+ vice chair- year, badly needs new momentum for growth. He needs to cre- man Kwon Young-soo, LG Chem vice chairman Park Jin-soo ate new growth engines, generate synergies among affiliates and and are expected to play key roles in supporting Koo Kwang-mo adapt to the changing business environment at home and abroad. during the process to stabilize the management system for the “Much attention is being paid to whether or not there will fourth-generation chairman of the LG Group. Some experts say be a change in the LG Group’s conservative management,” an that chairman Koo Kwang-mo may choose another person as an industry watcher said. assistant for him but a prevailing opinion is that the possibility is In the market, many experts predicted that Koo would rise slim when taking into account the stabilization of the organiza- to the chairman's position step by step, serving as president or tion and chairman Koo Kwang-mo’s short career.

68 Meal Fiasco Continues 'Asiana Chairman Was Not Honest in Press Conference': Meal Supplier Says

By Michael Herh

SG Sky Chefs Korea, which concerns mentioned by Park in his press A problem occurred in March, when provided Asiana Airlines conference. a large fire started at the new GGK plant Lwith in-flight meals until just Meanwhile, Park Sam-gu, made an in Incheon International Airport. Asiana before the meal service was disrupted, apology on July 4 for the in-flight meal signed a tentative contract on June 15 said on July 5 that Kumho Asiana Group chaos. In a press conference held in the with Sharp DO & CO Korea, a small- chairman Park Sam-gu made false claims group’s headquarters in Gwanghwamun, sized company that supplies 3,000 meals during his press conference the previous he said, "I sincerely apologize for dis- a day to foreign airlines. Asiana needed day. appointing our passengers and Korean 25,000 meals a day, however, and Sharp LSG said in a press release, "We are people due to the recent incident. I apolo- DO & CO Korea could not meet the going to make it clear that Park was not gize to passengers who had disruptions demand. The pressure from the delayed honest about meal cost disclosure and in their schedule due to flight delays supply of in-flight meals led to the sui- concerns about meal quality." and to people who had to go through the cide of CEO of its partner company on On the previous day, chairman Park inconvenience of getting no meals. We July 2. said, “LSG did not reveal the produc- were not well prepared in the process of During this process, a suspicion was tion cost of in-flight meals, and we have switching in-flight meal providers.” raised that the Kumho Asiana Group asked them to do so several times. As Asiana has had problems in the sup- changed the supplier of the meals in order they did not, we searched for another ply of in-flight meals since it changed the to attract investment. LSG filed a petition supplier,” explaining the reason why he supplier. It decided to switch from LSG, with the Fair Trade Commission last year, switched from LSG to Gate Gourmet Lufthansa-affiliated in-flight meal pro- saying, "Asiana requested that we invest Korea (GGK). vider that has provided meals to Asiana 150 billion to 200 billion won in Kumho Regarding this statement, LSG said, for 15 years, to GGK of Hainan Group, Holdings (currently known as Kumho "We have been following the terms of China, starting on July 1. Bus Lines) for extending the contract.” the agreement with Asiana in all aspects. In terms of production cost, we always conformed to the contract.” LSG also refuted Park’s statement that "the quality of catering" was a factor in Asiana’s decision to switch to another supplier. "We would like to emphasize the fact that Asiana won several awards for its excellent in-flight meal service while we were supplying in-flight meals,” said LSG. It stressed that LSG has been con- tinuously given an excellent rating by a global assessment organization. In addition, it added that Asiana had not raised any serious quality issues with the meals before 2017, when Asiana decided to terminate the contract. LSG said it is confident that Asiana’s decision to change its meal supplier to GGK two years ago was completely LSG Sky Chefs, Asiana Airlines' former in-flight meal provider, said on July 5 that Kumho Asiana Group chairman irrelevant to cost disclosure and quality Park Sam-gu made false claims during his press conference on July 4.

69 SME & STARTUP

Centered on Bio and ICT Sectors Korea's Fresh Venture Investment Reaches Record High in 1H by Yoon Yung Sil

The amount of fresh venture investment came to 1.61 trillion won (US$1.42 billion) in the first half of this year, reaching a record high

resh investment in venture companies continues to in the two sectors reflects a growing interest in future growth Fincrease despite sluggish economic growth. This year, engines in the era of the Fourth Industrial Revolution. 1 trillion won (US$881.06 million) worth of fund of funds By type of company, the amount of investment in startups has been raised for the second consecutive year, invigorating with from three years to seven years in operation since founding the venture investment market. If the current trend continues, came to 580.2 billion won (US$511.19 million), up 98.9 percent the size of new venture investment will surpass 3 trillion won from 291.7 billion won (US$257 million) last year. On the other (US$2.64 billion) by the end of this year. However, the amount hand, the percentage of investment in startups established less of investment in startups in operation for less than three years than three years ago dropped 7 percent from a year earlier. since establishment decreased this year. The increase in venture investment led to job creation by The Ministry of SMEs and Startups released on July 24 a startups and venture firms. According to a survey of 2,649 com- report on the venture investment trend in the first half of 2018. panies that attracted venture investment from 2013 to 2017, According to the report, the amount of new venture investment 28,000 new jobs were created compared to the preceding year. came to 1.61 trillion won (US$1.42 billion) in the first half of In particular, 529 companies that received investment funds this year, reaching a record high. The figure grew as much as last year hired 3,191 new employees, showing a 21.8 percent 61.2 percent from 1 trillion won (US$882.47 million) a year increase in employment from the previous year. earlier. Thanks to this, the number of venture companies that Venture investment contributed to not only job creation received investment increased 21 percent from 585 to 708 over but also sales growth. According to an analysis of 2,390 firms the same period. that attracted venture investment from 2013 to 2017, sales rose By industry, most investments went to the bio-healthcare and nearly 9.6 trillion won (US$8.46 billion) at the end of last year the information and communications technology (ICT) areas. In compared the year right before the investment. For 426 compa- the first half of the year, 413.9 billion won (US$364.67 million) nies that received investment last year, sales grew 661.1 billion of investment was made in the biotechnology and healthcare sec- won (US$582.47 million). In addition, the amount of returns tor, showing a whopping 169.3 percent growth from 153.7 billion on investment by venture capital through initial public offer- won (US$135.42 million) from a year ago. The amount of invest- ings (IPOs) or sales of stocks reached 1.25 trillion won (US$1.1 ment in the ICT sector stood at 449.9 billion won (US$396.39 billion) in the first half of the year, up 126 percent from 553.9 million), up 69.6 percent from 265.3 billion won (US$233.74 billion won (US$488.02 million) a year ago. This shows that the million) from the same period last year. The investment growth venture capital exit market is operating.

70 SME & STARTUP

South Korean minister for SMEs and Startups Hong Jong-haak (right) speaks at a lunch meeting with representatives from Korean companies in India on July 9.

Startup Cooperation outh Korean minister for and investors to freely communicate SMEs and Startups Hong and cooperate.” Jong-haak who accom- Gurugram is the second largest ‘Korean paniedS President Moon Jae-in in his city in Haryana, a state in northern state visit to India said that a “Kore- India, and one of the country’s lead- an Startup Town,” where startups ing industrial and economic centers. Startup Town’ from both countries freely exchange A number of foreign multinational and cooperate, would be forged in companies and Korean companies India, at the Korea-India Startup including Samsung and Hyundai are to Be Built Agreement Signing Ceremony that already established in the region. took place in New Delhi on June 9. The living environment is suppos- in India Minister Hong said in the cer- edly good as well, with Korean guest emony, “The current export incu- houses serving accommodation there. By Jung Suk-yee bator in the southeast New Delhi’s “India is emerging as a post- industrial complex will be moved China market and has well-educated to a larger Gurugram district with an talent, which will enable both Korea open co-working space,” adding, ”It and India can achieve much gains will serve as a startup hub for Korean from startup exchanges,” minister startups and Indian engineering talent Hong added.

71 SME & STARTUP

P2P Vehicle Sharing Via Phone Connectivity Hyundai Motor Decides to Invest in Car Sharing Start-Up in Australia By Jung Min-hee

Hyundai Motor decided to develop Hyundai AutoLink Application that connects Autralia-based startup Car Next Door’s technologies to customers’ cars and smartphones.

yundai Motor decided to to individuals on an hourly basis. Cur- venient P2P vehicle sharing environment invest in an Australian car rently operating in Sydney, Melbourne, where car owners do not need to deliver Hsharing start-up. Hyundai Brisbane, Newcastle and other major cit- their car keys to car renters," a Hyundai will boost the convenience of sharing ies in Australia, the service has 62,000 official said. vehicles a great deal by investing in and members and records an average of In the meantime, Hyundai Motor developing technologies that can open 8,000 rental cases per month. is preemptively responding to changes and close car doors with mobile phones With this investment as momentum, in a future market environment by pre- only. Hyundai will move ahead with the car senting various mobility services such Hyundai announced on July 4 that sharing business that utilizes Car Next as car hailing, car sharing, and carpool the carmaker would make strategic Door and advanced internet of things in major global markets. The carmaker investment in Australia's Car Next Door (IoT) technology. To this end, Hyundai has already supplied hydrogen electric and roll out a new-concept mobility ser- decided to develop Hyundai AutoLink vehicles to Korean and German car shar- vice based on advanced information and Application that connects Car Next Door ing companies. In October of last year, communication technology (ICT) as to customers’ cars and smartphones. So Hyundai Motor launched a car sharing early as 2020. the application will load into new Hyun- service in Amsterdam, the Netherlands Car Next Door which began its car dai cars in Australia and enable users with the Ioniq EV. In January of this year, sharing business in Australia in 2013 to open the doors and start the cars via the company invested in Grab, the largest launched a peer-to-peer (P2P) business phone connectivity. car hauling company in Southeast Asia model that allows individuals to rent cars "This technology will create a con- and is seeking strategic cooperation.

72 Mobile Eye-tracking Technology Catches Investors' Attention VisualCamp Successfully Attracts Investment of 1.85 Billion Won By Michael Herh

isualCamp, a company faces and user experiences and generate mented reality eye-tracking technologies that provides eye-tracking more business for companies providing and apply them to marketing content in Vtechnology for virtual and advertisements, games, and educational Korea and worldwide.” augmented reality systems and mobile content for smartphones. He went on to add, “We hope to devices and a gaze data analysis service, At MWC Shanghai 2018, which expand the virtual and augmented real- successfully attracted a round of Series A was held in June, VisualCamp became ity market while increasing the market investment. the first company in the world to unveil share of our eye-tracking software devel- On Aug 1, the K-ICT Born2Global mobile eye-tracking technology, attract- opment kit in the future.” Centre announced that VisualCamp, ing a great deal of attention from mobile Chief Executive Director Kim Jong- one of its member companies, recently phone manufacturers and telecommuni- kap of the Born2Global Centre said, “We attracted an investment of 1.85 billion cation companies in Korea and around expect that VisualCamp will expand its won from four investors: Shinhan Invest- the world. business and attract additional invest- ment Corp.-Cognitive Investment, Cap- “We believe that investors have rec- ment through global reference. I believe stone Partners, Korea Asset Investment ognized the value of VisualCamp’s tech- that mobile eye-tracking technologies Securities (KAI-KVIC Virtual and Aug- nology,” remarked VisualCamp CEO will play a key role in the emergence of mented Reality Investment Association), Suk Yunchan. “And we plan to further new platform businesses that make use and Shinhan DS (Shinhan Future’s Lab). enhance our mobile and virtual and aug- of gaze analysis and data.” With this recent Series A round, Visual- Camp has attracted a cumulative total of 2.7 billion won in investment. VisualCamp has developed vir- tual and augmented reality and mobile eye-tracking technologies and provides related software. Eye tracking is an important next-generation technology in which major global companies, includ- ing Google, Facebook, and Apple, are actively investing. Since developing its unparalleled eye-tracking technology and gaze data analysis service, VisualCamp has been applying its technologies and services to a wide range of areas. In particular, the company’s mobile eye-tracking technol- Hyundai Motor decided to develop Hyundai AutoLink Application that connects Autralia-based startup Car Next ogy is being used to enhance user inter- Door’s technologies to customers’ cars and smartphones.

73 SME & STARTUP

Interview with KVCA Chairman Venture Capital Invigoration Is Key to Faster Economic Growth By Cho Jin-young

outh Korea’s venture ment in venture companies reached a capital market has been record high of about 2.38 trillion won (US$2.1 billion). The continued growth on a steady growth track S is attributable to the growing awareness for years. Last year, fresh invest- that venture capital plays a key role in ment in venture companies reached nurturing innovative enterprises and cre- Lee Yong-sung, chairman of the Korea Venture a record high of about 2.38 trillion ating jobs. Its role is not limited to ven- Capital Association (KVCA) won (US$2.1 billion). This sustained ture financing. The government is also increase, says Lee Yong-sung, chair- implementing market-friendly measures, US$1 billion and decacorns with a mar- contributing to the improvement of the ket value of at least US$10 billion. man of the Korea Venture Capital investment environment. There are many examples of compa- Association (KVCA), means that the In addition, investors such as public nies that have grown into star enterprises nation’s venture capital companies funds, insurers and banks are increasing after receiving venture investment. Pearl have been successful in locating and their venture investment, pursuing com- Abyss, the creator of the popular online nurturing startups with great growth mon good and profits at the same time. game Black Desert, is a KOSDAQ-listed potential. In an exclusive interview As a result, newly established funds company with a market cap of over three amounted to 4.4 trillion won (US$ 3.9 trillion won (US$2.7 billion). Established with BusinessKorea, Lee said many billion) in 2017, an all-time high. The by seven persons in 2010, it could accel- high-flying venture enterprises owe total amount of venture investment funds erate its growth based on a timely injec- their success to timely venture invest- now exceeds 20 trillion won (US$18 bil- tion of venture investment and mentoring ment and mentoring by venture capi- lion). Fresh venture investment is expect- by venture capital companies. In the first tal companies. He added, “More ed to reach a new high yet again this year quarter of this year, its operating profits deregulation and market-friendly as a total of 634.8 billion won (US$571 reached 33.5 billion won (US$30 mil- million) was invested in the first quar- lion) on sales of 77.5 billion won (US$69 policy are required to raise the ter alone. The annual venture investment million). Its payroll has expanded to nation’s venture investment-to-GDP growth rate is likely to stay above 20% more than 500 people. Recently, it has ratio from 0.13% to 0.23% between this year again. We expect that the day established Pearl Abyss Capital to foster 2016 and 2022.” The Following will come in the near future when new promising venture companies in diverse are excerpts from the interview with venture investment tops three trillion fields. chairman Lee. won a year and the aggregate amount of Other examples include SillaJen venture investment funds amounts to 30 and cafe24. SillaJen is a KOSDAQ- trillion won. listed company developing anti-cancer Venture investment in South Korea hit therapies and cafe24 is an e-commerce an all-time high of approximately 2.4 Is this increase in venture investment platform provider. cafe24 provided a trillion won in 2017, up 10.7% from a leading to an actual increase in the sales platform to Style Nanda, one of year ago. How was it possible? number of promising venture firms? the most popular online shopping malls The Korean venture capital market The increase in venture investment that recently stepped into the spotlight has continued to grow since 2015 when means that South Korean venture capi- by agreeing to sell itself to L'Oreal, the new investment in domestic venture tal companies have been successful in world's largest cosmetics company. Ven- companies exceeded two trillion won fostering startups that can grow into uni- ture investment played a significant role (US$1.8 billion). Last year, fresh invest- corns with an enterprise value of at least in the success of these companies.

74 The Moon Jae-in administration is pro- How do you assess the venture ecosys- viding various types of assistance for tem in Korea? venture firms, regarding them as a The government has recently come central part of its “four-wheel growth” up with a set of policy measures to revi- strategy based on job creation, income talize private-sector efforts to develop growth, innovation and fair economy. the nation’s venture ecosystem. It has What do you think about it? rolled up its sleeves to make the venture One of the administration’s major ecosystem run smoothly. Policymakers policy goals is to spur economic growth are pushing to revise the Act on Special and job creation by invigorating SMEs Measures for the Promotion of Venture and venture firms, with the Ministry of Businesses in a more market-friendly SMEs and Startups acting as a control way. In addition, the Venture Invest- The Korea Venture Capital Association (KVCA) is tower. These days, the government is ment Promotion Act is scheduled to take running a council of foreign institutional investors so that local venture capital firms can expand their seeking to set the foundation of a fair- effect next year to promote the growth networks abroad. er economy by toughening penalties of the venture capital industry. One of on large corporations that steal tech- the law’s goals is to make venture capital not subject to regulations applied to con- nology from SMEs. The government firms more sustainable and efficient. It glomerate subsidiaries. has received positive reviews for these also gives the private sector a central role Such market-friendly policies are one moves. In my opinion, however, job cre- to play in developing the venture ecosys- of the three pillars needed to invigorate ation and innovation-based economic tem. All these moves are highly desir- M&As, with the other two pillars being growth still require some time to show able for venture firms and venture capital the awareness that M&As are an excel- tangible effects. companies. lent growth strategy for conglometates, If the government intends to chase and cases of corporate growth powered and catch the two rabbits of employment M&As are important as an investment by M&As. When these three pillars are and innovation at the same time, it needs exit channel for venture capital firms. in place, we will be able to see a surge in to go beyond such temporary measures This is especially true in Korea as it M&As. as working hour reduction. It needs to takes a lot of time for a venture enter- come up with measures geared towards prise to do an initial public offering of its Are South Korean venture firms being fostering venture firms that can preempt shares. What policies do you think are introduced well to foreign investors? the global market with creative and inno- needed to facilitate M&As? What efforts are needed to attract more vative ideas. Support needs to be given Our ultimate goal is to create a vir- foreign investment into Korean venture to venture capital firms that identify and tual cycle of investment, exit and rein- enterprises? nurture such venture companies. vestment. The exit part, however, is still According to a recent survey con- The government needs to recognize rather weak so most venture investors ducted by the Federation of Korean that invigorating venture capital compa- exit by selling their stakes on the over- Industries, 80% of South Korean SMEs nies is the key to faster future econom- the-counter (OTC) market. The ratio of are planning to enter overseas markets ic growth. The government announced over-the-counter selling and redemption within two years in order to seek new early this year that South Korea’s ven- to total investment exit activities was growth opportunities. ture investment-to-GDP ratio would be 51.9% on average from 2013 to 2017, In this regard, the KVCA is running a raised from 0.13% in 2016 to 0.23% in whereas IPOs and M&As accounted for council of foreign institutional investors 2022 and further to the levels of China 23.5% and 2.7%, respectively. so that local venture capital firms can (0.28%) and the United States (0.37%). On average, the IPO of a company expand their networks abroad and attract To attain this goal, the government needs with venture capital investment takes 13 more investment from abroad. Moreover, to take bold steps to ease regulations and years. This highlights the importance of the KVCA is running the government’s implement market-friendly policies. M&As as a tool for intermediate invest- R&D support projects so promising local ment recovery. Measures to spur M&As venture firms can succeed in the global The Act on Special Measures for the include more tax incentives for mergers market. Promotion of Venture Businesses was between large and smaller companies What is required now is an even enacted in 1997 to facilitate government and stronger penalties for technology more systematic policy for globalization support for venture companies. The law stealing by large corporations. In addi- of local venture firms. We need to set up was extended for 10 years in 2007 and tion, venture firms acquired by large cor- more funds designed to attract foreign for another 10 years in 2017. The sec- porations should be allowed to remain as investment and provide more subsidies ond extension implies that Korea’s ven- SMEs for a while so that they can ben- for SMEs and venture firms seeking to ture ecosystem is still not running well. efit from their position as SMEs and are advance into the global market.

75 Science & Technology

Blood Storage Period Extended by 5 Times Samsung Medical Center Team World's First Antarctic Microbial Blood Finds Preservative Developed Agelas Extracts

By Choi Mun-hee Effective in Treating Liver Cancer Korean research Ainstitute has suc- By Choi Mun-hee ceeded in developing a blood preservative using an Antarctic microorgan- ism for the first time in the world. The Ministry of Mari- time Affairs and Fisher- ies said on June 27 that the Korea Polar Research Institute (KOPRI) will sign a technology trans- fer agreement with Altero Agelas, a porifera living in the tropical sea. Biotech to commercial- ize the technology of pro- ducing a blood freezing South Korean research team has preservative using new Afound that substances extracted from substances found in an The Korea Polar Research Institute has developed a blood pre- "Agelas," a fungus living in tropical waters, Antarctic marine microor- servative using an Antarctic microorganism. can be used to treat liver cancer. ganism. The Ministry of Oceans and Fisheries Dr. Lim Jung-han of the institute discovered an anti-freeze biopolymer, an (MOF) announced on June 17 that a research inhibitor of ice growth, in Pseudoalteromonas sp. Strain CY01, a marine micro- team led by Park Hee-cheol, a professor of the organism in the Ross Sea of Antarctica and succeeded in developing a blood Radiation Genetics Department at the Sam- freezing preservative. sung Medical Center, conducted research Until now, it has been difficult to store and supply blood because the ice cre- using Agelas extracts and discovered for the ated during the freezing process destroys the red blood cells of the blood. first time in the world that they have excellent However, the newly developed preservative absorbs moisture from cells dur- effects on radiation treatment of liver cancer ing freezing, suppressing ice growth and maintaining cell viability. patients. Agelas lives at the bottom of the sea In addition, it preserves red blood cells better than glycerol, the previously and the research team collected it in Chuuk used cryopreservation agent, allows blood to be transfused immediately after province of Micronesia. thawing and the remaining blood to be frozen and used later. The research team monitored the effects The ministry said the new preservative will stabilize supply of rare blood of radiation therapy after injecting Agelas and prevent infections from blood transfusion. extracts into liver cancer cells. They found KOPRI succeeded in preserving blood for six months using the cryopreser- that the combination of radiation therapy and vation agent, prolonging the blood storage period from 35 days to more than 5 injection of Agelas extracts had better results times. in killing cancer cells or inhibiting their prolif- That will significantly reduce the blood waste rate and raise the domestic eration than when radiation therapy alone was blood self-sufficiency rate, which was only 80% in 2014. used or other extracts were injected. Altero Biotech expects to reach a market share of over 40% within the next The MOF said, “When radiotherapy was 10 years in the global blood cryopreservation market, which is estimated to be combined with administration of Agelas 530 billion won by 2023. extracts, the mortality of cancer cells and the An official of the Ministry of Maritime Affairs and Fisheries said, "We will inhibition of their proliferation was 69 percent, try to expand the opportunities to utilize polar bio-resources by supporting tech- 4 times as high as the 17 percent recorded whtn nology transfer and commercialization to create new industries and jobs." the radiation treatment alone was used.”

76 Science & Technology

A New Milestone in Robot Development A Solution to Food Shortage Researchers Develop Artificial Korean Research Team Nerves that Move Dead Discovers a Way to Enhance Insects’ Legs Plant Productivity By Jung Suk-yee By Jung Min-hee

A Seoul National University research team has developed artiticial nerves that can Agelas, a porifera living in the tropical sea. move the legs of dead insects, setting a new milestone for robot development.

eoul National University researchers have developed he National Research Foundation of Korea announced on Sartificial nerves that can move the legs of dead insects. TJune 4 that a research team led by professor Hwang Il-doo, Seoul National University announced on June 1 that the professor Cho Hyun-woo and doctoral student Cho Hyun-seop of joint research team of Lee Tae-woo, professor of material engi- POSTECH has succeeded in identifying the process of controlling neering and Zhenan Bao, professor of Stanford University, the development of sieve tubes inside plants for the first time. developed artificial sensory nerves that mimic biological tactile A sieve tube is a connection path inside a plant. Sugar, nerves using flexible organic devices. which is energy produced through photosynthesis, is distributed If the artificial nerve developed by the research team is to stems, roots, young leaves, and so on through sieve tubes. attached to a dead insect, it can move the insect's legs with The research team found specific protein involved in tubal pressure. The researchers explained that the artificial nerve is development in vascular plants such as thale-cresses and tobaccos. similar to a human peripheral nerve that responds immediately This protein was named “julgi” in Korean, which means to pressure. “stem” in English. The artificial nerve consists of a pressure sensor that mim- The research team also developed plants with increased sieve ics a vital skin tactile receptor, an organic ring oscillator that tubes by controlling “julgi” protein in stems, which increased pro- mimics biological neurons (nerve cells), and an organic syn- ductivity such as seed size and weight by up to 40 percent. apse transistor that mimics biological synapses (neurons and They also found out the specific process of julgi protein joints of neurons). controlling the development of sieve tubes. In case of creatures, when pressure is applied to the skin, The research team believes that the stem protein and its it is converted to a pressure voltage, which is delivered to the control of the growth of sieve tubes of target genes played a neuron. Then it moves through the synapse and the voltage crucial role in the evolution of vascular plants, which make up stimulates the motor neurons, causing movements of the body. the majority of the earth's vegetation. The artificial nerve also works through this procedure. Pres- "This study has proved a connection between an energy sure information from artificial tactile receptors passes through transfer (distribution) capability and productivity in a plant artificial neurons and turns into action potentials, stimulating that has thus far been proposed only theoretically," professor artificial synapses. Hwang said. "This study is expected to play an important role The researchers explained that when a soft robot is in solving the problems of food shortage and a drop in plant equipped with an artificial nerve, the robot can move like a productivity due to climate change." human being. They said the artificial nerve can even interpret The research was carried out with support from the Min- Braille, the writing system for the blind. istry of Science and ICT, the Basic Research Project of the Professor Lee said, "We have presented a new milestone in National Research Foundation of Korea and the Rural Develop- the development of robots that act like humans and prosthetic ment Administration's Woo Jang-chun project. devices for people with disabilities in parts of their nerves." The paper on the achievements of the study was published The results of the study were published in the international in the Nature Plants, the most authoritative academic journal on journal, Science on June 1. plants, on May 28. The June issue carried it as a cover paper.

77 event

Application Deadline Is Aug. 31 ‘Robot World 2018’ to Offer Direction for the Fourth Industrial Revolution By Lee Song-hoon

In Robot Platform Area (Service Robot Hall), Korea’s major service robot producers including Hyundai Rotem, Yujin Robot, Robotiz, Roborobo, and Rainbow Robotics have decided to par- ticipate. Especially, more than 40 over- seas companies from 19 countries are joining the event, including Ubitec, Chi- na’s representative service robot com- pany which is participating for the first time. The International Robot Contest to be held in Hall 1 of Exhibition Center 1 is a global robot competition which is held not only for elementary, middle, and high school students but also for

Robot World held last year the general public. Under the theme of “the coexistence of human beings and obot World 2018,” Center 1. Some 200 companies from 20 robots,” robots will be created in accor- which will showcase countries will set up 500 booths, display- dance with the regulations of the contest, “Rdomestic and overseas ing manufacturing robots, service robots, and tested for their function and mission advanced robot technologies, will be robot parts, smart manufacturing solu- performance. held at Kintex, Ilsan, a northern suburb tions, smart applications, software and The 2018 International Robot Con- of Seoul, from October 10 to 13. drones. test will have 11 competitions and 29 The Korea Association of Robot Especially, this exhibition will set up events. While KIRIA will be respon- Industry (KAR), which manages the a special hall for each industry to show sible for the overall management of the large-scale annual exhibition, announced how robots are applied to everyday life contest, a host of other institutes will on July 10 that the application for the and various industries. A special hall will participate as co-organizers, enhanc- exhibition closes on August 31. also be dedicated to collaborative robots ing the event’s expertise. They include Robot World 2018, which is the 13th which are spreading gradually. Visitors KAIST, the Seoul National University edition this year, is hosted by the Min- will be able to learn about regulations of Science and Technology, Korea Robot istry of Trade, Industry and Energy and regarding collaborative robots and vari- Sports Association, STEAM Education jointly run by the KAR, Korea Insti- ous safety solutions in industrial fields. Association, ITC Robot Culture Asso- tute for Robot Industry Advancement In this year's Robot Factory 4.0 Area ciation, Korea Robot Education Content (KIRIA), and Institute of Control, Robot- (Manufacturing Robot Hall), a large Association, Korea Science and Technol- ics and Systems (ICROS). It consists of number of companies will participate, ogy Camp Association, ETRI, and Seoul four major parts: an international robot including domestic robot manufacturers National University of Education. exhibition; an international robot contest; such as Hyundai Heavy Industries, Doo- In the meantime, as the R&D com- an international robot conference; and san Robotics, and Robostar, and Kore- petitiveness of the domestic robot indus- a promotional hall, which displays the an robot parts producers such as Hannz try is increasing, and the number of results of the market-creating robot dis- Motrol, Mint Robot, and SBB Tech. domestic companies branching out to the tribution projects. Also, major overseas companies such as overseas market is rising, Robot World The international robot industry exhi- Universal Robot, Rethink Robotics, TM 2018 will operate the international robot bition will be held in Hall 2 of Exhibition Robot, and AUBO will participate. conference to offer the latest robot indus-

78 event

try trend and provide a forum for discus- sion on technical issues for people in the industry, academia, and research. Especially, this year's international robot conference, which is titled “Interna- tional Robot Technology Forum: Biomi- metic Robot Technology and Application,” will focus on biomimetic robots that are expected to be applicable to various fields such as defense, disaster and construction. Kim Hyeong-keun, vice chairman of the Korea Robotics Industry Association, said, "Robot World 2018 is a robot exhi- bition that represents not only Korea but Asia. We will make this event a leading global exhibition focused on the Fourth Industrial Revolution by integrating plat- forms such as smart factory and artificial intelligence.”

RoboUniverse & K Drone/VR Summit Leaders in Robot, Drone, AI, VR and AR Get Together in S. Korea on June 28

By Cho Jin-young

he RoboUniverse & K Drone/ ond giant robot duel with Future Wise TVR Summit takes place from and Monkey King. At the summit, he June 28 to 30 at the KINTEX Conven- is likely to explain the progress of the A number of robot and drone manufacturers and AI, VR and AR developers will participate tion Center in Goyang City, Gyeonggi second duel scheduled for the second in the RoboUniverse & K Drone/VR Summit that Provicne. The conference is attended half of this year and discuss how to uti- takes place from June 28 to 30 at the KINTEX Convention Center. by a number of robot and drone manu- lize giant fighting robots for entertain- facturers and AI, VR and AR develop- ment purposes. The conference takes place at Con- ers, including MegaBots CEO Matt Future Wise CEO Lei Han is the ference Room 303 of the convention Oehrlein, Future Wise CEO Lei Han, owner of the XX21 giant fighting robot center. The panelists will introduce and Monkey King CEO Shiqian Sun. and the NK01 wearable robot. Mon- their companies and discuss the value MegaBots CEOs Matt Oehrlein key King CEO Shiqian Sun is a well- of robots in entertainment. The confer- and Gui Cavalcanti posted a video known robot designer and a professor ence will cover the latest trends and showing their robot on YouTube in at the China Central Academy of Fine development of VR, AR, and robots 2015 for the world’s first giant robot Arts. He is not only a robot engineer and drones incorporating AI and the duel with Suidobashi. CEO Matt Oeh- but also a famous sculptor and graphic IoT. The main topics include service rlein is currently working on the sec- designer. robots and drones for use in the fields of medical, national defense, social, entertainment, agriculture, education, disaster prevention and rescue. Exhib- its at the VR section of the conference include devices such as head-mounted displays, VR platforms and content, imaging equipment and VR technology for medical purposes.

79 Lifestyle

Due to Enhanced Image Cruise Service in Capital Zone K-beauty Fever Korea's Largest Cruise in Mexico and Europe Terminal to Open in Incheon By Choi Mun-hee Next April

orean beauty products have become more popular By Choi Mun-hee Karound the world, such as in Europe and in Mexico, in which a favorable image of Korea has rapidly increased after 2018 Russia World Cup that has recently ended. On July 16, eBay Korea said after the Korea-Germany match on June 27, the weekly sales of products in the Korean beauty and fashion category at the eBay export website rapidly increased in Mexico compared to the week before. Sales of products in the hair and styling category increased by 371%, while sales of K-beauty products increased by 13% and products in the men’s shoes category rose by 15%. This phenomenon is explained by the great influence of the “Mexi- corea” effect that Korea’s appeal has rapidly increased in Mex- ico as Korea helped Mexico advance to the round of 16 with its win in the match with Germany. A day after the Korea-Germany match, “eBay Shop Korea” executed an advertisement with a World Cup exhibition plan written in Spain and a combinational image of the national flags of Mexico and Korea through Facebook, emphasizing Bird's eye view of Incheon port cruise terminal the “brotherhood.” This advertisement collected 2000 Mexican followers in a day, and a related Facebook posting earned 40 he largest cruise terminal in Korea will open in thousand views just in Mexico. TIncheon in late April next year. Along with Mexico, the interest and demand for K-beauty It is the first time that the metropolitan area will have a products has been also rising in Europe. On the 28th of last pier for large-scale cruise ships that can carry 5,000 to 6,000 month, according to the “2018 third and fourth quarter export tourists, so it is likely to change the landscape of the domestic business survey index (EBSI) poll” of 1007 exporters by the marine tourism market. Institute for International Trade under the Korea International The Incheon Port Authority (IPA) announced on July 3 that Trade Association, the index for products, mainly including it plans to open a cruise terminal, which is under construction medications and cosmetics, has risen in main markets, such as in Songdo International City District 9, next April 26. in US and EU. The terminal will have a 430-meter-long port that can accommodate the world's largest cruise ship with a capacity of 225,000 tons. The two-story terminal building will have a floor space of 7,364 square meters. Domestic cruise docks are located in Busan North Port (220,000 ton), Seogwipo Gangjung Port (150,000 ton), Jeju Port (150,000 ton) and Sokcho Port (100,000 ton). IPA plans to operate the 114,000-ton cruiser Costa Serena on the Incheon-Shanghai-Fukuoka-Busan route in partnership with Lotte Tour. The ship is 290 meters in length and 35.5 meters in width, similar to the height of the Northeast Asia Trade Center (305 m), a high-rise building in Songdo International City. The internal space with various facilities such as a swim- ming pool, theater and casino is larger than 20 soccer fields A favorable image of Korea has rapidly increased after 2018 Russia World Cup that has recently ended. combined.

80 LIFESTYLE

Cinematic VR Attraction 3-Runner Race with Shilla, Lotte Lotte World Adventure Shinsegae Chosun Hotel to to Develop Theme break into hotel business on Park-Type VR Jeju Island

By Michael Herh By Choi Mun-hee

​Across-Dark of Lotte World​ Kensington Jeju Hotel

otte World Adventure announced on July 10, two days he Shinsegae Group is set to break into the Jeju Island Lbefore its 29th anniversary, its ambition to lead the Thotel market, mounting a challenge to Lotte and Shilla. virtual reality (VR) industry by developing and introducing a According to the investment banking (IB) industry on July theme park-type VR attraction. 15, Shinsegae was recently selected as the operator of Kens- The theme park-type VR attraction is a concept that com- ington Jeju Hotel located in the Jungmun Tourism Complex in bines pre-show that raises interest in VR content and post-show Jeju, Seogwipo City on Jeju Island. that maximizes satisfaction after watching VR content. SK D&D, which acquired Kensington Hotel from the Eland The theme park-type VR attraction that is first introduced Group in February, has asked Shinsegae Chosun Hotel to oper- at Lotte World Adventure is “Across Dark,” a cinematic VR ate Kensington Hotel Jeju and nearby Evergreen Hotel on its format that expresses virtual reality with cinematic techniques. behalf. SK D&D has recently raised 128 billion won to remod- In the story, the main character Mia starts an adventure to el Kensington Hotel. look for her dad who was lost in space. It will be launched in Eland Jeju Resort, an affiliate of the Eland Group, acquired the first half of next year. Seorabeol Hotel in 2010 and opened it as Kensington Jeju A distribution contract was already signed with CJ Hotel, a five-star hotel. Kensington Jeju Hotel returned to prof- 4DPLEX, and the VR attraction was displayed at the “2018 itability in 2016 but last year, China’s retaliation of Korea for IAAPA Hong Kong,” a world-famous theme park exposition. the latter’s deployment of the THAAD System caused a big An extra-large survival VR for 16 people, which will be drop in the hotel’s sales. jointly developed by Lotte World and 3D Factory, is also made In February of this year, the Eland Group sold off the hotel as a theme park-type VR attraction with a pre-show and post- for 117 billion won to B&M Development, a real estate devel- show. opment affiliate of SK D&D. Park Dong-gi, CEO of Lotte World, said, "To celebrate the Shilla and Lotte Hotel have been dominating the five-star 30th anniversary of Lotte World in 2019, we plan to showcase hotel market on Jeju Island. But the Shinsegae Group’s man- the theme park-style cinematic VR attraction, theme park-type agement of Kensington Jeju is expected to bring changes to the survival VR attraction for 16 people, and other contents that hotel industry in Jeju. utilize diverse media technologies. We will offer various kinds Recently, a rise in the number of individual Chinese tourists of programs to our customers as an advanced theme park that to Jeju Island is fueling demand for five-star luxury hotels not actively introduces technology." sale-type hotels in the Jeju hotel market.

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