Chmn. Choi Jong-ku explains the fund to go to setting up new and advanced industries over next 3 years; FSC also ready to cut stock transaction tax by 0.05 percentages points this year to 0.25 percent
Chairman Choi Jong-gu of the Financial Services Commission(FSC). (Photo: FSC)
The country’s financial regulator, the Financial Services Commission (FSC), will inject 4 trillion won ($3.4 billion) into the market through a state venture fund aimed at creating “new and advanced” industries this year.
In a taskforce meeting with the heads of local financial groups in Seoul, April 30, Chairman Choi Jong-ku said this was part of the 10 trillion won fund it has set aside with local financial companies to develop new industries over the next three years.
“We can additionally allocate 2.5 trillion won depending on market demand.” the FSC chairman said. “Also, we will back policy banks to increase tech financing amid the downside risk to the economy.“ Choi added it will have a revision ready by the end of June, cutting the stock transaction tax rate by 0.05 percentage points to 0.25 percent and enabling lenders to extend more loans backed by tech companies’ intangible assets such as intellectual property.
This comes as companies have mostly relied on bank loans backed by tangible assets such as real estate. Also, the capital market has been too centered on big listed companies, with few investors eyeing smaller companies with high technological potential. The regulator seeks to divert investors and funds from the real estate market to the capital market so smaller innovative companies can get the money to finance their research and commercialization.
The FSC will channel the 3 trillion won in loans to SMEs in four major industries including auto, shipbuilding, display and petrochemical, out of the 10 trillion won that the government decided to release in the next three years to build advanced industrial structures for those key sectors. The government is ready to provide 2.5 trillion won in addition if needed.
The government will also speed up the release of 4.5 trillion won in policy loans earmarked for the SMEs in the auto and shipbuilding industries. The auto parts makers will be able to extend the maturities of some 1.3 trillion won worth of their bonds and the preferential guarantees on 1 trillion won loans, which total 3 trillion won while the shipbuilding equipment makers will be able to extend the maturity of 1.2 trillion won of their bonds.
Chairman Choi said the FSC will ask for the inclusion of the government equity investments and investments in the state-owned financial institutions so that they can either provide loans or make investments in small and medium-size shipyards in the supplementary budget that the government plans to create.
The CEOs of the financial institutions attending the task force launching event each pledged special financial packages to support the economy to recover from the current tough times brought about by the global economic slowdown, the changes in economic environment due to the advancement of the 4th Industrial Revolution and the aging society due to low birth.
Shinhan Financial Group, for one, said it will funnel some 1.7 trillion won in the next four years to help the reform venture startups to grow while KB Financial Group said it will create a venture fund worth 379 billion won this year alone. Woori Financial Group will create some 3 trillion won reform growth fund in the next three years while Hana Financial Group will invest 60 billion won in SME venture firms. NH Financial will create reform growth fund intended for agricultural industrial growth.
The South Korean government will package aid programs for automotive parts and dockyard industries as the supply chain has been shaken by a sharp reduction in demand for Korean cars and vessels.
“A package for shipbuilders will come in mid-November and for automotive parts later in the month or early December.” said Trade, Industry and Energy Minister Sung Yun-mo in a press conference on Tuesday.
The aid will be on top of a recent announcement to extend credit guarantee by 1 trillion won ($877 million) for parts suppliers facing chain bankruptcies due to reduced orders from finished carmakers.
According to the Korea Automobile Manufacturers Association, domestic sales fell 3.4 percent on year to 1.13 million units as of the September this year despite the cut in sales tax, while overseas shipments fell 9.5 percent to 1.76 million units. In the third quarter, automobile output tumbled 7.0 percent on year. “Along with immediate aid, we will draw up a longer-term plan to bolster demand and future competitiveness of the automotive industry.” he said
Troubles of Korean car brands have devastated the automotive component and supply segment whose revenue entirely hinges on domestic carmakers. The segment is estimated to lose from 10,000 to 50,000 workers by the end of the year. The government, however, won’t interfere in designing overall restructuring and strengthening to raise the competitiveness of Korean cars.
“Restructuring is up to the market, not the government. Our role is to aid the industry to better combat present and future challenges.” he said. The country’s shipbuilding industry, relying on creditors’ relief and state assistance from last year, is yet to recover due to tougher competition from Chinese rivals. The industry ministry will also outline a roadmap to promote robotics and hydrogen economy as well as other renewable industry.