Park Geun Hye’s election as South Korea’s 18th president lowers the risk that families in control of the chaebols dominating the economy will see their power reduced.
Opposition candidate Moon Jae In had proposed breaking up cross-shareholdings used by the founding families of Samsung Electronics Co. and Hyundai Motor Co. to control conglomerates with minority stakes. Park, 60, of the ruling New Frontier Party and daughter of the dictator who backed the chaebols, has said she won’t dismantle those structures even as popular support wanes for the business groups.
Samsung Group and Hyundai Motor Group, run by South Korea’s two richest people, would have been vulnerable to Moon’s plans, according to Macquarie Group Ltd. analysts Chan Hwang and Joe Huh. Sales at the main electronics unit of Samsung Group, led by Chairman Lee Kun Hee, was equal to 19 percent of the country’s gross domestic product. Hyundai Motor and Kia Motors Corp. made Chung Mong Koo’s conglomerate surpass Ford Motor Co. and Daimler AG in number of cars sold.
“Park’s policies may imply a less significant change in the structure of large globally competitive Korean corporates,” HSBC Holdings Plc analysts led by Herald van der Linde wrote in a report yesterday. “South Korea will likely maintain its export-led growth.”
The never-married, eldest daughter of former leader Park Chung Hee said she would block new cross-shareholdings while proposing stricter laws on chaebol owners who commit crimes, and increasing fines for violations of fair-trade laws to as much as 10 times the damage. Park’s father, who took power in 1961 after a military coup, encouraged growth in automaking, steel and shipping by backing the chaebols until his assassination in 1979.
“Big businesses aren’t the only ones in the economic ecosystem,” Park said at an Oct. 30 rally for small business owners and independent shopkeepers. “Nobody should fall behind because of an unfair structure.”
Exports by the 30 largest chaebols accounted for 84 percent of South Korea’s overseas shipments in 2010, according to the Federation of Korean Industries, which represents the nation’s biggest companies. Exports account for about half of the $1 trillion economy.
Those 30 chaebols employed just 6 percent of the nation’s workforce, while corporate tax paid by groups with more than 100 billion won ($93 million) in sales amounted to 12 percent of the total tax collected in 2010, according to the government.
“Korea’s basically a one-trick economic act at this point,” Jasper Kim, chief executive officer of Seoul-based Asia-Pacific Global Research Group, said in an interview. “It’s basically chaebol chaebol chaebol.”
Samsung Electronics declined 4.1 percent to close at 1.442 million won in Seoul trading, after the European Union said it’s preparing an antitrust complaint against the world’s biggest phone company. The stock has gained 36 percent this year. Hyundai Motor was unchanged at 222,500 won and has gained 4.5 percent this year.
Popular opinion toward chaebols soured as growth slowed and the wealth gap widened. The nation’s richest 20 percent earned 7.86 times more than those in the bottom fifth last year, the widest margin since Statistics Korea began publishing the data in 2006.
A February survey showed 62 percent of respondents said the chaebols contributed to economic development, down from 70 percent in August 2011. Another survey published in October showed 93 percent of 20- to 30-year-olds said government policies on companies favored the business groups.
“It’s a post 2008 subprime crisis effect -- this is the first presidential election in which the voters were able to express their discontent,” said Asia-Pacific Global Research’s Kim. “Income inequality was an issue globally, but it is a big, big issue in South Korea.”
The nation’s Gini coefficient, which measures income inequality, rose from 0.306 in 2006 to 0.311 in 2011. Zero represents perfect equality and a level of 1 signifies one person holding all the wealth.
Limiting or banning cross-shareholdings would put pointless pressure on companies, cause investment to shrink and hamper job creation, the Federation of Korean Industries said in an August statement. Companies would also be vulnerable to foreign takeovers, it said.
Samsung’s Lee, South Korea’s richest person, owns 3.4 percent of Samsung Electronics’ common stock and 0.1 percent of preferred shares, 21 percent of Samsung Life Insurance Co. and 1.4 percent of Samsung C&T Corp., according to the Bloomberg Billionaires Index. The 70-year-old billionaire controls 81 companies connected by a maze of shareholdings.
Samsung Life has the biggest stake, at 7.5 percent, of Samsung Electronics, which holds 37 percent of Samsung Card Co., which has 26 percent of unlisted theme-park operator Samsung Everland, which owns 19 percent of Samsung Life.
Lee’s net worth is estimated at $11.3 billion and his fortune has increased 42 percent this year, according to the Bloomberg Billionaires Index. Chung is valued at $6.7 billion and his wealth has increased 12 percent in 2012, according to the index.
The conglomerates’ economic power will make reforms difficult, said Tom Coyner, who helps advise foreign investors as president of Soft Landing Consulting Ltd.
“The chaebol have grown at least collectively, if not individually in some cases, more powerful in many areas than the government,” he said in an e-mail. “It will be almost impossible to effectively implement campaign promises, unless the chaebol view substantial reforms to be in their own long-term best interests.”