Samsung punishment may ease political pressure for chaebols

Bloomberg

Though the downfall of the man heading Samsung Group, South Korea’s most powerful conglomerate, may seem an ominous omen for the country’s family-run business empires,
the jailing of billionaire Lee Jae-Yong could end up offering some relief to chaebol dynasties.
That’s because Lee, who on Friday received one of the harshest sentences ever handed to a chaebol leader, could serve the role of sacrificial lamb. During the past year, Koreans have expressed outrage about the scandals that exposed the family-run groups, which dominate the nation’s business landscape, and their cozy ties with the government. That anger helped Moon Jae-in, an outspoken critic of the conglomerates, sweep into the presidency in May.
But Moon has yet to follow through on his anti-chaebol promises, focusing instead on more immediate concerns such as North Korea’s weapons program and US President Donald Trump’s proclamations to rejig a five-year-old trade deal between the two countries. Now, the Korean president isn’t likely to make swift reform of the conglomerates a top priority, said Celeste Arrington, an assistant professor of political science and international affairs at the George Washington University, who described the issue as “off the front burner” following the conviction.
“It will certainly ease some of the pressure,” she said. “Moon Jae-in seems focused on the broader set of ambitious political, economic and social reforms that need to happen.”
Moon’s office said it hopes the ruling will help bring an end to collusion between big business and the government. The Korea Chamber of Commerce and Industry and the Federation of Korean Industries —the lobbying groups of the chaebol— declined to comment on the verdict.
Despite some skeptics, many in Korea expressed optimism that the ruling, which broke away from the tendency by the country’s courts to hand down suspended sentences to big business, will give Moon the momentum to push ahead with his scrutiny of the chaebol.
“I think the government will push chaebol reform even harder, if economic conditions improve,” said Bruce Lee, CEO of Zebra Investment Management. “Clearly, there was a signal to the market that the chaebol has to be changed now.”
For Samsung, Lee’s five-year jail sentence threatens to prolong the vacuum atop one of the world’s biggest companies because his father, who’s been the group patriarch for three decades, remains incapacitated after suffering a heart attack in 2014. Controlled by the Lee family through a web of cross shareholdings, Samsung is Korea’s biggest conglomerate, comprised of more than 60 units selling everything from smartphones to life insurance, cargo ships and clothes. Its listed units have a market capitalisation of more than $390 billion.
Still, the Lee family’s absence hasn’t spooked investors as the group’s most-prominent company, Samsung Electronics Co., posted record earnings and saw its shares climb to a record high last month.
The younger Lee is vice chairman but spent the past six months in custody awaiting trial.
As to the chaebol, they weren’t always demonised. During the reign of President Park Chung-hee in the 1960s and 1970s, they were lionised for spearheading the rapid economic rise of a country that was poorer than North Korea. But as a decades-long, debt-fueled expansion caught up with the conglomerates, they started falling out of favour.

Samsung to
invest $7 billion in its Xi’an plant

Bloomberg

Samsung Electronics Co., the world’s biggest maker of memory chips, will invest $7 billion in a Chinese semiconductor plant to meet growing demand for the NAND flash memory used in smartphones and other devices.
The spending will take place over a three-year period and be focused on its plant in Xi’an, the Suwon, South Korea-based company said.
Samsung’s strength in memory chips has driven the company’s earnings to a record in the
most recent quarter, and helped it become more profitable than Apple Inc.
The announcement came just days after a Seoul court sentenced Vice Chairman Lee Jae-Yong to five years in prison for his role in a graft scandal.