China’s Digital Economy Regulations Adding Risks to South Korean Companies

The Chinese government’s regulations on its fast-growing digital economy sector may adversely affect South Korean financial companies.

The Chinese government is initiating large-scale regulations on its fast-growing digital economy sector. Under the circumstances, concerns are rising over the possibility that South Korean financial companies may be adversely affected by the regulations. This is because the regulations may lead to major shareholder eligibility issues in the financial companies that are working in partnership with or invested by Chinese enterprises.The Chinese government recently decided to revise the Anti Monopoly Law of China for the first time in 13 years in order to better regulate the sector. Last month, the State Administration for Market Regulation of China initiated regulations on Internet platform companies and fintech firms.

The risks are already affecting South Korean financial companies’ business expansion in China. One of the examples is KakaoPay. The company applied for an examination for a preliminary approval of its My Data project in December last year. However, the application was rejected with regard to Alipay Singapore Holding, the second-largest shareholder. Every shareholder with a stake of 10 percent or more is subject to the major shareholder eligibility screening by the authorities. At present, Kakao and Alipay own 56.1 percent and 43.9 percent of KakaoPay, respectively. This means stake adjustment for a pre-approval review is not easy.

Those in the industry are sighing, saying that the Chinese government is now the one to determine the fate of the project. “KakaoPay is on the verge of dropping out due to friction between the Chinese government and a Chinese company and regardless of its own fintech business capabilities and morality,” one of them said. A couple of months have already passed, without any progress, since the screening by the financial authorities.

South Korean capital may be called into question in many other financial companies, and then South Korean industries may be affected as well. It is also pointed out that the Chinese government may misuse the regulations in order to hinder the growth of South Korean companies.