Foreigners targeting domestic industrial technology "filtered out"... Ruling Party pushes for foreign investment security review system

[Financial News] A bill is being pushed to filter out foreigners investing in domestic industrial technology. With the amendment of the Commercial Act, it is expected that foreign activist funds will enter the domestic capital market in earnest, drawing the industry's attention to the possibility of being used as a management defense bill.
According to the political circle on the 10th, on the 6th, Democratic Party lawmaker Kim Won-i proposed a partial amendment to the 'Foreign Investment Promotion Act', with the introduction of the 'Investment Security Review System' as its core.
The bill focuses on giving the Minister of Trade, Industry, and Energy the basis to review the impact of foreign investments on national security and industrial security. If a problem arises, investment restrictions can be imposed. If the review is not conducted, it includes content that prohibits the ownership of stocks by domestic corporations and companies. Provisions for punishment if violated are also prepared.
The extent of domestic industrial technology leakage is serious. According to the Ministry of Trade, Industry and Energy and the Korean Intellectual Property Office, over the past five years, more than 100 cases of industrial technology have been leaked. The economic damage from this amounts to a staggering 23 trillion won. As the competition for technological hegemony intensifies, cases of foreign investment leading to the leakage of domestic industrial technology are becoming frequent, prompting countries worldwide to establish systems to restrict foreign investment. The 'Foreign Investment Risk Review Modernization Act (FIRRMA)' established by the United States in 2018 is representative. It aims to block foreign investors' access to the U.S. market citing national security.
The foreign investment security review system is also expected to have the effect of guaranteeing corporate management rights. If foreigners acquire substantial control over domestic companies through investment, the system mandates prior notification and review, which can be used as a measure to respond to abnormal management rights attacks by foreign capital.
If the security review system is legislated, it is expected to serve as a supplementary measure to resolve the side effects of the Commercial Act amendment being promoted by the Democratic Party (including the second Commercial Act amendment). According to Hanwha Investment & Securities, "Recently, shareholder activism has surged to an all-time high in Japan and Korea," and "78% of domestic activism target companies are focused on small and mid-cap stocks." If foreign investors with capital shake domestic companies and defending management rights becomes difficult, the security review system may allow for proactive responses.
Lawmaker Kim Won-i said, "Strengthening investment review can protect national security technology and also benefit the largest shareholders of companies holding such technology," adding that it can be a sufficient alternative for protecting corporate management rights.


gowell@fnnews.com Kim Hyung-gu Reporter