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Samsung Heir’s Retrial Spotlights Moon’s Coddling of Korean Conglomerates

Samsung Heir’s Retrial Spotlights Moon’s Coddling of Korean Conglomerates

(Bloomberg) -- A new trial for Samsung’s heir is highlighting the shortcomings in South Korean President Moon Jae-in’s pledge to reign in the country’s powerful conglomerates.

The Supreme Court on Thursday ordered a retrial of former President Park Geun-hye’s corruption case, indicating it wants a review of bribery allegations involving the influential “chaebols” -- family-run businesses that dominate the economy. It could mean more jail time for Park, whose stunning political downfall paved the way for Moon to take power on a platform of reining in corporate excesse.

Shortly after the Supreme Court ruled in the Park case, it ordered a retrial of Samsung Electronics Co. Vice Chairman Jay Y. Lee on bribery charges, many of which were related to Park. A retrial revives the legal uncertainty enveloping the country’s largest company as it navigates global trade turmoil and a fresh dispute with Japan.

About halfway through his five-year term, Moon has little to show for his pledge to shake up the nation’s conglomerates, which have been tied to influence-peddling scandals for decades. The court ruling gives him another chance to act.

“The Supreme Court is sending a firm message to President Moon Jae-in that he should stop cozying up to chaebol leaders,” said Kwon Young-june, who teaches business management at SUNY Korea in Incheon. “The court corrects the earlier ruling that let Lee go, and does away with the belief that the fate of an individual equals that of a company, providing the momentum needed to restart chaebol reforms.”

Moon hasn’t been able to move forward significant legislation for reforming the chaebols, although he has appointed officials who have taken a harsh view of the conglomerates. Under his watch, the state-run National Pension Service -- which oversees more than $570 billion and was a key player in the Samsung scandal -- has reshuffled management and tried to improve corporate governance. Several of the country’s other big investors have followed suit.

Support for Moon has been running at about 44% to 48% in recent polls. His backing has slipped in recent weeks amid a nepotism scandal engulfing his nominee for justice minister.

The Supreme Court ruling may serve as a signal for Moon to renew efforts to take on the conglomerates, but he has to tread carefully, said Chung Sun-sup, chief executive officer of corporate analysis firm Chaebul.com.

“Moon is likely to renew calls for cracking down on irregularities among chaebol,” he said. “But with a slowing economy, he would only go so far, being careful not to put so much pressure that it undermines business operations. He wouldn’t find it easy to win a public consensus for tougher reforms, either.”

With parliamentary elections set for April, Moon may try to use Park’s trial to discredit his political foes. He may seek to link them to corruption that led to the former president’s downfall and was set in motion in the 1960s by her father, strongman leader Park Chung-hee, who helped the chaebols ascend to power.

Yet during his time in office Moon has forged ties to Lee, introducing him to North Korean leader Kim Jong Un less than two years after the Samsung executive was arrested in 2017. With sales of semiconductors one of the few bright spots in a worsening economy, the country’s reliance on its most profitable company has deepened under Moon.

Exports Slip

South Korea’s exports are on course for a ninth straight monthly decline, data released last week showed. The weak trade data reinforced the gloomy outlook for South Korea’s export-dependent economy, which this year is forecast to expand at the weakest pace in a decade.

Making matters worse for Moon is an intensifying trade battle with Japan. Tokyo has placed export controls on three specialist materials that are crucial for the production of semiconductors and displays by South Korean powerhouses such as Samsung.

The trade restrictions already are taking a toll. Japanese exports to South Korea of one of the materials, hydrogen fluoride gas, slumped by 84% in July compared with the previous month, according to figures released by the Ministry of Finance.

Neither Moon nor Japanese Prime Minister Shinzo Abe has shown signs of backing down in their dispute, which is steeped in disagreements dating to Japan’s 1910-1945 rule over the Korean Peninsula and has now spilled over to their security arrangements with the U.S.

The Trump administration issued a rare rebuke for Seoul’s decision last week to withdraw from a joint intelligence program among South Korea, Japan and the U.S. meant to counter threats such as those posed by North Korea.

--With assistance from Shinhye Kang and Sohee Kim.

To contact the reporters on this story: Jon Herskovitz in Tokyo at jherskovitz@bloomberg.net;Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jodi Schneider

©2019 Bloomberg L.P.