The nation’s financial regulator has bolstered its monitoring on conglomerates’ transactions with subcontractors amid the Korean won’s strong position against the Japanese yen.
The policy of the Financial Supervisory Service reflects worries over the possibility that big firms could hand over their losses from declining exports amid weaker price competitiveness to subcontractors.
In the past, conglomerates changed their settlement currency from the won to the dollar in paying for subcontractors’ parts supply when the Korean currency appreciated against the U.S. dollar or the yen.
Over the past few weeks, the yen’s slide against the won has been a critically negative factor for export-oriented companies including conglomerates.
“A conglomerate’s shifting its burden from the unfavorable foreign exchange market goes against the government’s policy toward shared growth,” an FSS official said.
While the Fair Trade Commission is mainly in charge of the oversight of trading between conglomerates and subcontractors, the FSS has decided to check possible irregularities “by looking into banking transactions” under the initiative of Gov. Kwon Hyouk-se.
The Japanese currency depreciated sharply from the 1,500 won per 100 yen to 1,170 won over the past year.
High-ranking policymakers are focusing on policies to prevent big firms from bullying subcontractors.
FTC chairman Kim Dong-soo recently notified CEOs of his policy to enhance oversight of three major irregular practices ― unreasonable price cuts for manufacturing parts, technology theft and making orders without written documents.
He also reiterated the importance of “shared growth” between conglomerates and small enterprises.
Investigative authorities such as the FTC and the National Tax Service have been broadening the scope of inquiries into several units of major business groups for alleged practices like tax evasion, embezzlement and price fixing.
Conglomerates had enjoyed a favorable investment environment thanks to the “business-friendly” policy of the Lee Myung-bak administration, a research analyst said.
By Kim Yon-se (email@example.com