[1mm Financial Talk] Kim Byunghwan's 'Salbigoshim'... Advanced Industry Fund Conceived 17 Years Ago

Direct Investment in Batteries and Bio Industries
First Conceived During the Lee Myung-bak Administration to Address Retained Earnings
Project Abandoned Under the Park Geun-hye Administration
'Advanced Industry Fund' Reflects Kim Byunghwan's Financial Policy Vision

Kim Byung-hwan, Chairman of the Financial Services Commission, is speaking at the Government Seoul Office in Jongno-gu, Seoul. Photo by Jo Yong-jun

The government's large-scale establishment of the 'Advanced Industry Fund' to respond to the second Trump administration is drawing attention to its scale and target applications. The purpose is to support key domestic industries such as batteries and bio through national policy financial institutions. Financial Services Commission Chairman Kim Byung-hwan emphasized "enhancing economic vitality through expanded corporate investment," creating a growing sense of expectation in the business community as this is a policy he has long contemplated.

According to government departments on the 17th, the Financial Services Commission will submit a bill containing the 'Advanced Industry Fund Establishment Plan' to the National Assembly in March. The fund, with a minimum scale of 34 trillion won, includes support through equity investment, joint investment, and low-interest loans by national policy financial institutions in strategic industries.

The hidden contributor to the establishment of the Advanced Industry Fund is Chairman Kim Byung-hwan. Although the government announced domestic corporate support measures to respond to the Trump administration's tariff policies, the origins trace back 17 years ago.

In April 2008, Kim, then a director at the Ministry of Finance and Economy (now Ministry of Economy and Finance), moved to the Blue House Economic Secretariat under President Lee Myung-bak. A major issue during the MB administration was retained earnings. The MB government lowered corporate taxes to revive the economy, but economic vitality did not increase; instead, retained earnings grew.

Chairman Kim viewed the retained earnings issue from a 'risk' perspective. In 2008, the global financial crisis occurred when Lehman Brothers filed for bankruptcy protection, and companies were concerned about excessive uncertainty when entering new businesses. Kim reportedly said at the time, "To solve the retained earnings problem, the public sector, such as national policy financial institutions, must jointly invest with companies. Investment uncertainty must be reduced to induce corporate investment."

Kim first conceived the fund that would become the Advanced Industry Fund to expand corporate investment. The plan was for Korea Development Bank to take a subordinated position, the National Pension Service to take a senior position, and companies to participate as well. However, the fund's establishment faced difficulties as the National Pension Service, which prioritized stable fund management, opposed it. Moreover, when Kim was dispatched as a policy analyst to the OECD in France in 2009, the fund operation was ultimately abandoned.

During the Park Geun-hye administration, the retained earnings issue resurfaced as a major economic concern. Retained earnings of the top 10 companies surged from 20.6 trillion won in 2009, when corporate tax cuts were implemented, to 612.3 trillion won in the first quarter of 2015. The government once again raised awareness of this issue.

Then-Economy Deputy Prime Minister and Minister of Economy and Finance Choi Kyung-hwan and Chairman Kim re-conceived the policy to induce corporate retained earnings into investment. This time, excluding the National Pension Service, they created a fund program with the Korea Development Bank, but companies were passive. Companies preferred convertible bonds (CBs) because direct investment by national policy finance could cause governance fractures. Kim reportedly expressed regret, saying, "There is not much difference from existing government corporate support measures."

Believing that enhancing economic vitality through expanded corporate investment was important, Chairman Kim directly listened to opinions from the business community and national policy financial institutions. It is said that a phrase he often used at this time was, "We must think about how much government programs actually help companies."

In 2022, after entering the Blue House Economic Secretariat as Economic and Financial Secretary, Kim revised the blueprint for the Advanced Industry Fund to supplement the insufficient policies. If the Korea Development Bank participated through equity investment as before, the risk weight would have to be raised to 400%. This would require capital expansion and raise concerns about the bank's soundness. This is why the law was amended to establish the fund.

Additionally, the investment methods were diversified instead of subsidies. The Korea Development Bank can directly co-invest with companies, provide low-interest loans, or support through equity investments.

Many view positively the establishment of the Advanced Industry Fund amid the intensifying tariff war under the Trump administration. A business official said, "It is significant that the government has introduced financial support policies at a time when key industries such as batteries are generally struggling," adding, "It is important to finalize the details quickly and proceed so that as many companies as possible can promptly receive the necessary support."

Another business official said, "This is not a hastily made policy by the Financial Services Commission but one developed after close communication with industries such as the battery sector for several years," adding, "The diverse support methods such as low-interest loans, research and development (R&D), and purchase loans are also viewed positively by the battery industry."