Blocking the 'Second Hidis'... From Now On, It Will Be Harder for 'Core Technology' Companies to Sell Overseas

Government Announces 'Our Technology Protection Strategy Amid Global Tech Hegemony Competition'
Government M&A Approval Required Even If Only 30% Stake Is Sold
Core Talent Database Established for Direct Government Management... Plans to Strengthen Penalties for Technology Leakage

[Sejong=Asia Economy Reporter Kwon Haeyoung] The government is set to strengthen the approval criteria for mergers and acquisitions (M&A) when companies holding national core technologies sell their shares overseas. It will also block the overseas leakage of core technologies caused by foreign indirect investments. The government will directly build and manage a core personnel database (DB), expand the designation of national core technologies, and push to strengthen punishment standards in case of technology leakage.

On the 25th, according to the Ministry of Trade, Industry and Energy, the ministry jointly established a "Strategy to Protect Our Technology Amid Global Technology Hegemony Competition" containing these measures.

Although it did not materialize, the government plans to more strongly protect our core technologies and personnel amid global technology hegemony competition, such as the attempted acquisition of our semiconductor company MagnaChip by Chinese capital. Since in 2002, China’s BOE acquired HiDis, the predecessor of SK Hynix’s liquid crystal display (LCD) business, absorbing technology and know-how to grow into the world’s number one LCD company, the government is determined to strengthen technology security to prevent a recurrence of a "second HiDis" incident.

First, companies holding national core technologies must obtain government approval when selling shares to foreigners, and the government’s intervention threshold will be strengthened from the current "50% or more" of stock/share sales to "30% or more." If a foreigner acquires 30% or more of the company’s shares and becomes the largest shareholder, the government can directly decide whether to approve the M&A, thus expanding the scope of overseas M&A review.

Previously, even if a foreigner acquired less than 50% of shares, the government would review the M&A if the foreigner became the largest shareholder after acquisition and exercised dominant influence over executive appointments and management. However, going forward, even if the acquired shares are small and the foreigner does not become the largest shareholder, if the acquiring party exercises dominant influence over business execution such as executive appointments, organizational changes, or new business investments, the government will also be able to decide on M&A approval, including such cases in the regulatory scope.

The scope of foreigners subject to government M&A regulation will also be expanded. Dual nationals, foreign private equity funds (PEFs), and domestic corporations controlled by foreigners will be regarded as foreigners to prevent regulatory gaps caused by foreign indirect investments. Currently, only companies holding national core technologies that sell shares overseas are required to report M&A to the government, but in the future, the foreign acquiring party will also be required to apply for government M&A approval, imposing a reporting obligation.

An official from the Ministry of Trade, Industry and Energy said, "There is a risk of regulatory blind spots occurring when foreigners acquire shares of a parent company that effectively controls a company holding national core technologies, even if they do not acquire shares of the core technology company itself," adding, "We will further strengthen the effectiveness of the overseas M&A review system by including a wider variety of M&As in the regulatory scope."

To prevent the overseas outflow of personnel holding national core technologies, the government will directly operate a core personnel management pool. To this end, the government plans to build a personnel database (DB) system by 2023 and directly monitor the entry and exit information and job changes of the relevant personnel. The government will first implement this for personnel requiring job change restrictions who have consented to provide personal information, and plans to gradually expand the management personnel through future legislation.

To encourage long-term retention of core personnel, a fund will be established with a 70:30 ratio between large corporations and the government to provide incentives.

Additionally, the designation of national core technologies will be significantly expanded from the current 12 fields and 73 designations. Key technologies such as semiconductors, displays, batteries, and materials, parts, and equipment (SoBuJang) that have secured global competitiveness will be newly designated as national core technologies to restrict overseas leakage. A "technology sunset system" will be introduced to remove the designation of technologies whose protection value has declined, creating an environment where technology exports are activated and reinvestment in advanced technologies can form a virtuous cycle.

The government will also push to establish sentencing guidelines for industrial technology leakage in courts. According to the current Supreme Court sentencing guidelines committee, overseas leakage of national core technologies is punishable by imprisonment of three years or more and a fine of up to 1.5 billion KRW. The government plans to create a new category for industrial technology leakage infringement and propose strengthening sentencing guidelines to the Sentencing Commission in the second half of 2023.

An official from the Ministry of Trade, Industry and Energy said, "Recently, technology follower countries have been attempting to steal technology through various methods such as overseas M&A, personnel poaching, and cyber hacking," adding, "In response to changes in the global technology protection environment, all ministries will make every effort to prevent the overseas leakage of core technologies and personnel."

This content was produced with the assistance of AI translation services.