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[text/observer network columnist chang luowen]

recently, south korea's local internet giants have had a hard time.

according to the results of the 2023 telecommunications value-added service utilization survey released by the ministry of science and ict of south korea in july, the most commonly used social platform by korean netizens is instagram, accounting for 36.3%; the chat tool is kakaotalk, accounting for 93.5%; the search engine is naver, accounting for 52.7%; the ride-hailing software is kakaot, accounting for 86.6%; the food delivery app is baemin, accounting for 64.9%; and the e-commerce platform is coupang, accounting for 38.6%.

among them, naver and kakao are purely korean local companies, but these two companies have recently faced major crises concerning their survival.

is it a coincidence that naver was "backstabbed" by the south korean government after it rejected japan's annexation request?

in november 2023, naver cloud was attacked by hackers and malicious code was implanted, resulting in the leakage of user personal information of line yahoo (mainly providing services to japanese users, hereinafter referred to as ly), which shares some systems with naver.

the ministry of internal affairs and communications of japan issued two administrative instructions to ly on march 5 and april 16 this year, requiring ly to improve its operating mechanism and re-plan its capital relationship with naver. currently, naver and softbank group each hold 50% of the shares of ly's major shareholder "a holdings".

the south korean government, especially the ministry of science, ict and other relevant departments, has taken a tough stance and has repeatedly expressed support for naver to independently handle related issues. it firmly opposes discriminatory treatment of south korean companies and will respond firmly and forcefully if relevant parties take unfair measures such as differential treatment.

south korea's ministry of science and technology has repeatedly sent its deputy minister kang do-hyun to publicly criticize the japanese government, saying that although the japanese government confirmed that there was no "sale of shares" in its administrative directive, it indirectly put pressure on korean companies to sell their shares, and expressed regret for this. south korea's ministry of foreign affairs and the presidential office have also publicly expressed similar positions many times.

kang do-hyun also specifically pointed out that if naver, ly's entrusted operator in south korea, insists on not giving up ly's shares and projects, the government will support it in taking appropriate information security enhancement measures.

interestingly, despite the south korean government’s repeated statements and naver’s efforts to mediate, news came out in may that japan’s softbank was ready to take over ly’s 50% stake from naver.

after more than half a year of tug-of-war, naver made a formal decision in august and indicated through multiple channels such as listed company bulletins and congressional hearings that it would not consider reducing its stake in ly for the time being. in other words, it would not give up control of line's overseas business, and japan's plan to swallow up line was temporarily aborted.

perhaps the yin government has also done the math. selling out history offends the dead, so it's fine if they sell it; selling out enterprises offends the living, so it's not worth it.

i have passed the overseas hurdles temporarily, but there are still life and death hurdles at home.

the fair trade commission (ftc) of korea has been planning to raise antitrust standards. in particular, in july 2024, the closure of local korean e-commerce platforms tmon and wemakeprice caused great harm to many online shop operators. the ftc found an excuse to use the regulatory stick to hit the internet giants.

according to the ftc's proposal, which has been brewing since 2023, the most likely regulatory changes involve amendments to two laws: the monopoly regulation and fair trade act and the fair trade act for large chain and retail industries. specifically, the upper limit of fines will be increased from 6% to 8% of annual profits, the regulatory list will be abolished, and each case will be investigated separately, with more burden of proof placed on the regulated party. at the same time, the fair trade commission will have the administrative power to suspend the business of suspected companies; there will be no major changes to the definition of monopoly, which is 60% market share.

it is not difficult to calculate from the statistics mentioned at the beginning of the article that naver’s bad days may have just begun. if it fails to meet the ftc’s regulatory requirements, it may have to work for the government for nothing in the next few years, and perhaps jail time may be waiting for its executives.

the current chairman of the fair trade commission, han ki-jeong, was a law professor at seoul national university and returned after studying at cambridge university in the uk. he is an outlier in the "pro-american cabinet" of the yoon seok-yeol administration.

the 1986 class of seoul university law school is known as the power elite group. among his classmates are the current deputy prime minister, ministers, and several members of parliament. among them, won hee-ryong is the minister of land, resources and transport. he was sent by yoon seok-yeol to ukraine to negotiate lithium mines and can be said to be yoon's trusted general.

han ki-jung has been very aggressive since taking office. in a case in june 2024, 12 korean companies were fined a total of 10.46 billion won (about 55 million yuan) for collusion in bidding for samsung group. his elitist and conservative political tendencies are hardly concealed. if the ftc insists on killing naver, then naver will probably have to give up its overseas shares to save itself and sell some of its core businesses to japanese companies.

is kakao’s transfer of user information a “small matter that became a big deal” because of chinese shareholders?

if the south korean government's support for naver while tightening regulations was purely coincidental, and we can only blame naver for bad luck, then the problems encountered by kakao are not easy to explain by luck.

the financial supervisory service (fss) of south korea announced the results of an investigation in august, saying that the foreign exchange transaction records of kakao pay, the payment business of internet giant kakao, from may to july 2024 showed that kakao pay leaked personal information to alipay without obtaining the consent of the information subject.

south korea's credit information use and protection act stipulates that legal persons need to obtain the consent of the information subject user before sharing personal credit data with third parties; the personal information protection act also requires the user's consent before cross-border transmission of personal information. the financial supervisory service of south korea said it is considering punishing kakao pay.

information held by the financial supervisory service shows that from april 2018 to the present, kakao pay has continued to provide personal credit data 54.2 billion times without consent, and some users did not even make overseas online purchases; the information included the user's kakao account id, partially masked email account or mobile phone number, as well as shopping time, total shopping amount, etc.

kakao pay explained that the transfer of this information was not a leak, but a step for kakao pay to enter the apple app store payment method. in short, apple has relatively high anti-fraud requirements, so if you want to pay in the apple app store through kakao pay, you need to calculate the nfs score of the account and provide some data related to the customer's historical transactions. before providing the data to apple, the personal information must be desensitized and encrypted. this processing step was outsourced to a company related to alipay. because apple has long-term cooperation with alipay, this information is encrypted in each processing link and cannot be used for any purpose other than anti-fraud, nor will it disclose personal privacy. moreover, according to article 17, paragraph 1 of the credit information use and protection act, when outsourcing personal credit information for processing, the consent of the data subject is not required.

but this explanation obviously cannot dispel everyone's doubts, because the second largest shareholder of kakao pay is alipay singapore holdings, which holds 32.06% of kakao pay's shares. kakao pay is also a long-term partner of alipay's global mobile payment service alipay+, supporting overseas transactions of domestic korean customers and korean transactions of foreign customers. in response, kakao pay claimed that the decision to use the alipay system was made based on apple's advice and had nothing to do with shareholders.

the case is still under investigation by the fss, and kakao may face penalties or even criminal prosecution. after the news broke, kakao pay's stock price plummeted 5.61% that day to close at 23,550 won (17.19 u.s. dollars).

originally, this case was a technical issue "within the circle" and was not worth making a fuss about. in addition, the founder of kakao is currently under judicial investigation for possible stock price manipulation and collusion in transactions during the acquisition of sm entertainment. the company has also been hit by scandals such as poor management and collusion between middle and senior management to acquire shell companies at high prices. this personal information transfer incident, which has not yet been fully characterized, can only await the progress of the investigation.

however, some korean media insisted on reporting it as a "personal information leak", and some people saw the chinese background of alipay and did not want to make a big deal out of it.

the south korean civic group "free korea defense group" filed a collective complaint against kakao pay, ceo shin won-geun and former ceo yoo young-jun, accusing kakao pay of violating the credit information act. the group filed a complaint with the seoul central district prosecutor's office on august 16. after a lot of trouble, the case was transferred to the seoul suseo police station. on september 9, the south korean police summoned the representative of the "defense group" wu xiangzhong to the police station as a witness to testify.

the free korea defense group said in its report and press conference that “if it weren’t for the financial supervisory service’s investigation, the personal information of south korean citizens would continue to be provided to foreign countries without protection.” the group’s representative lawyer do tae-woo said that “china’s control over commercial companies is too deep and cannot be compared with our free system in south korea.” their political intentions are obvious.

"free korea" is a term used in south korea for psychological warfare against north korea. it has a strong specific purpose. most of the people who use this term are far-right politicians and groups. the "free korea defense group" is no exception. their own propaganda "achievements" include:

rallies calling for the arrest of the leadership of the korean confederation of trade unions (ppp) in 2019, 11;

rallies calling for the removal of moon jae-in, 6;

3 press conferences in support of the hong kong amendment bill movement;

organized rallies condemning kim yong chol’s visit to south korea;

a press conference was held to call for the arrest of kim ki-sik and kim kyung-soo and to submit a petition;

held a rally in support of thaad deployment in seongju;

a rally was held in support of opposing the phase-out of the cheonwon nuclear power plant.

although this group has a very clear political color, due to the democratic system, the south korean government has to be led by them.

the personal information commission of south korea said that based on the results of the investigation by the financial supervisory service of south korea and the reports of citizen groups, it asked kakao and other companies to submit data and launched an independent investigation. chairman ko hak-su said, "it is not yet certain whether there will be any specific legal issues, and there are currently no plans to investigate other payment service companies such as naver pay and toss."

that being said, based on the current situation, even korean local companies cannot escape the crime of "collusion with china". chinese online shopping mall companies aliexpress and temu (the overseas version of pinduoduo), which are developing rapidly in south korea, may have entered the crosshairs of korean regulatory authorities.

on november 3, 2021, not too far from now, kakao pay went public for the first time, with an issue price of 90,000 won per share (about 76.97 us dollars at the time). calculated at the issue price, kakao pay's market value was about 9.9 billion us dollars. the stock price rose 114% on the first day, and the company's market value reached 21.2 billion us dollars. founder kim bum-soo surpassed samsung's head lee jae-yong and became the new richest man in south korea, becoming the "new chaebol" that koreans dare not even dream of.

the prospectus at the time mentioned that as of july 2021, kakao pay had 36.6 million registered users, nearly 20 million monthly active users, and annual active users increased from 15.1 million in 2018 to 26.7 million in 2020. it should be noted that at the end of july 2021, the total population of south korea was only 51.67 million, and the economically active population (generally including employed and unemployed people over the age of 15 with the ability and intention to work) was 28.56 million. in other words, kakao pay basically ate up the entire korean market.

going back further, kakao pay was founded in september 2014. in february 2017, alipay announced its investment in kakao pay, a mobile financial subsidiary of kakao (ant group holds a 45% stake); at the same time, kakao pay was separated from kakao group. in the process of development, kakao has integrated payment, life insurance, banking, loans, chat tools and other functions, and has successfully promoted the chinese-style qr code payment scenario in south korea. it can be said to be a super software of wechat + alipay + yu'ebao + huabei + jiebei.

however, regulatory risks have always been around. kakao pay's listing was postponed twice, and the antitrust "tightening curse" has become tighter and tighter as kakao develops. in addition, kim bum-soo is deeply involved in the shrouded sm acquisition case, and the entire kakao is now in a "crisis mode" with constant changes in the top management. if kim is convicted, due to regulatory restrictions, kakao will have to sell its 27.16% stake in kakao bank, which is equivalent to handing over the cash cow of the bank license. its challenge is much more severe than naver.

conclusion

for chinese companies, going to south korea was originally a relatively safe option. except for industries such as medical and beauty services that are subject to special supervision, large-scale retail and chain stores have always been relatively regulated markets.

there are complex conflicts of interest behind the south korean regulatory authorities' heavy-handed crackdown on the two internet giants.

as the saying goes, "a man is innocent unless he is in possession of a treasure." if japanese companies had not coveted it, naver might not have been trapped both internally and externally; even without the participation of chinese companies, kakao might still not escape the fate of being divided up by various parties.

chinese companies have invested huge amounts of money and resources in this, and should make early arrangements and safeguard their own interests in an appropriate manner.

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