Deregulation needed to boost IT industry

By Kim Yoo-chul

The government needs to ease regulations and replace them with more supportive policies in the IT sector in order for Korean players to compete with their rapidly growing Chinese rivals on the back of support from the Chinese government.

Currently, the market for messaging applications, e-commerce and Internet ventures are bustling. Line, a messaging app developed by Naver Japan, is making bullish moves with the expectation that its initial public offering (IPO), which may happen sometime this year, will reach 35 trillion won.

As Korean industries have so far developed through big investments in manufacturing, in which output commitment, better pricing and on-time delivery are essential, investors and officials are very impressed by the sharp rise of Line.

“Line is becoming a platform, not just as a free messaging app, meaning that the Korean government should be more supportive in order for the industry to generate second and third Lines. China is backing up businesses such as Alibaba and Tencent by easing regulations,” said a senior fund manager from a U.S.-based investment bank in Seoul, who only wished to be identified as Peter, by telephone.

Peter said the bank is buying more Naver stocks from the nation’s main bourse; however, it remains very concerned about Seoul’s regulatory issues.

“China is attracting investors’ interest due to its shift toward a consumer-driven economy. Chinese politicians are turning their powers toward spurring the economy rather than being focused on tight and rigid controls such as censorship of Internet content. The Korean government needs to think about why China sees the sudden rise of Internet firms globally,” he said, adding that Korea is being threatened by Chinese IT firms.

An official at the Ministry of Science, ICT and Future Planning said the ministry is impressed by the success of Line, which has secured 390 million users in more than 120 countries, and that the ministry is preparing sets of measures to help local Internet firms expand their global territories.

“We will be more supportive. Easing regulations is one possible option, if needed. As the government pushes ahead with the ‘creative economy,’ we will find out in what things we can substantially help,” said the official at the ministry.

In a statement to The Korea Times, Naver said the landscape of the global IT industry is seeing a new paradigm because of the structured rise of Chinese IT firms, which are threatening Korean IT firms.

“Backed by the Chinese government, Chinese companies are expanding their stakes globally, regardless of businesses and regions,” the statement said. Tencent, for example, has WeChat as its main cash cow.

Founded in 1998 and based in Shenzhen, China, Tencent is now traded on the Hong Kong Stock Exchange and in the United States in the over-the-counter market.

The conglomerate’s market capitalization of over $110 billion makes it larger than Yahoo, LinkedIn and Twitter combined.

“Tencent recently acquired a 14 percent stake in Kakao and is also launching a joint campaign with Google to acquire more customers. Second and third Lines will be possible under organized help from the government,” Naver said.

Meanwhile, Chinese e-commerce giant Alibaba plans to proceed with an IPO on a U.S. stock exchange, hoping to raise up to $15 billion in the biggest IPO since Facebook’s.

Alibaba is one of the world’s biggest Internet companies, with more than $150 billion worth of merchandise transactions each year, higher than that of Amazon and eBay combined.

Alibaba is one of a number of Chinese Internet heavyweights planning to cash in with IPOs amid their rapid growth.

The announcement comes two days after Chinese Internet company Sina Corp.’s Weibo microblog unit filed plans for a possible share sale in the U.S. Weibo, China's equivalent of Twitter, aiming to raise $500 million, according to news reports.

“The government needs to closely monitor what’s happening in those major Chinese Internet companies and to understand the implications,” according to the Naver statement.