🚨 Ban on Discounted Sale of State Assets
Today Korean Economic News for Beginners | 2025.12.16
0️⃣ Government Tightens Asset Sale Rules, Slowing Privatization
📌 Stricter Review for Assets Over 5 Billion Won... Parliamentary Approval Required for Public Institution Share Sales
💬 The government has decided to completely ban "discounted sales" of state-owned assets below their appraised value. When selling shares in public institutions, parliamentary approval must be obtained in advance, and assets worth over 5 billion won must go through expert review committee decisions. This measure aims to prevent controversies over fire sales of state assets and hasty privatization. However, with more complex procedures and stronger political control, asset sales are expected to slow down significantly. Sales of high-value assets received through payment-in-kind, such as NXC shares (Nexon's holding company), will become even more difficult. Experts point out that "while transparency improvements are positive, excessive procedures could delay securing finances."
1️⃣ Easy Explanation
The way the government sells its assets is changing dramatically. From now on, selling cheap is not allowed, and selling requires going through many steps. Transparency will increase, but the process will inevitably slow down.
First, let me explain what state-owned assets are. State-owned assets refer to all assets owned by the government. This includes real estate (buildings, land), stocks, and securities like bonds. There are several reasons why the government holds such assets.
First, they're used for public purposes. Government buildings, schools, and hospitals are typical examples. Second, they're received as taxes. When someone can't pay inheritance tax in cash, they can pay with real estate or stocks instead, called "payment-in-kind." Third, the government holds shares from when public institutions were privatized.
The problem is how to manage these assets and when to sell them. The government can sell these assets when necessary to secure finances. However, there have been controversies about some assets being sold at fire-sale prices, below their true value.
For example, imagine the government received shares of Company A through payment-in-kind. Experts valued them at 10 billion won. But if they urgently sell them for 8 billion won because of poor market conditions, what happens? An asset created with taxpayer money loses 2 billion won. This has actually happened multiple times.
The most famous case is NXC shares, Nexon's holding company. The heirs of Nexon's founder paid inheritance tax with NXC shares instead of cash. The government acquired these shares, worth several trillion won. The government has tried to sell these shares several times but failed repeatedly due to difficult price negotiations and trouble finding buyers.
The core of the government's new measures consists of three main points:
First, selling below the appraised price is absolutely not allowed. The price set by professional appraisal agencies becomes the minimum standard. Even if market conditions are poor or cash is urgently needed, discounted sales are impossible. This is a measure to protect national assets.
Second, when selling assets worth over 5 billion won, approval from an expert review committee is required. This committee includes economic experts, legal experts, and civil society representatives. They examine whether the sale price is appropriate, the timing is right, and the method is fair. More than half must approve for the sale to proceed.
Third, when selling shares in public institutions, parliamentary approval must be obtained in advance. For example, if the government wants to sell its shares in Korea Electric Power Corporation or KT, it must first get permission from the National Assembly. This is a mechanism to prevent public institution privatization from being pushed through unilaterally without public consent.
Behind these measures lie past controversies. In the early 2000s, after the financial crisis, the government sold many public assets to secure finances. There were criticisms that some assets were sold at fire-sale prices. Especially when valuable assets sold to foreign capital later grew several times in value, citizens complained, "Why did we sell so cheaply?"
Similar controversies occurred recently. Allegations arose that some government-owned real estate and stocks were sold below market prices. Opposition parties and civic groups strongly protested, calling it "hasty privatization." As such criticism accumulated, the government decided to strengthen the system.
So what are the problems with these measures?
The biggest problem is that sales could slow down significantly. Getting appraisals, committee approvals, and parliamentary consent could take several months to over a year. Market conditions constantly change, so lengthy procedures could miss optimal selling opportunities.
For example, imagine the government wants to sell shares in Company B. The stock price is good now, and they could sell for 10 billion won. But 6 months pass while getting appraisals, reviews, and parliamentary consent. Meanwhile, market conditions worsen and the stock price drops to 8 billion won. Following procedures actually resulted in a 2 billion won loss.
Second, political interference could increase. When parliamentary approval is needed, political logic from ruling and opposition parties inevitably comes into play. The opposition might oppose sales to pressure the government, or the ruling party might push certain sales for political gain. When political judgment takes priority over economic judgment, inefficiency occurs.
Third, if sales become difficult, the government must continue holding assets. Holding assets also costs money. Real estate requires maintenance fees, and stocks have value fluctuation risks. Also, not getting the cash that could have been secured through asset sales can create difficulties in fiscal management.
Let's look at an actual case. For the NXC shares mentioned earlier, the government has tried to sell them multiple times since 2021. However, they kept falling through due to price issues, buyer issues, and procedural problems. With this system strengthening, future sales will become even more difficult. Determining the appraised value alone is complex, and getting reviews and parliamentary approval could take years.
On the other hand, there are positive aspects. Transparency greatly increases. Since all sales go through public procedures, suspicions of corruption or favoritism decrease. Citizens can also know which assets were sold for how much, enabling monitoring. Also, expert reviews can prevent fire sales.
How do other countries do it? Advanced countries also have strict procedures for selling state assets. The UK has an independent asset management agency that manages all state property under parliamentary oversight. France requires appraisals from at least three agencies when selling state property, using the highest price as the standard. Korea is also referencing such advanced country cases.
However, advanced countries also face problems with sales delayed by excessive regulations. Japan was criticized for delayed fiscal reform in the 1990s because public asset sales stagnated. Balancing procedures and efficiency is important.
What impact does this have on individuals? Direct impact isn't large, but there are indirect connections. If the government secures finances by selling assets, it can delay tax increases or increase welfare spending. Conversely, if sales are difficult and finances are insufficient, this could lead to tax increases or welfare cuts.
From an investor's perspective, you should watch for the possibility of government-owned stock sales. If the government releases large holdings of a stock to the market, the stock price could drop. Conversely, if sales are delayed, reduced supply could be positive for stock prices.
Ultimately, this measure is a double-edged sword. Protecting national assets and increasing transparency is important. However, if excessive regulations make sales impossible, fiscal management difficulties could arise. The government needs balanced operation considering both aspects.
2️⃣ Economic Terms
📕 State-Owned Assets
State-owned assets refer to all assets owned by the government, including real estate, stocks, and bonds.
- They're divided into administrative property used for public purposes and general property for profit purposes.
- The government can sell general property when necessary to secure finances.
- As of 2024, Korea's total state-owned assets amount to approximately 1,200 trillion won.
📕 Payment-in-Kind
Payment-in-kind is a system for paying taxes with real estate or stocks instead of cash.
- It's used when cash is insufficient for paying large taxes like inheritance or gift taxes.
- When a taxpayer applies, the National Tax Service evaluates the property value to decide whether to accept it.
- Property received through payment-in-kind becomes government assets for management or sale.
📕 Privatization
Privatization is selling businesses or assets held by the government or public institutions to the private sector.
- It's pursued to improve efficiency and secure finances.
- However, concerns about weakened public service, fee increases, and job losses exist.
- In Korea, POSCO, KT, and Korea Tobacco & Ginseng Corporation are representative privatization cases.
📕 Appraisal
Appraisal is when professional appraisers determine the economic value of real estate or assets.
- It's used for selling state assets, collateral loans, compensation calculations, etc.
- Multiple appraisal agencies are often commissioned to increase objectivity.
- Appraisal methods include the cost approach, comparison approach, and income approach.
3️⃣ Principles and Economic Outlook
✅ Transparency and Efficiency in Asset Sales
State asset management requires balancing two values: transparency and efficiency.
First, improving transparency increases public trust. State-owned assets are created with taxpayer money or received instead of taxes. Therefore, the process of managing and selling them must be transparent. Many past sales conducted non-publicly faced favoritism allegations. Getting appraisals from multiple agencies, going through expert reviews, and receiving parliamentary approval greatly increase transparency. Since all steps are public, citizens can monitor them, and corruption possibilities decrease.
Second, excessive procedures can reduce efficiency. Asset values constantly change according to market conditions. Stock prices change daily, and real estate values also vary with economic conditions. If procedures are complex and time-consuming, optimal selling opportunities can be missed. Also, if review committees and parliament oppose for political reasons, economically rational sales can be canceled. In some countries, excessive regulations have left asset sales stuck for decades.
Third, market confidence is affected. When the government manages assets transparently, foreign investor confidence increases. If Korea's state asset management receives advanced country ratings, it's also positive for national credit ratings. Conversely, if sale procedures are too complex, potential buyers might hesitate to participate. Foreign companies especially dislike complex procedures and political uncertainty.
To secure both transparency and efficiency simultaneously, clear standards and independent decision-making structures are needed.
✅ Fiscal Soundness and Asset Liquidation
While state asset sales are an important means of securing finances, long-term asset management is also necessary.
First, there's temptation for short-term fiscal securing. The government always needs money. Welfare spending increases, infrastructure investment is needed, and defense costs rise. If tax revenue is insufficient, it must issue government bonds or sell assets. Asset sales can secure cash without increasing debt. However, if urgently selling quality assets cheaply for short-term finances, it's a long-term loss. Selling profit-generating assets reduces future income.
Second, strategic asset value must be considered. Not all assets need to be sold. Some assets are advantageous for the government to continue holding. For example, stakes in core infrastructure industries should be held strategically. If industries like electricity, telecommunications, and transportation are completely privatized, public service can weaken. Conversely, low-profitability or non-strategic assets should be sold quickly. Assets that only cost maintenance without generating profit burden citizens.
Third, long-term operation through sovereign wealth funds is worth considering. A sovereign wealth fund can be created to professionally manage assets difficult to sell. Singapore's Temasek and Norway's sovereign wealth fund are good examples. They generate stable returns by long-term investing national assets. Korea could also get better results by operating payment-in-kind stocks or real estate through funds rather than selling urgently. Such plans are actually being reviewed within the government.
To balance fiscal securing and asset preservation, a long-term asset management strategy is needed.
✅ Political Intervention and Securing Independence
Reducing political intervention in state asset management and making independent decisions based on expertise is important.
First, parliamentary approval increases democratic legitimacy but also risks politicization. Since public asset sales are matters of public concern, parliamentary involvement is natural. However, if ruling and opposition parties support or oppose sales for political gain, economic rationality can be ignored. The opposition can unconditionally oppose to pressure the government, and the ruling party can delay necessary sales considering votes. Many past cases saw public asset sales canceled or delayed for political reasons.
Second, the independence of expert review committees is key. Review committees must operate truly professionally and independently. If influenced by government or politics, they become mere formalities. Committee member selection must be transparent, and experts from various fields must participate. Also, review processes and results must all be disclosed for public verification. In some countries, review committees are criticized for just rubber-stamping government decisions.
Third, clear standards and principles are needed. Clear standards about which assets to sell when and how are necessary. Objective standards comprehensively considering strategic value, profitability, and market conditions must be established. Without such standards, making decisions based on political judgment case by case lacks consistency and predictability. Most advanced countries have clear standards established by law.
Balancing political control and professional independence is key to successful asset management.
4️⃣ Conclusion
The government's ban on discounted sales of state assets is a positive direction for increasing transparency and fairness. Given past controversies over fire sales and favoritism, strict procedures are necessary reform.
However, excessive regulations can reduce efficiency. Going through appraisals, reviews, and parliamentary approval takes at least several months to over a year. Meanwhile, market conditions can change, potentially causing losses instead. Especially for assets with large price fluctuations like stocks, timing is important, but lengthy procedures could miss optimal selling opportunities.
Political intervention is also concerning. When parliamentary approval is needed, political logic from ruling and opposition parties inevitably operates. Economically rational sales can be canceled for political reasons. If review committees don't truly operate independently and professionally, they risk becoming mere formalities.
Actually, high-value payment-in-kind assets like NXC shares will become even harder to sell. With sales already failing multiple times, more complex procedures could make sales practically impossible within years. The government must continue holding such assets while bearing management costs.
However, it could be positive long-term. Once transparent procedures are established, public trust increases and foreign investor evaluations improve. Also, losses from fire sales can be prevented, protecting national assets.
Some experts suggest a sovereign wealth fund approach. Professionally managing hard-to-sell assets while pursuing long-term returns. Successful cases like Singapore and Norway exist. Korea should consider this approach.
Individual investors should watch for possible government-owned stock sales. For companies with large government stakes, whether sales occur can affect stock prices. Also, discussions about public institution privatization affect related company stock prices.
Ultimately, for these measures to succeed, three things are needed. First, clear and objective standards must be established. Second, independence and expertise of review committees must be secured. Third, political intervention must be minimized so economic logic takes priority. If these three function properly, both transparency and efficiency can be achieved.
Table of Contents