By Mary Hennock BBC News Online business reporter

President Roh promised to stamp out corruption

Drive, fly, take a train, use air conditioning, or make a phone call - in Korea, you are likely to be using chaebol products.

Hyundai Motor makes 70% of the cars on South Korea's roads; SK Group imports oil, builds highways and runs a phone network; LG's output ranges from fridges to PC screens.

Korea's most iconic label is Samsung, whose slick designs have lifted it to third place among global mobile phone makers.

Not bad for a firm that began by exporting black-and-white TVs to Panama in 1969.

Scandal and panic

But new president Roh Moo-hyun has waded into a fight with the chaebols.

Korean firms mix top design and heavy industry

South Korea got its very own Enron scandal after investigators found a $1.2bn hole in the accounts of an SK Group firm.

Ten top executives face fraudulent accounting charges, but unlike Enron, SK Group is not thought likely to go bust.

Similar scams might emerge as the country's Fair Trade Commission (FTC) scours the books of six top firms, including Samsung, LG and chunks of Hyundai.

"Total crisis" was how the JoongAng Daily newspaper described the situation. Conservative newspapers and some foreign banks have warned that wounding the chaebols could hurt the economy.

Tensions with North Korea - and worries whether the country has nuclear weapons - are heightening the mood of meltdown.

Backing off?

As the main Kospi stock index sank to a 17-month low, the country's top brass bent over backwards to quell the panic.

Risk of collision with N Korea adds to Mr Roh's problems

The FTC has promised to take its investigations slowly and the finance minister said SK Group was "not a common problem".

However, they were contradicted by the president's insistence on rooting out fraud.

"People are not sure whether the new president can handle so many difficult issues right now," said Oh Suh-tae, an economist at Citibank in Seoul.

President Roh's battle with the chaebols could prove crucial to boosting his party's chances of winning a parliamentary majority in 2004.

Roh Moo-hyun Former human rights lawyer Imprisoned for political activism At 56, considered young to be leader Click here for a profile of President Roh

If the president gets it wrong, he risks shouldering the blame for slack economic growth.

Korea's economy grew by a frisky 6% last year, double its 2001 performance, but is slowing down again.

Equally, Mr Roh risks disappointing grassroots civic reformers who campaigned for him.

"What is for sure is SK is not an isolated case," says Professor Jang Hasung of Korea University. "I take it as an example of the whole chaebol system."

Widespread problem?

So what is the charge against the chaebols?

Critics say the chaebols are like a mouth full of rotten teeth. Each has only a few effective cash grinders and might be better off without the rest.

By a historical accident of Korean company law, the chaebols evolved as a web of sister firms with interlocking shareholdings, instead of units owned by a single holding company.

This opaque structure has given rise to a number of problems.

Firstly, the founding families' influence remains huge, often regardless of whether their offspring are sufficiently talented or qualified to run such big companies.

"Families are still trying to control groups as though they were 100% shareholders," says Hank Morris, a director of consultancy firm Industrial Research Consulting and a 20-year veteran of Korea's stock markets.

'Bragging rights'

More worryingly, the chaebol structure has made it easy for firms to systematically overstate their revenue and assets.

SK Group covers telecoms to energy imports

"They've not been focused on making profits, but on the bragging rights on who's got the biggest assets," says James Rooney, Vice-Chairman of Deloitte Consulting in Seoul.

Korean stock market-listed firms are ranked by assets; the chaebols' cross-shareholdings mean that group assets can often get counted twice.

Sales can get similar treatment. What happens, says Mr Rooney, is that goods are sold on to other firms in the group, booking revenue each time, rather than just once when the finished product is sold.

Shrinking role

Many international investors would prefer to ride out stock market shocks than see the FTC drop its probe.

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"If you're telling investors there may be some problems... but you're not going to look into it right now, yeah, it could be a problem for investors," says Mr Morris.

Coming down hard on the chaebols would not break the Korean economy's backbone, adds Mr Rooney.

Korea's top 30 chaebols provide only 4% of jobs and make up 12% of economic growth, according to Bank of Korea figures.

Yet they have about 50% of stock market assets, and 50% of liabilities - proof, says Mr Rooney, that they are hogging funds undeservedly.

Finishing the job

Few would dispute there is legacy of corruption due to corporate ties to the state during three decades of military rule that ended in 1993.

Since then, dramatic trials have exposed huge slush funds. Even one of the sons of President Roh's reforming predecessor went to jail.

It is too soon to tell how President Roh's own contest with the chaebols will end - much depends on feel-good factors influenced by Washington and Pyongyang.

In principle, the chaebols have agreed to proposals such as stronger laws to protect shareholders.

The fact that scandals have focused on the finer points of accounting law is a sign of consensus about the need for transparency to protect Korea's economic miracle.