The head of the world's sixth largest automaker on Thursday escaped a jail sentence for creating a multimillion dollar slush fund, after an appeal court ruled that his imprisonment would badly damage South Korea's economy.

The Seoul High Court quashed a three-year prison sentence on Hyundai Automotive Group chairman Chung Mong-Koo and replaced it with a suspended sentence.

It ordered him to undertake community service -- including delivering speeches and writing articles on the need for ethics in business -- and to make good on his pledge to donate one billion dollars to charity.

"The court has been agonising over whether to put the accused in jail or keep him out of prison," said chief judge Lee Jae-Hong.

"But in consideration of the huge economic impact that could result from imprisonment, it decided to suspend the sentence."

Chung, 69, had been sentenced to jail in February for breach of trust and embezzling 90 billion won (97 million dollars) in company funds through fraudulent accounting. He had been on bail pending appeal.

Auto business leaders and Hyundai hailed the decision but activists campaigning to clean up the country's corporate culture expressed dismay.

The group, which includes affiliate Kia Motors, controls 70 percent of the country's auto market and accounts for 5.4 percent of gross domestic product.

Prosecutors accused the Chung family of raising the slush fund to bribe government officials, politicians and bankers in return for business favours. They had urged the appeal court to double the original jail term.