'US reshapes global supply chains bypassing China... South Korea's battery and pharmaceutical sectors on high alert'

'Presidential Advisory Council on National Economy' Research Report
High Dependence on China for Secondary Battery Materials, Raw Pharmaceutical Ingredients, etc... Urgent Need for Measures Such as Expanding Alternative Import Countries
US and Europe Lead Semiconductor Market as Technology Powers... Minimal Chinese Influence, Limited Impact Even if Excluded from Supply Chain

[Sejong=Asia Economy Reporter Kwon Haeyoung] As the United States accelerates its global value chain (GVC) restructuring centered on "decoupling" from China, a study has revealed that sectors highly dependent on raw materials from China, such as batteries and pharmaceuticals, may face difficult situations. Earlier, U.S. President Joe Biden convened an emergency supply chain meeting with 15 allied countries for the first time since his inauguration at the G20 summit. For South Korea, which has a high trade dependence on China, weighing the pros and cons has become inevitable. However, it is also predicted that South Korea will face almost no impact in the semiconductor industry, which is led by the U.S. and Europe.

◆ Secondary Batteries, Concerns over China's Weaponization of Materials and Raw Materials ＝ According to a report titled "Impact Analysis and Countermeasures for Supply Chain Stability in the Era of U.S.-China Strategic Competition," commissioned by the Presidential Advisory Council on National Economy to the Korea Economic Research Institute on the 2nd, intensified U.S.-China conflicts over supply chains could significantly impact the battery and pharmaceutical markets.

South Korea's share of the global electric vehicle battery market was 36.5% as of 2020. Based on strong battery manufacturing competitiveness, it is expected to become the market leader in the growing U.S. domestic market around 2023. The problem lies in the high dependence on China for four major raw materials and components essential for battery manufacturing: lithium hydroxide, cobalt oxide, nickel sulfate, and manganese sulfate. China possesses these as natural resources and is showing signs of "resource weaponization." It has established a virtuous cycle structure of "stable market → securing profits → capacity for technology investment → improvement in technology level." In contrast, the U.S. has limited battery raw material reserves and low capacity for raw material processing and refining.

The report stated, "To maintain the competitive advantage of our companies in the battery market, the domestic production ratio of materials and raw materials must be increased," adding, "The U.S. could become a strong competitor if it secures its own supply capacity in the future, so continuous government attention and investment, as well as bold corporate investment in next-generation battery development, are necessary."

◆ Raw Material Pharmaceutical Self-Sufficiency Rate at 16%... Need to Increase India's Share ＝ The report also raised the necessity to increase the self-sufficiency rate of raw material pharmaceuticals and diversify supply chains. Raw material pharmaceuticals are key components for producing finished pharmaceuticals, and instability in their supply can greatly affect pharmaceutical availability.

South Korea's self-sufficiency rate for raw material pharmaceuticals stood at only 16.23% as of 2019. Considering that the self-sufficiency rate for finished pharmaceuticals reaches 74.1%, this is an excessively low level. The production scale of raw material pharmaceuticals was 2.47 trillion KRW, a 3.6% decrease compared to the previous year.

Excessive dependence on China is also identified as a problem for raw material pharmaceuticals. China's share is 36.73%, far exceeding Japan's 12.95% and India's 10.19%. Accordingly, the report proposed prioritizing India, which hosts 19% of global raw material pharmaceutical production facilities, as an alternative import country to China; promoting domestic production of items used in essential national medicines; expediting approval processes for domestic raw material pharmaceuticals; and establishing incentives for using domestically produced raw materials. It also included opinions that the domestic industry should be upgraded by seizing opportunities arising from excluding China in contract manufacturing of biopharmaceuticals.

◆ Semiconductors Likely Unaffected ＝ In the semiconductor market, the U.S., Europe, and Japan dominate the equipment and materials sectors, so excluding China from production is expected to have little impact.

Looking at the rankings of semiconductor equipment companies, U.S.-based Applied Materials ranked first in 2020 with sales of 16.365 trillion KRW and a market share of 17.7%. Following are the Netherlands' ASML (16.7%), U.S.'s Lam Research (12.9%), Japan's Tokyo Electron (12.3%), and U.S.'s KLA (5.9%), with the top five companies accounting for two-thirds of the market. In the semiconductor manufacturing materials sector, Japan holds 24% of the total market, while the U.S. and South Korea hold 19% and 7%, respectively. China's share is around 1%.

The report analyzed, "China's influence in the semiconductor industry supply chain is minimal, so the possibility of shocks caused by China in the global semiconductor market will not be significant for a considerable period," adding, "China's low share in semiconductor manufacturing equipment and materials means that Chinese semiconductor companies could suffer the greatest losses in the event of supply chain shocks." It further suggested that by leveraging the U.S. semiconductor production facility reshoring policy to reduce local production costs and strengthening technological cooperation with the U.S., which possesses overwhelming core technologies, South Korea could secure a competitive advantage over Taiwan and Japan.

This content was produced with the assistance of AI translation services.