Over 1,000 Items with More Than 50% Dependence on China... Must Join the Global Supply Chain

China Investigates Korea's Supply Chain Vulnerabilities... Warning of 'Precision Strikes'
Second Urea Solution Crisis Possible
Among 228 Items Highly Dependent on US, China, Japan, Over 75% Are Chinese
Calls to Reduce China's Share and Diversify Supply Chains... Leveraging Semiconductors Suggested

[Asia Economy Sejong=Reporters Kwon Haeyoung and Moon Chaeseok] China’s “microscopic investigation” into South Korea’s supply chain status, especially items with high import dependence on China, is closely related to the recent US-led anti-China supply chain restructuring efforts. It is interpreted as a signal that China intends to precisely strike the “weakest link” in South Korea’s supply chain, which heavily depends on China, should cracks emerge in China-Korea relations due to closer Korea-US ties. While concerns arise that South Korea’s economy could suffer fatal damage such as production disruptions amid rapidly changing global security, politics, and supply chain restructuring, participation in US-led economic and security blocs like the Indo-Pacific Economic Framework (IPEF) is an inevitable step. China’s backlash is a risk that must be borne accordingly. From a mid- to long-term perspective, it is pointed out that South Korea has no choice but to pursue supply chain diversification through regional cooperation in the Indo-Pacific and continuously work to reduce dependence on China.

◆More than 1,000 items with over 50% import dependence on China＝According to the Korea Institute for Industrial Economics and Trade on the 5th, there are 1,088 items with a global trade deficit and over 50% import dependence on China. These include numerous items such as urea, lithium, silicon, magnesium, manganese, and tungsten oxide. Earlier, the Federation of Korean Industries also announced in its report “Status and Implications of Core Industrial Materials in the Korean Economy” that 228 core items have high import dependence on major trading partners?the US, China, and Japan?with 75.5% (172 items) of these being Chinese products. Among the core imported items from the US, China, and Japan, 133 items were identified as having vulnerable supply chain stability, and among these, the proportion of Chinese products was a staggering 95.4%.

South Korea’s semiconductor sector, where it holds strengths, is not exempt from concern. According to the recent report “Structural Changes and Implications of the Global Semiconductor Industry Supply Chain” by Hyundai Research Institute, the amount South Korea imported in semiconductor equipment increased more than twofold from $11.39 billion in 2019 to $26.59 billion last year. Since 2010, imports of semiconductor materials have hovered around $8 billion, while exports slightly increased from $4.1 billion to $6.4 billion during the same period. Notably, China ranks second among import countries for 18 semiconductor material items combined. Although supply chain diversification has improved compared to about half being imported from Japan 10 years ago (48.1% import dependence in 2010), China’s import dependence has nearly doubled, making optimism difficult. The share of Chinese semiconductor material imports rose from 12.7% in 2010 to 24.2% last year, an increase of 11.5 percentage points. If semiconductor equipment and material trade is restricted due to the US-China tech and trade war and worsening global supply shortages, semiconductor production could face significant disruptions.

◆Urgent need for supply chain diversification... leveraging semiconductors＝As China intensively investigates and analyzes vulnerabilities in South Korea’s supply chain, concerns are growing that if US-China confrontation intensifies and China-Korea relations deteriorate, a “second THAAD (Terminal High Altitude Area Defense)” or “second urea solution” incident could occur. The THAAD incident remains a deep trauma for South Korea, which is highly dependent on the Chinese economy. In 2017, China retaliated against the THAAD deployment by targeting Lotte Group, ultimately forcing Lotte to withdraw from the Chinese market. Last year’s urea solution supply crisis also demonstrated how vulnerable South Korea’s supply chain is and how China’s export restrictions can cause significant shocks to the Korean economy.

Experts point out that there is no alternative but to take a straightforward approach such as supply chain diversification. They emphasize the need to reduce excessively high dependence on China and strengthen efforts to diversify supply chains through cooperation with allies including the US and IPEF member countries. There are also voices advocating leveraging semiconductors as a lever. Although South Korea depends on China for some semiconductor materials, the global shortage of semiconductors and the fact that China imports half of its memory semiconductors from South Korea mean that South Korea is not in a completely one-sided disadvantage. However, amid closer Korea-US relations, advice has been raised to refrain from unnecessarily provoking China, such as remarks like “China needs alternative markets” (Choi Sangmok, Chief Economic Secretary to the President).

Cho Kyungyeop, head of economic research at the Korea Economic Research Institute, stated, “It is necessary to reduce excessively high dependence on China for raw materials and diversify supply chains through cooperation with countries sharing the same values within the economic security community of IPEF.” Professor Sung Taeyoon of Yonsei University’s Department of Economics said, “We should convey our support for free trade to China while strengthening cooperation between the two countries as major markets.”

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