South Korea’s supply chain reliance on China leaves it more exposed than the US, Japan: report

Some 29.3 per cent of South Korea’s material parts imports came from China in 2020, higher than Japan and the United States, a new report says
South Korea’s import reliance is most pressing in four areas: semiconductors, large-capacity batteries, rare earth metals and medical supplies

South Korea

Erika Na

Published: 4:30am, 13 Jan 2022

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South Korea has a higher dependency on China for semi-finished goods and material parts than Japan and the United States, and Seoul must take action to mitigate associated risks, a new report said on Wednesday.

Some 29.3 per cent of South Korea’s material parts imports came from China in 2020, whereas the rate for Japan and the US was 28.9 per cent and 12.9 per cent respectively, said the Federation of Korean Industries (FKI), which represents South Korea’s major conglomerates and associated members.

South Korea’s import reliance is most pressing in four industries crucial to the 21st century, namely the production of semiconductors, large-capacity batteries, rare earth metals and medical supplies.

Its dependence on China in these four industries exceeded both other countries, but the risk was strongest for large-capacity batteries, because South Korea imported 93.3 per cent of its supply from the mainland in 2020, compared to Japan’s 66.1 per cent and 43.4 per cent in the US.

Nowadays, global supply chain issues have transcended from being just economic matters and are combined with the country’s security agenda

Kim Bong-man

The Biden administration last year said it was taking steps to diversify supply of these critical components, which are crucial to tech and defence, and the FKI urged the South Korean government to do the same.

“Nowadays, global supply chain issues have transcended from being just economic matters and are combined with the country’s security agenda,” said Kim Bong-man, the head of FKI’s international cooperation department.

“As a result, major countries such as the US and EU are making efforts to expand their domestic production facilities for key items.

“South Korea should also make policy and institutional efforts to reduce dependence on specific countries such as China and expand domestic production.”

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South Korea’s dependence on Chinese imports rose last year at the fastest pace since 2017, according to the report, titled “The current state of affairs of South Korea, US and Japan’s import reliance on China and future tasks”.

“South Korea’s dependence on China for imports has increased by 3.8 per cent in 2021 since 2017, which is the year before the US-China trade war took place,” the report said. “In contrast, Japan’s dependence on Chinese imports only increased by 0.1 per cent in the same period. For the US, the rate decreased by 4.2 per cent.”

The FKI analysed data from the International Monetary Fund, the World Bank and the Korea International Trade Association published between 2017 and 2021 to come to their conclusions.

They found that in terms of intermediate goods, South Korea’s reliance on Chinese imports in 2019 was significantly heavier than that of Japan and the US, and well above the international average of 10.4 per cent.

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“The reason why South Korea and Japan relies heavily on China for importing intermediate goods and material parts is because South Korea-China-Japan are connected as an economic bloc based on their intermediate goods trade,” the FKI said.

The reliance on China for batteries could partly be explained by growing domestic sales of electric vehicles, despite the fact that South Korea is capable of producing its own large-capacity batteries, the federation said.

The report recommended that the South Korean government enhance the country’s global supply chain by strengthening policy support for key industries, such as semiconductors and batteries, and prepare for raw material procurement risks.