See More on Facebook

Analysis, Economics

Why is Korea so dependent on Japanese materials?

Korea’s neglect in basic technologies leaves major industries vulnerable.


Written by

Updated: July 12, 2019

The aggravating trade dispute with Japan reveals some hard truths about South Korea’s lack of basic technologies despite being dubbed as a tech powerhouse, not to mention the dire need to diversify its supply channels to reduce its heavy dependence on the neighboring nation.

On July 1, the Japanese government tightened the export process to Korea of three classes of hi-tech materials crucial to the production of chips and display panels and removing it from the white list. The materials include fluorinated polyimide, photoresist and hydrogen fluoride, which are dominated by Japanese companies globally.

Fluorinated polyimide is used to make flexible organic light-emitting diode displays. Photoresist is a thin layer applied to transfer a circuit pattern to a semiconductor substrate. Hydrogen fluoride, or etching gas, is needed in the semiconductor fabrication process.

As for hydrogen fluoride, Samsung Electronics and SK hynix rely on two Japanese companies, Stella Chemifa and Morita Chemical, for most of their supplies. Hence, the restrictions may disrupt the operation of their chip plants.

The reliance on the three materials shows a side of unbalanced trade relations between the two countries. Since Korea normalized diplomatic ties with Japan in 1965, it has never seen a trade surplus with the country over the last 54 years. Its accumulated trade deficit stood at a combined $604.6 billion as of 2018, according to the Korea International Trade Association.

“The three materials are just a small card Japan has presented,” said Park Hee-Jae, a professor at Seoul National University’s engineering college.

There are so many parts and materials in the manufacturing sector that Japan has a dominant market share and Korea needs to rely on, Park said.

For example, Japan has nearly 100 percent market share in cellulose triacetate film, a chemical compound used for liquid-crystal displays. The nation also has around 80 percent share in other materials, including cathode material and anode material for lithium-ion batteries, capacitors for secondary batteries, compound semiconductors and semiconductors packaging material.

Lee Ji-pyung, a researcher at the LG Economic Research Institute, said Japan was able to become competitive in the materials by “spending a lot of time and money” to develop basic technologies to overcome its position of being a resource-poor island country.

He cited carbon fiber that Japan now dominates as one example.

Carbon fiber requires high technology. It is one-fourth the weight of steel but 10 times stronger. It is used as a key ingredient in fiber-reinforced plastics and other composites. Japan began the development of carbon fibers in the 1960s.

“As a fast-follower, South Korea has been busy catching up in various technologies, thereby neglecting original technologies,” said Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics & Trade.

This means every time Korean firms sell smartphones, televisions, displays and chips in the global market, many of the benefits go to Japan, Lee said.

Poor basic science has often been blamed for Korea’s failure to produce a Nobel laureate in science, even as Japan has produced 23.

Another reason for the dependence is that when Korean firms began developing chip and display technologies decades ago, they used essential parts, materials and equipment from Japan, which was the No. 1 in the global chip market in the 1990s and in the display market in the 2000s, according to Kim Dong-hwan, a visiting professor at Kyunghee University.

Since the first use, the Korean firms have made little changes to the supply channels of parts and materials to make the process stable. They also did not find it necessary to change because the material costs accounted for only a small fraction of the total production costs. “This has delayed the diversification of supply channels and localization,” Kim said.

On Wednesday, President Moon Jae-in arranged a meeting with business leaders to discuss ways to handle the emergency situation. It was attended by the heads of 30 large companies, including Samsung, Hyundai Motor, SK, LG and Lotte.

Moon said the government would actively support the diversification of import channels and domestic production of core industrial materials.

He also vowed administrative support for minimal customs procedures and the allocation of more funds to help firms accelerate technological development.

During the closed-door session, a businessman was quoted as suggesting Korea expand partnerships with Russia and Germany for the supply of chemical materials as a way to curtail reliance on Japan, according to Cheong Wa Dae spokesperson Ko Min-jung.

Although Ko said the comment referred to cooperation in general as the nations are strong academically and historically in chemical sectors, industry watchers anticipated future partnerships with companies in the nations.

Germany has been a strong chemical powerhouse with many key players, including Basf, Merck and Siemens. Merck recently acquired US chemical firm Versum Materials, which produces gas materials used for chip making.

As for Russia, its chemical firm Umatex recently developed carbon fibers, which are deemed as Japan’s next target. Although local firm Hyosung has developed the original technologies, Japanese firms Toray, Toho-Tenax and Mitsubishi Rayon dominate the market with around 70 percent share.



Enjoyed this story? Share it.


The Korea Herald
About the Author: The Korea Herald is the nation’s largest English-language daily and the country’s sole member of the Asia News Network.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Analysis, Economics

S. Korean biz groups in emergency mode

Japan has ban the export of high tech materials to South Korea. South Korea’s major business groups are shifting to emergency mode, setting detailed contingency plans for a variety of scenarios amid concerns that the restrictions on exports of key tech materials from Japan to Korea could stay in place for a long time, according to the industry on Monday. The leaders of the country’s five biggest conglomerates — Samsung Electronics, Hyundai Motor Group, SK Group, LG Group and Lotte Group — are tightening their reins on the groups’ operations, bracing for possible ripple effects on the global economy and business environment as a result of Japan’s decision. Samsung Electronics Vice Chairman Lee Jae-yong is spearheading an array of contingency plans. After coming back from a six-day trip to Tokyo last week, Lee convened a meeting with the top brass of the company’s semiconducto


By The Korea Herald
July 16, 2019

Analysis, Economics

Chinese economy grows at slowest rate in decades

Growth slumps to 27-year low in China, with talk of more aggressive stimulus measures. China’s economy grew 6.2 per cent in the second quarter of this year, its slowest rate in 27 years, as the country’s trade war with the United States exacted its toll. Analysts said they expect economic growth to continue to weaken for the rest of this year, which would likely prompt more aggressive stimulus measures from Beijing. Data released on Monday (July 15) by the National Bureau of Statistics (NBS) showed that gross domestic product growth in the second quarter had slowed from 6.4 per cent in the first quarter of this year, coming in largely within expectations. The economy grew by 6.3 per cent for the first half of the year, according to the NBS. The figure is still within the 6 to 6.5 per cent target that Beijing has set for full year GDP growth. Last year, Chin


By The Straits Times
July 16, 2019

Analysis, Economics

China assures foreign firms amid tensions

Beijing says investments continue despite trade war. The Ministry of Commerce said on Thursday that there is no massive withdrawal of foreign investment from China, and vowed that the country will firmly protect the legitimate rights and interests of foreign enterprises in the country. “We’ve noticed the concerns of some foreign enterprises, but based on our knowledge the country has not seen large-scale withdrawal of investment by foreign companies,” said ministry spokesman Gao Feng at a news briefing. His remark came amid media reports that said some foreign companies are considering moving out of China to avoid being adversely affected by the ongoing Sino-US trade conflict. “China will not suppress any foreign-funded enterprises and will not discriminate against any of them,” Gao said. “We will resolutely protect the legitimate rights and interests of all fo


By China Daily
July 15, 2019

Analysis, Economics

Japan sees decline in value-added trade surplus with Korea

Tokyo’s export curbs to negatively impact global economy due to correlated trade structure. Japan’s trade surplus in value-added goods and services (TiVA) with South Korea took a downturn during the 2005-2015 period, reflecting the diversifying structure of logistics and trade, statistics showed Sunday. In light of the interconnection of the global value chain, the country’s recent curbs on hi-tech exports to Korea are likely to affect not only the two countries but also the regional and global economy in general, Seoul’s government officials noted.\ According to the Organization of Economic Cooperation and Development, Japan logged $135.2 billion in aggregated TiVA from 2005 to 2015. Its total trade surplus during the same period stood at $303.2 billion. TiVA, in international trade is equivalent to operating profits of corporate business transactions, figuring out the value added by eac


By The Korea Herald
July 15, 2019

Analysis, Economics

The counter-terrorism challenge in West Asia

A action plan must be hatched and implemented in Pakistan and its surrounding countries. Pakistan has stepped up its anti-militant campaign, apparently to steer clear of being blacklisted by the Financial Action Task Force. Pakistan had already narrowly escaped that listing, with the support of China, Malaysia and Turkey, during the last FATF review meeting held in Orlando, Florida. Read: FATF compliance will require all-out effort Yet the country remains under immense pressure to take action against all militant groups that are proscribed by the UN Security Council. Pakistan has also been viewed as employing a selective approach towards different militant groups. The FATF meeting held in Paris last February had rejected Pakistan’s assessment based on a classification of militant groups into diff


By Dawn
July 15, 2019

Analysis, Economics

Hong Kong protests: Chaos speads to Sha Tin mall after rally ends

Protests continue, this time against Chinese vendors. Violent clashes between law enforcers and some protesters erupted yet again on Sunday (July 14) following a largely peaceful march hours earlier in the New Territories town of Sha Tin. About three hours after the rally ended at 5pm, police in riot gear began clearing the streets, setting off a game of cat and mouse with them and protesters trying to corner one another. Tensions peaked at about 9.30pm when officers armed with shields and batons entered New Town Plaza mall in Sha Tin and tried to disperse the crowd that was hiding there, resulting in chaos. Police officers were seen chasing after a protester, hitting him with batons and ripping his clothes off as they tried to pin him down before he managed to flee to safety with help from fellow protesters, who were trying to dodge pepper spray. Elsewhere in the mall, protesters surround


By The Straits Times
July 15, 2019