Government's Investment of KRW5.8tn Bears Little Fruit

South Korea’s localization efforts in the material, component and equipment (MCE) industries have made little progress.

People Power Party lawmaker Kwon Myung-ho said on Oct. 5 that South Korea’s annual imports from Japan of 100 items in the material, component and equipment (MCE) industries increased from US$11.3 billion to US$13.4 billion from 2019 to 2021.

Specifically, semiconductor-related imports increased 58.9 percent to US$5.421 billion. Machinery and metal imports increased from US$2.11 billion to US$2.254 billion. Electrical and electronics imports increased from US$1.921 billion to US$2.1 billion and those of basic chemical items increased from US$291 million to US$318 million.

Imports of the same items from China and Taiwan increased a lot, too. The annual imports increased from US$8.7 billion to US$13.5 billion from 2019 to 2021. In addition, the imports from China and Taiwan exceeded those from Japan last year.

In 2019, the Japanese government implemented export restrictions against South Korea in the semiconductor and display sectors. Then, the South Korean government designated 100 MCE items for import diversification and dependence reduction. The number was increased to 338 in 2020.

The government spent a budget of 5.8 trillion won to that end. Specifically, the budget investment was 1.1 trillion won in 2019, 2.1 trillion won in 2020 and 2.6 trillion won in 2021. This year’s budget to that end is approximately 2.5 trillion won.

It is pointed out that Korea's MCE industries are going backwards despite the huge budget spending. Although the government is promoting that South Korea’s reliance on the 100 items from Japan fell from 30.9 percent to 24.9 percent from 2019 to 2021, its reliance on those from China and Taiwan increased from 23.5 percent to over 25 percent in that period.

This is particularly conspicuous in the automotive sector. In this industry, South Korea’s annual imports from Japan fell from US$1.128 billion to US$821 million while those from China and Taiwan jumped from US$1.423 billion to US$2.416 billion and from US$1.4 billion to US$3.034 billion, respectively.

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