The Korea International Trade Association announced on September 11 that South Korea’s exports to China totaled US$76.25 billion in July this year, up 11.5% from a year ago. Although auto parts exports fell 40.9% year on year, memory chip exports jumped by 72.5% to US$13.94 billion. Memory chips are the item that takes up the largest portion of South Korea’s exports to China.
This is why some experts pointed out in April this year, when China’s economic retaliation in the wake of THAAD deployment in South Korea was at its peak, that South Korea needs to make use of semiconductor as its strategic weapon. In the third quarter of last year, Samsung Electronics and SK Hynix accounted for 87.3% of the global mobile DRAM market in terms of sales. In addition, integrated circuit products currently represent 15% of China’s total imports from South Korea. “With Chinese semiconductor manufacturers still having a long way to go, Chinese IT companies such as Huawei, Oppo and Vivo can be negatively affected if South Korea regulates its semiconductor export to China,” said Jung Chang-won, head of the research center of Nomura Securities.
In July 2016, after the THAAD deployment, Xiaomi CEO Lei Jun visited South Korea for the first time and met with Jeon Young-hyeon, President of the Device Solutions (DS) Division of Samsung Electronics. According to industry sources, the purpose of the visit was for Xiaomi to launch a partnership with Samsung Electronics in order to expand its business in the high-end smartphone market.
In the meantime, individual device semiconductor exports from South Korea to China showed a year-on-year increase of 33.2% in July this year. Likewise, paraxylene, precision chemical product and electronics process exports grew 22.5%, 8% and 7.5%. This means South Korean intermediate goods more competitive than those of China are still doing well in the Chinese market in spite of the economic retaliation.
South Korean pharmaceutical company BINEX set up joint ventures with Tsinghua Tongfang Group and its subsidiary Dragonfarm in May and July this year, respectively. Binex attracted an investment of 210 billion won from Tsinghua Holdings in 2016, too. Tsinghua Holdings, which is a company invested by Tsinghua University, is directly and indirectly controlled by the Chinese government, which has driven Lotte Mart and Hyundai Motor Company into a corner.
Experts advise that South Korean companies need to make themselves competitive to the point of being incomparable and do not have to rely on the government’s diplomatic efforts in dealing with the retaliation. “South Korean companies doing business in China can take a leaf from the book of their Japanese counterparts, which focused more on quality and competitiveness than on simple market penetration after the Senkaku Islands dispute or Diaoyu Islands dispute in 2012,” one of them commented.