China should learn from Japan-S.Korea trade dispute

By Lv Benfu Source:Global Times Published: 2019/8/7 17:53:40


Illustration: Luo Xuan/GT

Since the beginning of July, with Japan imposing trade restrictions on products from South Korea, Seoul has used up almost every resort - complaints filed to the WTO, US mediation, Japanese product boycotts. However, the effect has been limited. 

It is difficult to draw a hasty judgment on the struggle between the two countries. One theory that may be helpful to interpret the current situation is from Sun Tzu in The Art of War: The weaker party will be captured by its stronger opponent if it confronts it recklessly. War is a science; practical measurement of yourself and your situation is necessary. The party with weaker forces that aims for face-to-face conflict will invite failure.

Japan restricted exports on July 1 of three chemicals to South Korea: fluorinated polyimide, photoresists and hydrogen fluoride. South Korea imported a total of $144.1 million worth of these chemicals in the first five months of this year. This may seem like a relatively small amount, but semiconductor production has to be interrupted without these materials. The semiconductor industry is South Korea's pillar industry. The country's economic growth rate was only 2.7 percent in 2018. Without the gains from exporting semiconductors, the economic growth rate may be cut by half. Japanese companies may be able to bear losing this business, but South Korea cannot endure the suffering.

In the last 20 years, South Korea has made significant developments in the semiconductor industry and has been successful. As Japan's Toshiba retreated from the consumption business and the manufacturing of semiconductors, companies in South Korea grabbed the lion's share of the memory industry. Companies such as Samsung and SK Hynix have risen in the industry, which has created the image that they control the core technology of the upper-level production chain. However, South Korea is only in the periphery of the semiconductor industry, and has put too much emphasis on semiconductors and screens. This has made the economic development of South Korea malformed.

In fact, production procedures for the semiconductor industry include design, manufacturing and testing. Equipment and materials are crucial for the last two stages. They are the cornerstone to keep the semiconductors smoothly rolling off the assembly line. Japan's hardcore ability lies in the raw materials and hardware equipment in the upper stream. The Japanese materials, especially, are irreplaceable. 

When the US and South Korea together squeezed Japan, the latter was forced to transform and upgrade its industry, moving to the upper level of the production chain. 

To avoid technology barriers, every country wants to climb up the chain. However, challenges such as whether their technology is competitive enough always hold them back. Japan developed its craftsmanship in the upper stream when it was pressured by the US and South Korea. 

What can China learn from this situation? China is a huge country that can adopt the development strategies of both Japan and South Korea. China can march to the upper stream of the industrial chain and include lower-stream consumption and semiconductor manufacturing. Ren Zhengfei, CEO of Chinese telecom company Huawei, has said that his company will not only purchase from one supplier. His corporate strategy can be used as a reference. 

The author is a professor at the University of the Chinese Academy of Sciences.

Posted in: INSIDER'S EYE

blog comments powered by Disqus