hankyoreh

The South Korean military unloads urea water solution, used as diesel exhaust fluid, at a gas station in Incheon’s Jung District on Nov. 11. (Kim Tae-hyeong/The Hankyoreh)

South Korea’s supply chain structure is more vulnerable than those of the US or Japan when it comes to intermediate goods manufactured in China, according to a recent study.

The recent shortage of urea water solution, which resulted from developments in China, has focused attention on the reorganization of global supply chains not only for urea, but for the full range of industrial goods.

The Korea Institute for Industrial Economics and Trade (KIET) published a report on Thursday analyzing supply chain vulnerabilities in South Korean industry and their propagation pathways. Its findings listed 1,088 items — including urea, silicon, lithium and magnesium — as “sensitive” due to strategic vulnerabilities observed in South Korean imports from China as of 2020.

Together, they account for over one-fifth of the 5,300 total items that South Korea imports from China. The total includes 604 examples of intermediate goods. Both numbers were up substantially from the 965 total items and 488 intermediate goods counted in 2007.

When an item is seen as “sensitive,” this means that South Korea relies on Chinese imports for over 50% of supplies while maintaining a trade deficit.

Another 653 items — 366 of them intermediate goods — were classified as “vulnerable,” meaning a 70% or greater reliance on imports.

The 1,088 sensitive items accounted for 34.0% of all imports from China, with the 604 sensitive intermediate goods accounting for 25.1%.

In the US, 575 sensitive items represent 56.3% of all imports, while 185 intermediate goods make up 16.8% of imports — a lower rate than in South Korea. In Japan, 1,048 sensitive items account for 62.9% of all imports, with 475 intermediate goods representing 34.5%. This indicates a greater dependence on China in terms of intermediate goods when compared with the US.

In South Korea’s case, vulnerable items accounted for 22.8% of all imports from China, with intermediate goods representing 17.5%. This shows a higher level of reliance on China for imports of intermediate goods than either the US (43.6% vulnerable items, 10.3% intermediate goods) or Japan (37.7% and 13.8%).

To calculate the impact on South Korean industry from potential problems with supplies of vulnerable items from China, KIET used an industry atlas model to analyze industries related to lithium and magnesium.

“Industries with secondary linkages accounting for lithium and magnesium demand were found to include chemicals, rechargeable batteries and semiconductors,” it observed.

“In particular, industries with secondary linkages to magnesium had profound connections not only with similar industries such as steel and non-ferrous metals but also general machinery and transportation machinery,” it noted.

“These close ties between vulnerable supply chain items and South Korea’s mainstay industries raises concerns that secondary damages could occur in the event of a crisis,” it added.

The report’s author, KIET senior researcher Kim Ba-woo, said, “While the South Korean economy’s close cooperative relationship with China makes it more vulnerable than other countries to the kind of systematic supply chain risks we have seen in the current [urea water solution] situation, it would cost an enormous amount to pursue a strategy of domestic production or diversification for all items.”

“We first need to determine which items are most vulnerable, then devise a response strategy based on the nature of those items and the industry connected with them,” he suggested.

By Kim Young-bae, senior staff writer

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