Batteries with Over 90% Dependence on China... Bio Sector Also Within Range in Case of Economic Retaliation [Korea-China Supply Chain Analysis]

Supply Chain Analysis Report ②…Impact of South Korea Joining IPEF
China's Retaliation Could Directly Hit Batteries…Possible Primary Target
52% Dependence on China for Rare Earths…Limits to Diversifying Import Sources
Similar Situation in Bio Sector…53% Dependence on China for Antibiotics

On March 17, visitors are examining Samsung SDI's EV battery pack at 'InterBattery 2022' held at COEX in Samseong-dong, Gangnam-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Sejong=Reporter Lee Jun-hyung] Secondary batteries, considered one of South Korea's next-generation core industries alongside semiconductors, are among the industries that would be directly hit if cracks appear in the Korea-China supply chain.

According to the Federation of Korean Industries, as of 2020, South Korea's battery dependence on China reached 93.3%. This means that normal battery supply and demand is impossible without China. Although domestic battery companies have diversified their production bases to the U.S., Europe, and other regions, the production volume of Chinese factories still has a significant impact. This is why batteries are likely to be the first target if China takes retaliatory measures against specific Korean industries.

Even looking only at battery materials, the dependence is not low. Rare earths, with a 52.4% dependence on China, are a representative example. Rare earths, a core material for batteries, are so important that they are called the "vitamins of advanced industries," but their production regions are limited. Advanced countries such as the U.S. gave up rare earth production early on due to environmental pollution and deteriorating profitability. Meanwhile, China has become the largest rare earth producer, accounting for 60-70% of the world's rare earth supply.

The situation is the same for graphite, an essential material for secondary battery anodes. The Federation of Korean Industries identified graphite, an essential material for battery anodes, as one of 133 key imported items with vulnerable supply chain stability. The dependence on China for graphite is excessively high, which could potentially lead to a supply crisis similar to the "urea solution shortage incident."

Of course, alternative regions do exist. Among the Indo-Pacific Economic Framework (IPEF) member countries, Australia and Indonesia are rare earth producers. As the trend of "resource weaponization" by major countries intensifies, domestic companies are accelerating rare earth development in regions outside China, such as Australia. However, considering that China is the world's largest rare earth producer, there are concerns about the limitations of diversifying import sources.

Another challenge is that the position of K-batteries is narrowing due to China's rise. According to a recent analysis of the lithium-ion battery industry by the Federation of Korean Industries, the global market share of the three Korean battery companies?Samsung SDI, SK On, and LG Energy Solution?decreased by 4.3 percentage points from 34.7% in 2020 to 30.4% last year. In contrast, the market share of major Chinese battery companies such as CATL and BYD increased by 10.3 percentage points from 38.4% to 48.7%.

Professor Kim Pil-soo of Daelim University's Department of Automotive Engineering said, "If IPEF is fully activated, the possibility of Chinese retaliatory measures in the battery sector must be considered," adding, "The only countermeasures are diversifying import sources and developing alternative materials."

The bio industry, emerging as a future core industry, is in a similar situation. The dependence on China for pharmaceuticals and pharmaceutical raw materials was 52.7% as of 2020. This is 1.2 to 1.3 times higher than Japan's (34.2%) and the U.S.'s (31.2%) dependence on China. A Federation of Korean Industries official explained, "China and India were preferred overseas production bases by global pharmaceutical companies," adding, "Since there are many pharmaceutical factories in China, the bio industry's dependence on China is naturally high."