[Mineral War ③] "Korea Directly Affected by China's Supply Chain Decisions"

Vulnerable in Terms of Resource Accessibility
Japan's 'Decoupling from China' Policy Offers Lessons

"Along with Japan, South Korea is the country most directly affected by China's supply chain decisions."

Sujai Shivakumar, Senior Fellow at the Center for Strategic and International Studies (CSIS) in Washington, D.C., stated in an interview on November 18 that South Korea, as a manufacturing powerhouse, is structurally vulnerable in terms of resource accessibility.

He emphasized, "An expanded network connecting the United States, South Korea, Japan, India, Australia, and Southeast Asia will become a key strategic foundation going forward," adding, "As the structure of supply chains is being reorganized, South Korea must also adjust its strategy to align with this new reality."

Heo Yoon, Professor at Sogang University Graduate School of International Studies, pointed out, "With China monopolizing 90% of the rare earth supply chain, it is fundamentally difficult to resolve market vulnerabilities." He added, "Although South Korea's defense industry is growing, production is impossible without rare earth elements, so the country will inevitably have to respond to China's regulatory measures as they arise, and this pattern is likely to repeat."

China Monopolizes 22 Out of 30 Minerals With Concentrated Production... Only 8 Produced Domestically

According to the Korea International Trade Association, out of 76 strategic minerals surveyed, there are 30 "minerals with concentrated production," where a single country accounts for more than 50% of global output. Eight countries-including China, the United States, the Democratic Republic of Congo, Indonesia, South Africa, Brazil, Chile, and Russia-possess at least one such mineral. Among them, China dominates with 22 items, effectively holding a controlling position in mineral production.

The problem is that 17 out of these 30 minerals with concentrated production are subject to export controls by the top producing country. Of the 30, only 8 are produced in South Korea, and 7 more have potential for expanded domestic production, though current output is limited. For the remaining items, domestic production is virtually impossible, making South Korea reliant on imports. In particular, niobium, graphite, and rare earth elements have an import dependency rate of over 80%, and are also subject to export controls. This creates a structure in which supply chains are highly susceptible to external factors such as U.S.-China tensions and various export regulations.

Park Soyoung, Senior Researcher at the Korea International Trade Association, stated, "As China continues to announce export controls on critical minerals amid U.S.-China tensions, global supply chain instability has increased." She added, "For South Korea, which has a low self-sufficiency rate for key minerals, it is necessary to proactively identify minerals with concentrated production and strengthen supply chain risk management."

One-Year Grace Period for Rare Earth Controls... No Resolution of China-Originated Supply Chain Instability

Although China's export controls on rare earth elements have been postponed by one year, most observers believe that supply chain risks surrounding rare earths remain high. Reuters reported earlier last month that while China's Ministry of Commerce has begun establishing a new licensing system for rare earth exports, industry insiders believe that, contrary to Washington's expectations, it is unlikely that China will fully withdraw its export restrictions. Some interpret this regulatory redesign as a move to retain mechanisms that would allow China to easily reinstate or strengthen export controls depending on future circumstances.

Choi Wonseok, Research Fellow at the Korea Institute for International Economic Policy (KIEP), warned that if the U.S.-China strategic competition over rare earth supply chains becomes prolonged, South Korea could face complex supply chain risks, leading to increased procurement and production costs. He noted, "An expansion of China's extraterritorial export regulations increases uncertainty costs for South Korean companies involved in rare earth supply chains. In the short term, this could raise production costs due to procurement delays, and in the medium to long term, it could increase the costs associated with restructuring supply chains to diversify risk."

Japan Pursued "Decoupling from China" Since 2010... Reduced Rare Earth Dependency from 90% to 60%

In this context, Japan-cited by Senior Fellow Sujai as another country vulnerable to supply chain risks originating from China alongside South Korea-offers important lessons in how it has responded.

Since the 2010 embargo crisis, Japan has overhauled its rare earth supply chain and pursued a strategy of decoupling from China. When rare earth supplies from China were cut off due to the 2010 Senkaku Islands (Diaoyu Dao) dispute, the Japanese government and private sector diversified supply by investing in an Australian company in 2011 to secure non-China sources. Japan also accelerated efforts to localize production processes and strategically stockpiled rare earth elements to stabilize its supply chain. As a result of these efforts, Japan's dependency on Chinese rare earths has dropped from 90% in 2010 to around 60% recently, with a plan to reduce it below 50% by the end of this year.

Chris Kennedy, an economist at Bloomberg Economics, also attributes Japan's partial self-sufficiency in rare earth supply chains to proactive government action. He explains that Japan, led by the Ministry of Economy, Trade and Industry (METI), has implemented a comprehensive strategy ranging from supply diversification to recycling and the development of alternative materials.

Additionally, Japan has long included energy and mineral resource chapters in its Economic Partnership Agreements (EPAs) with other countries to ensure stable mineral trade. A representative example is the EPA signed with Indonesia in 2008, which includes provisions prohibiting export restrictions by resource-holding countries and ensuring transparency in export licensing procedures and regulatory measures.

Research Fellow Choi commented, "Specifying not only energy but also mineral resources in chapter titles, and comprehensively including specific provisions for stabilizing mineral supply chains, makes this a leading model." He added, "The purpose is to reduce supply chain risks by detailing these matters in the agreement text."