Bloomberg Businessweek - USA (2019-12-23)

◼ ECONOMICS Bloomberg Businessweek December 23, 2019

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conglomeratesthatdominatetheeconomy.

A clutchofJapaneseproducers,alongwithsome

Germancompanies,dominatesglobalproduction

ofhydrogenfluoride,a purifiedgasusedtoetch

circuitsonsiliconwafers,withJapansupplying

about44%ofKoreanmanufacturers’requirements,

accordingtoSociétéGénéraleSAestimates.SK

HynixInc.buysJapanese-madehydrogenfluoride

foritsplantsinSouthKorea.

Japanalsocommandsabout90%oftheworld

supplyofphotoresist.If Tokyoweretocompletely

cutoffshipmentstoSouthKorea,it wouldhobble

SamsungElectronicsCo.

PolicymakersinJapanareexploitinga vulnerabil-

ityofthedevelopmentmodelthatSouthKoreahas

usedwithenormoussuccesssincethe1960s:a focus

onexportsthathelpedtakethepopulationfromrags

toriches.SouthKorea’sannualexportsareequalto

40%ofgrossdomesticproduct.ThisAchilles’heel

wasexposedin2016,whenBeijingorchestrateda

boycottofKoreanbusinessestoprotestthedeploy-

mentofa U.S.-fundedmissiledefensesystem.South

Koreahasalsosufferedcollateraldamagefrom

PresidentTrump’stradewarwithChina,whichhas

disruptedsupplychainsacrossAsiaanddepressed

corporateinvestment.Exportshavecontractedin

eachofthepast 12 months.

Japanhasrejectedcharacterizingitsmovesas

retaliation,andTokyoandSeoulhavelatelytriedto

patchuptheirdifferences.Evenso,SouthKorean

companiesareworkingtodevelopalternativesfor

essentialinputssourcedfromJapan.Samsungis

testingmaterialsfromdifferentlocalsuppliers,says

a personfamiliarwiththematter,whoaskednot

tobenamedbecausethediscussionsareprivate.

MainInfo,a Koreanstartupthat’sdevelopinga

navigationsystemusingholograms,is intalkswith

a Germansupplierofphotoresistafterfailingtoget

approvaltobuyinJapan,saysParkIk-hyun,chief

executiveofficeratthecompany.

ButforKoreancompaniesthatbuyinbulk,

high-quality,competitivelypricedsubstitutesfor

Japanesematerialsaretoughtofind,saysanother

personfamiliarwiththematter.Thecountry’s

tradedeficitwithJapaninmaterials,components,

andequipmentneededintheproductionofgoods

includingsemiconductorsanddisplaysamounted

to$22.4billionlastyear,accordingtotheFinance

Ministry,whichina statementcalledit a “structural

vulnerabilitythatthreatensnationalsecurityand

manufacturingcompetitiveness.”

South Korean President Moon Jae-in has

movedtoaddresstheissue,puttinganunspeci-

fiedamountofhisownmoneyintoa multimillion-

dollar government fund set up in August to invest

in Korean suppliers. The government plans to

spend $1.8 billion on deepening domestic supply

chains in 2020. Meanwhile, a presidential advi-

sory committee is working on a broader plan that

could include loosening labor and environmen-

tal rules. The stock prices of several South Korean

suppliers to the semiconductor industry, includ-

ing Soulbrain Co. and Ram Technology Co., have

surged in anticipation.

A bigger question is whether South Korea

can lessen its overall dependence on trade. The

Moon administration has mounted a bold plan

to bolster domestic demand by raising the mini-

mum wage. It increased 11% in 2019, following a

16% hike in 2018. Even so, growth in private con-

sumption hasn’t been sufficient to offset the drag

from slower investment and exports. Bloomberg

Economics estimates GDP expanded 1.9% in 2019,

largely on the strength of stepped-up government

spending and interest-rate cuts. “The key structural

challenge for Korea is to rethink its economic struc-

ture,” says S&P’s Roache. �Min Jeong Lee, Heejin

Kim,andSamKim,withPavelAlpeyev

THE BOTTOM LINE Japanese export restrictions on certain

chemicals have South Korean companies and the government

scrambling for alternatives.

● Yonkers and New Rochelle have their eyes on young

professionals priced out of Manhattan and Brooklyn

Commuter Towns

Court Millennials

A literal arms race is heating up between two

commuter towns in New York state’s Westchester

Country. Ax-throwing bars are in the works in New

Rochelle and Yonkers, whose city planners see the

edgy pubs as a means to draw millennials away

from Manhattan and Brooklyn. Both are angling for

affluent urbanites who like their bars and bagels

close but are sick of feeling poor in the Big Apple.

If they succeed in getting Gothamites to move, how-

ever, they risk driving rents too high for locals.

New Rochelle and Yonkers are selling location—a

half-hour train ride from Midtown Manhattan,

with rents at a fraction of the cost—and preparing

for an influx of city exiles by building apartment

1/2018 10/2019

4k

2

0

● Monthly volume

of Japan’s hydrogen

fluoride exports

to South Korea,

in metric tons