By Hosokawa Kotaro
SEOUL – Former chief prosecutor Yoon Suk-yeol of the largest opposition party has been elected the 20th South Korean president. The South Korean business community pins hopes on the first government changeover in five years. But some people are wary of Yoon because of his experience as the lead prosecutor in an investigation into a bribery case involving the government of Park Geun-hye and chaebols. Yoon pledges to improve the icy Japan-ROK relationship, giving a sense of reassurance to semiconductor companies in the two countries.
On March 10, one day after the presidential election, the Federation of Korean Industries (equivalent to the Japan Business Federation [Keidanren]) commented, “We want [Yoon] to make the labor market more flexible and ease regulations to help the private sector lead the country’s economic growth.” The federation called for a shift in economic policy on behalf of conglomerates, which faced a headwind under the government led by President Moon Jae-in, who was supported by labor unions.
Positive response from the business community
The business community generally welcomed Yoon’s victory. His opponent, Lee Jae-myung of the reformist ruling party, is a hardliner who once insisted, “Chaebols need to be disbanded to achieve a fair economy.” Some speculated that if Lee were elected, he would impose stricter restrictions than those imposed in the days of President Moon, who called for the reform of the chaebols.
On March 10, the Korea Composite Stock Price Index (KOSPI) was up 2.2%, driven by rising U.S. stock prices.
[Yoon’s victory] particularly influenced construction-related stocks. Yoon vowed to supply 2.5 million houses in a bid to curb real estate prices, increasing the purchase of the shares in condominium developers Hyundai Engineering & Construction and Samsung C&T Corp. by 8.9% and 6.5%, respectively.
Expectation for a review of the existing policy of the Moon government in response to the government changeover also raised the stock prices of nuclear power and internet companies. The stock price of Korea Electric Power Corp., which suffered weak earnings due to the government’s policy of breaking with nuclear power generation, rose 3.8%. Expectation for the relaxation of internet platform regulations propelled the stock price of Naver to rise by 8.5% higher and that of Kakao to finish 8.6% higher.
Chip industry closely watched election results
South Korea’s critical semiconductor industry followed the latest presidential election closely, because the Japan-ROK relationship could deteriorate further depending on the election result, with the potential to further complicate their procuring devices and materials from Japan.
Soon after Moon took office in 2017, his government expressed its intention to unilaterally scrap the comfort women agreement with Japan. Regarding the South Korean Supreme Court’s ruling ordering a Japanese company to compensate former requisitioned workers handed down in October 2018, the Moon government said, “It needs a political solution” but continued to leave the issue unattended.
The Japanese government responded by announcing in July 2019 a review of the preferential treatment for shipments of three chip materials to South Korea on the grounds that “mutual trust has been lost.” As a result, corporate activities were affected by the political conflict between Japan and South Korea.
Samsung Electronics, SK Hynix, and LG Display, which had long used Japanese materials, quickly tried to introduce domestic products in response to the wishes of the South Korean government. In fact, low-purity hydrogen fluoride was replaced by a South Korean product, sharply decreasing the shipments from Japanese companies Stella Chemifa and Morita Chemical Industries to South Korea.
South Korean companies want to continue using Japanese products. An official of a major chipmaker says, “We want to procure the highest-quality materials even though their costs are high.” But even so, they can’t defy the policy of the government as President Moon said, “We’ll counter Japan’s unjust export restrictions that came like a surprise attack.” There was also speculation that if the next [South Korean] government maintains the policy of introducing domestic products driven by the conflict with Japan, it will do more harm to the competitiveness of the South Korean chip industry.
Japanese material and device industries were also relieved [by Yoon’s victory]. South Korea is home to Samsung Electronics, which sells semiconductors and displays worth 10 trillion yen annually; SK Hynix, whose annual sales are four trillion yen; and LG Display, which has annual sales of two trillion yen. The annual sales of KIOXIA Holdings, Japan’s biggest chipmaker, stand at a little over one trillion yen. This indicates South Korean companies are by far larger purchasers of materials and devices than their Japanese counterparts.
According to data compiled by the Korea International Trade Association (KITA), semiconductor manufacturing devices topped the list of items imported from Japan in 2021 at 6.3 billion dollars (approx. 730 billion yen). Also, fine chemical materials including chip-related materials ranked sixth at 1.5 billion dollars.
If the promotion of domestic products is maintained over the next five years, South Korean companies will receive government subsidies and further promote the research and development of manufacturing devices and advanced materials, in which Japan excels. Also, the promotion could affect not only hydrogen fluoride but also semiconductor manufacturing machines and silicon wafers, whose market size is large.
But even though the Yoon government, which will be inaugurated in May, tries to improve its relations with Japan, that does not mean it will necessarily soon stop the promotion of domestic products in South Korea, because some companies are seeing progress in their R&D projects two and a half years after the Moon government gave them their marching orders.
This raises the question of whether the semiconductor supply chain between Japan and South Korea, where Japan supplies devices and materials and South Korea manufactures finished products, will taper off according to the scenario scripted by the Moon government. The answer depends largely on the diplomacy toward Japan conducted by the new Yoon government and the approach to South Korea adopted by the Japanese government led by Prime Minister Kishida Fumio.