Earlier this week, South Korea announced plans to invest approximately USD6.5bn in research and development for local parts, equipment and materials over the next seven years in an effort to cut reliance on Japanese imports. The move comes amid a worsening diplomatic spat between the two countries that has led to consumer boycotts. Sales of Japanese-branded cars in South Korea slumped in July by 32%. Relations between the two former friends have become increasingly fraught in the wake of the row over forced labour during Japan’s occupation of the Korean peninsula before and during World War Two.
The move to invest more money in R&D comes after Japan’s decision on Friday to drop South Korea from its ‘white list’ of countries with fast-track export status. The decision to remove South Korea from the list comes after Japan had already tightened controls on the exports of materials used to make chips, which happens to be South Korea’s top export item, which in turn threatens the supply of semiconductors globally. The plan is for South Korea to raise its self-sufficiency for the production of about 100 key materials, equipment and components with the ultimate goal of stabilising supply over the next 5 years. This would help to stabilise the exports not only of semiconductors but everything from display screens to batteries and cars. In a government statement, the plan aims to ‘address structural weakness in South Korea’s materials, parts and equipment sector, which heavily depends on a particular country’.
Also, it seems that South Korea has more ambitious plans in the pipeline. Moon Jae-in, the South Korean President believes that by cooperating with North Korea, South Korea can overtake Japan economically. In a meeting with senior aides, Moon told them there needs to be ‘a wider view and extraordinary determination’. Moon’s idea is that a ‘peace-driven economy’ for inter-Korean economic cooperation, based on relief from sanctions and denuclearisation would reap massive benefits for both parties.