Japan-South Korea tech spat

Analysts say the dispute could batter the global tech market and lead to price rises for consumers. (Reuters)
Updated 12 July 2019
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Japan-South Korea tech spat

  • Diplomatic row threatens output of components that drive smartphones and computer displays

SEOUL: A simmering diplomatic row with Japan is threatening South Korea’s output of components that drive smartphones and computer displays, which analysts say could batter the global tech market and hike prices for consumers. Tokyo last week said that it would restrict exports of three chemicals vital to South Korea’s world-leading chip and smartphone industry in an escalation of a decades-long dispute over Japanese forced labor during World War II.
And with the issue showing no sign of ending any time soon, there are worries it could also delay the rollout of 5G technology and futuristic folding screens.
“If this situation persists, there may be reductions in production, which will drive up memory (chip) prices and certainly drive up end-product prices in turn,” said Avril Wu, senior research director at Taipei-based market intelligence firm TrendForce.
While South Korea holds stockpiles, shortages could set in after three months, she told AFP.
South Korean President Moon Jae-in has called the situation an “unprecedented emergency” and told business leaders to prepare for a drawn-out crisis.
On Thursday, the country’s ruling party called for an extra budget of 300 billion won ($250 million) to help local firms survive the upheaval, more than double what the prime minister had asked for a day earlier.
With Japan so far refusing to negotiate, the news is bleak for top market players Samsung Electronics and SK Hynix. The two firms supply tech titans Apple, Huawei and Amazon, and together account for almost two-thirds of the world chip market, according to the Hana Institute of Finance in Seoul.
“South Korea is the world leader when it comes to chip-making, and Japan is the world leader in the manufacturing of the key materials for chip-making,” said Ahn Ki-hyun, vice president of the Korea Semiconductor Industry Association.
“With this trade row, Japan and South Korea are both losing the best partners. And neither of them will find good alternatives for a very long time,” he said. “Ultimately, this will bring a stagnation or regression of the world’s most cutting-edge technology. The price of gadgets may rise, as chips will likely be in short supply.”
Tech companies are already under pressure from a weakening global outlook, while the chip sector is particularly suffering from weak demand.
Japan’s new restrictions also apply to the transfer of manufacturing technologies as well as the three chemicals, removing them from a list that effectively allowed expedited shipments.

FASTFACT

2/3 - Huawei and Amazon together account for almost two-thirds of the world chip market.

It means exporters will now have to apply for permission for every batch they send to South Korea — a process that can take up to 90 days each time.
Len Jelinek, executive director of semiconductor research at IHS Markit, warned any reduction or elimination in the availability of the materials would “significantly impede” production.
“Because of the volume of chemicals required within the semiconductor manufacturing process, it is unlikely that the major chip suppliers will be able to find suitable quantities from suppliers outside of Japan,” he said.
Two of the chemicals targeted, hydrogen fluoride gas and photoresists, are essential to making memory chips, while the third chemical, fluorinated polyimide, is used for high-spec TV screens and smartphone displays, including in hotly anticipated folding models.
Japan reportedly produces some 90 percent of the world’s fluorinated polyimide, making it difficult for Korean companies to find alternatives elsewhere.
A Samsung official told AFP the firm was reviewing measures “to minimize further impact on our production” but declined to comment further.
Another key manufacturer LG Display said it had been testing fluorinated polyimide made in China and Taiwan to see if it can replace Japanese supplies if needed.
End-products that could be affected by Tokyo’s restrictions include Samsung’s Galaxy Fold — a top-end, foldable 5G smartphone that its makers hope will revive a sector struggling for new innovations. 5G networks offer radically quicker transfers of data and could enhance technologies such as autonomous driving, remote medical diagnosis and mobile payments.
In April, South Korea became the first country to launch nationwide 5G services, and in the same month Samsung rolled out its Galaxy S10 5G, the world’s first available smartphone with the technology built into it.
The smartphone giant has spent nearly eight years developing the Fold, whose planned release earlier this year was delayed because of screen problems.
But Park Jea-gun, an electronic engineering professor at Hanyang University in Seoul, warned that if the trade row continues it could impede such innovation.
“Reductions in chip production will slow everything down — including Internet-based businesses that seek to utilize 5G’s significantly faster download speed, and solid 5G gadgets. And this will hurt the world’s economy in the long run.”


Can green investment help relaunch Germany’s economy?

Updated 4 min 31 sec ago

Can green investment help relaunch Germany’s economy?

  • The German government has so far shown little willingness to change its stance

FRANKFURT, Germany: A recession looms for Germany and the European Central Bank is pleading for governments to spend more to revitalize economic growth. Yet despite having the luxury of borrowing money for less than nothing, the German government is keeping a tight rein on its finances.
A debate over Germany’s devotion to budget austerity is intensifying as the outlook for the economy dims and public pressure grows to address big issues such as global warming. On Friday, the government will unveil a raft of measures that could include billions in incentives and spending to make the economy more environmentally-friendly.
“The call for fiscal stimulus has never been louder,” said Carsten Brzeski, chief economist for the bank ING Germany. “And this week will show whether the eurozone country with the deepest pockets finally plans to empty them.”
The slowdown in growth across Europe, blamed largely on the US-China trade conflict and uncertainty about Brexit, is putting a sharp focus on Germany’s devotion to the so-called “Schwarze Null,” or “black zero,” which refers to the policy of balancing the budget — the zero — with at least a small surplus to keep it in the black.
The debate over government spending policy affects the entire 19-country eurozone, since more government outlays by Germany and other fiscally sound countries such as the Netherlands could help support growth by building new infrastructure, such as roads, rail lines or high-speed Internet, or by gathering less in taxes.
The German government has so far shown little willingness to change its stance. It has ignored repeated pleas from the head of the European Central Bank, Mario Draghi, who said last week it was “high time” for government spending to take over as the main tool of economic policy. The central bank announced interest rate cuts and bond purchases in an attempt to ward off a downturn.
The government argues it’s important to reduce debt while the economy is growing and not to burden future generations. German Finance Minister Olaf Scholz submitted a balanced draft budget of 360 billion euros ($400 billion) for 2020 last week and Chancellor Angela Merkel said in a speech before the German Taxpayers’ Federation that the government was sticking to its balanced budget, “not as a goal in itself, as we are often accused of doing, but because clear economic reasons and fairness aspects argue for that.”
Merkel noted that Germany’s total debt would fall below 60% of gross domestic product — the limit for countries that use the euro — for the first time since 2002. The German constitution itself sharply limits deficits to 0.35% of GDP except in a crisis, yet the government’s surpluses go well beyond that requirement.
While the German government may not be giving up on balanced budgets, there are signs it is at least easing up the zeal with which it amasses surpluses.
Last year’s surplus of 1.9% of GDP has fallen to 1.4% this year and is expected to hit 0.9% next year — meaning that the government is already providing some fiscal stimulus. Germany’s economy shrank 0.1% in the second quarter and underlying figures are pointing to another quarter of contraction, which would put the country in a technical recession.
It is striking that the government refuses any new borrowing at a time when it can do so at negative interest rates — meaning it would get paid back more than it borrows. German 10-year bonds currently yield minus 0.48%, and the government was able to sell a 30-year bond at a negative interest rate in August.
Marcel Fratscher, the head of the German Institute for Economic Research in Berlin, has called the balanced budget a “false fetish.” His institute has argued that Germany needs to invest in long-term modernization projects such as extending digital services in rural areas.
The president of the Federation of German Industries, Dieter Kempf, said in an interview with Der Spiegel that “it’s worth considering sensible use of the space,” allowed by the constitution to fund more investment.
The calls to spend are not coming only from those concerned about the economy, but also climate activists who say more needs to be done to shift the world economy from carbon-intensive industries and consumption. Public pressure has only grown after the country witnessed its hottest summer on record and the opposition Greens party made big gains in elections to the European Parliament and in domestic polls.
On Friday, the government is expected to unveil a package of incentives aimed at reducing carbon dioxide emissions from homes and autos so that Germany can meet its goals under the 2015 Paris climate accord. Possible measures include incentives to replace old heating systems or to purchase battery-powered autos. A report in Die Welt newspaper said the government was considering measures totaling some 40 billion euros ($44 billion) through 2023.
Brzeski said such a program “would not be enough to stop the slide of the economy toward recessionary territory, but it could be an important cornerstone in Germany’s recovery and its quest for a new economic model.”
Spending on that level would only be “a slow-motion stimulus” since it will take time to roll out, said Holger Schmieding, chief economist at Berenberg bank.
“It will add up over time and support domestic demand,” he said. “However, the German stimulus will not be a European, let alone a global, game changer.”