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Japan-South Korea rift

A year on, Moon presses ahead with made-in-Korea drive

Seoul expands support for local production of high-tech materials

Seoul is trying to expand homegrown supply of high-tech materials as Japan continues to limit exports of chipmaking materials bound for South Korea.   © Reuters

SEOUL -- South Korean President Moon Jae-in has tripled the number of high-tech materials that will receive government research funding, targeting robotics, energy and software, expanding the program one year after its launch in response to Japanese export restrictions.

The government unveiled Thursday an expanded list of 338 items designated as strategic products, earmarking 2 trillion won ($1.67 billion) a year in additional research and development spending. The aim is to increase homegrown supply of cutting-edge materials that the country had relied on Japan for.

But despite Moon's aggressive efforts, South Korea is still far from eliminating its dependence on Japan, and industry chiefs complain that the shift to domestic production has resulted in higher costs.

"Over the past year, we have succeeded in domestic production of materials previously supplied by Japan," Moon said that day at a factory of leading chipmaker SK Hynix.

Moon praised companies that worked to localize production and emphasized his resolve to develop South Korea into a hub of cutting-edge industries. "We will turn the crisis into an opportunity and emerge as a manufacturing powerhouse in advanced materials, parts and facilities," he said.

Last July, Japan tightened restrictions on South Korea-bound exports of chemicals crucial to the production of display panels and semiconductors amid an escalating diplomatic dispute. Moon immediately unveiled an initiative to assist companies producing 100 strategic materials.

South Korea will also woo companies from other countries to launch operations here, designating areas near plants of SK Hynix and other leading manufacturers as cutting-edge industrial parks.

South Korean companies have kept production humming even without materials from Japan. Soulbrain and SK Materials have succeeded in mass-producing hydrogen fluoride, one of the three materials subject to Tokyo's stricter export controls. To procure fluorinated polyimide and high-purity photoresist, manufacturers have switched to imports from overseas plants of Japanese suppliers.

Moon boasts that South Korea has locally built a supply chain to replace one that reliant on a "specific country," but his statement does not entirely reflect the facts on the ground. The South Korean-made hydrogen fluoride is of lower purity, and cutting-edge chips still require Japanese-made hydrogen fluoride. But eschewing the new risk of import suspensions, some companies are turning to domestic alternatives.

Such shift in procurement "was not necessary and raised our costs," a senior executive at a major chip company said. Meanwhile, Japanese suppliers of materials have lost a big chunk of business from South Korean customers. The bilateral political row between will likely continue to hurt companies on both sides of the water.

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