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Senior Korean officers are historically reluctant to say something that could possibly be construed in Beijing as antagonistic or confrontational. So it got here as a shock to some when South Korean finance minister Choi San-mok advised the Monetary Occasions this yr that his nation’s financial relationship with China had remodeled over the previous decade from considered one of mutual profit right into a “rivalry”.
Choi’s bluntness displays a rising sense of alarm in Seoul that South Korea’s main industrial teams are dropping or have already misplaced their technological edge over rising Chinese language rivals, and that the general public stays complacent concerning the scale of the problem and its penalties.
For about 20 years after South Korea and China first established diplomatic relations in 1992, Korean corporations have been in a position to journey China’s know-how growth by providing Chinese language tech corporations extra subtle elements and merchandise than they have been in a position to produce themselves.
However in virtually each sector bar essentially the most superior semiconductors, that’s now not the case. Chinese language corporations have both surpassed, matched or are quickly closing the know-how hole with South Korea in sectors starting from electrical autos to smartphones. Regardless of this, many Koreans proceed to consolation themselves with the concept Chinese language rivals stay unable to compete with regards to high quality.
Korean media shops report enthusiastically on scandals at Chinese language factories. The best way these tales are shared and introduced by them and on social media have fed a notion that Chinese language merchandise are by definition unreliable and unsafe, and Korean merchandise inherently superior.
This was illustrated by the response in South Korea to a luxurious Mercedes EV that caught hearth final month in an underground storage within the western Korean metropolis of Incheon, hospitalising 23 folks and damaging 40 different autos. The incident sparked a public backlash towards electrical autos, with residential and workplace buildings banning them from their automobile parks, EV homeowners panic promoting their automobiles and a number of other EV producers giving in to stress to reveal their battery suppliers for the primary time.
It quickly emerged that the Mercedes had contained nickel-manganese-cobalt (NMC) batteries manufactured by Farasis Power, a lesser recognized Chinese language battery producer. In accordance with Korean media stories, native EV drivers responded by demanding to know if their autos contained Chinese language or Korean batteries. Some potential patrons of EVs advised sellers they have been unwilling to purchase automobiles with Chinese language batteries.
That is even though the precise explanation for the Mercedes hearth in Incheon has but to be established. As some observers have been fast to level out, main Korean battery makers have their very own file with regards to EV fires — in 2021, LG Power Resolution paid Common Motors as much as $1.9bn following a sequence of fires ensuing from defective batteries equipped for GM’s mass market Chevrolet Bolt. Bernstein analyst Neil Beveridge notes that there’s “no proof to recommend that Korean batteries have higher security efficiency than Chinese language batteries.”
The truth, from a Korean perspective, is extra worrying. South Korean battery makers have historically specialised within the manufacturing of NMC batteries, that are dearer however have a better density and subsequently higher efficiency than the lithium iron phosphate (LFP) batteries that main Chinese language battery makers specialize in.
However as automobile producers come below intensifying stress to scale back the value of electrical fashions in response to sluggish client demand, and as Chinese language corporations enhance the efficiency of their LFP batteries, the rationale for choosing a Korean battery is rising weaker and weaker.
With automobile corporations more and more turning to Chinese language LFP batteries as a method to deliver down costs, Korean battery makers are being pressured to start out providing LFP batteries themselves. This implies trying to undertake an unfamiliar know-how and transfer on to China’s residence turf simply when the stability sheets of the producers are below stress from disappointing international EV gross sales.
It’s this, not the protection file of Chinese language batteries, that needs to be holding Korean policymakers up at evening. If Korean producers are now not in a position to compete not simply on value but in addition on high quality and efficiency, they are going to have little to supply past the label “Not Made In China”.
christian.davies@ft.com
