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[Editorial] Supply chain risks

China’s restrictions on urea, iPhones illustrate need for contingency plan

By Korea Herald

Published : Sept. 11, 2023 - 05:30

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China’s moves to place restrictions on two fields -- one on exports of urea for fertilizer and the other on the use of Apple’s iPhone for government workers -- have sent a chill down the spine of South Korean policymakers and businesspeople.

Both regulations have not affected Korean exporters and consumers yet, but given the past case in which China caught the country off guard with its curb on urea solution exports, much caution and proactive preparations for export control on other items are in order.

On Thursday, US media outlet Bloomberg reported that China has requested some fertilizer producers to suspend urea exports, which it says will likely restrict supplies and boost costs for farmers.

According to the report, some Chinese fertilizer makers suspended inking new export deals in line with a state mandate on urea. At this point, there was no confirmation about whether the Chinese government officially pushed for the ban.

The next day, Seoul’s Finance Ministry clarified that China has not implemented an “official ban” on shipments of urea by local fertilizer companies. A ministry official told reporters that there is no official ban on outbound shipments of urea by the Chinese government, citing diplomatic channels.

The ministry official said only one Chinese chemical fertilizer company announced it would reduce its export volume, adding that the domestic supply of urea for fertilizer will be stable even if China goes ahead with an export ban.

The ministry’s reassurance was aimed at easing lingering worries concerning supply chain disruptions due to China’s unpredictable restrictions on key items that Korea needs. In 2020, Korean automakers suffered a setback as the wiring harness supply from factories in China suddenly dropped. In 2021, China’s urea solution export ban hit diesel car drivers here, as its price shot up nearly tenfold.

China’s signal that it may resort to supply chain control again should be taken seriously as Korea depends heavily on its neighboring country for key industrial components and raw materials. Some experts in Seoul warn that China is fully aware of the potential impact its ban on urea and other items have in Korea.

The 2021 urea solution shock alarmed the Korean government and businesses over the country’s overdependence on China for certain items. Since then, Korean firms such as Lotte Fine Chemical and KG Chemical have reportedly built up alternative import markets including Russia, Japan and the Middle East.

As a result, Korea’s imports of urea for fertilizer from China dramatically fell from 65 percent in 2021 to just 17 percent in the January-July period this year. Qatar and Saudi Arabia emerged as key exporters of fertilizer urea for Korea, accounting for 41 percent and 10 percent, respectively, during the cited period.

Korea’s efforts to diversify its supply chain sources have made some progress, but it may be too early and naive to downplay China’s not-so-official restrictions on export products for some political and economic purposes. Even though Korean government officials confirmed there is no official restriction by China, it should be noted that China has often taken market control measures without any formal announcement, while prodding state and private firms to follow its policy. A case in point is when China had retaliated against Korean firms over the US THAAD anti-missile defense system largely through non-tariff barriers.

China’s attack on Apple is less subtle, however. Shares in Apple tumbled Thursday after a report that China would expand its ban on iPhones for government workers. Foreign media outlets reported that officials at China’s government agencies and workers at state-owned enterprises were ordered not to use iPhones for work.

China’s latest restrictions on the use of iPhones is part of escalating US-China tensions. The US already blocks public employees from using TikTok, a popular Chinese-owned video platform, as well as products made by China’s Huawei, while imposing sanctions on semiconductor exports to China.

The Korean government and companies must brace for more trouble ahead. The reports about urea export controls and iPhone bans suggest there may be more supply chain disruptions for Korean firms, which remain exposed to collateral damage from the growing friction between the US and China.