www.businesskorea.co.kr

ICT GooGle’s UnfaIr BUsIness PraCTICes Government and Political Circles Join Anti-Google Move

foCUs exPeCTed resUlT HDC’s Takeover of Asiana Airlines Falls Through

naTIonal aGaInsT 'shareholder dICTaTorshIP' Bills for Tighter Corporate Regulations Raising Concerns

12,000 won

ISSN 1016-5304

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september 2020 / VOL.37 NO.397

04

Contents2020 / Vol.37 No.397

FOCUS08 HDC’s Takeover of AsianaAirlines Falls

Through

NATIONAL10 South Korea 17th-best to Live In South Korea Surpasses Japan and

China in Global Innovation Index11 South Korean Government Advised

to Clarify Its Stance on China-related Issues

South Korean Companies Stuck between the United States and China

12 Turkey and India Raising Trade Barriers against South Korea

13 Korea and Cambodia Jointly Reduce Greenhouse Gas Emissions by 650,000 Tons

Seoul to Host World Forestry Congress in May 2021

14 Fitch Lowers South Korean Economic Growth Forecast

S&P Raises S. Korea’s Economic Growth Estimate

15 South Korean Companies’ Overseas Sales Drop 20% in Q2

South Korea’s Exports and GDP Growth Rate Drop in Q2

16 Household and Corporate Debts Hit All-time High

South Korean Government’s Spending Increasing Too Fast

17 Unemployment Benefit Payment Tops One Trillion Won Again in August

Korean Society Is Aging Rapidly18 Bills for Tighter Corporate Regulations

Raising Concerns19 Shareholder Derivative Litigation

Poised to Cause More Enterprise Risks20 Government Twist Banks' Arm to

Invest in New Deal Fund21 Government Criticized for Excessive

Financial Assistance for Asiana Airlines

COver STOry22 Samsung Group Facing Multiple

Threats

MONey28 South Korea’s Foreign Exchange

Reserves Hit an All-time High Enterprises Hoarding U.S. Dollar for

Uncertainties Triggered by COVID-1929 Banks in Dilemma for New Deal Funds Bond Market Fluctuating Due to

Government Bonds30 BIS Capital Adequacy Ratio of South

Korean Banks Falls South Korean Banks Revamping

Global Business Strategies31 Global PEFs Purchase Shinhan

Financial Common Stocks in Quantity32 Aggregate Value of South Korean

Stock Market Tops 2,000 Trillion Won South Korean Stock Market Recovering

Relatively Faster from COVID-1933 KOSPI Standing Out in the Global

Stock Market KOSPI Turnover Increasing Rapidly

Due to Frequent Day Trading34 Fines Imposed on Foreign Investors

Engaged in Naked Short Selling Bill Tabled for Naked Short Selling

Prevention35 Individual Investors Dumping LG

Chem Shares for Split-off Plan Individual Investors Now Own More of

Samsung Electronics36 JP Morgan Report Sends Celltrion

Stock Plunging37 Survival of Insurance Industry Hinges

on Insuretech

ICT38 Hard Time Awaits Samsung Electronics

and SK Hynix39 South Korean Display Panel Suppliers

Cut Business Relations with Huawei40 Samsung Electronics in Hot Pursuit of

TSMC in Foundry Market Samsung Electronics to Produce

Qualcomm’s Snapdragon 875 APs41 TSMC's Super-gap Approach Puts

Samsung Electronics on Alert42 Why Was Samsung Not Interested in

Taking over ARM?43 ARM to Provide Support to 13 Korean

Semiconductor Startups44 South Korea Still Heavily Dependent

on Semiconductor Equipment from Japan

45 South Korean Semiconductor Companies Opposed to Introduction of Discovery

46 Samsung Display Sells Off Suzhou LCD Plant to Chinese Company

LG Display’s Guangzhou Plant to Enter Fullfledged Operation This Month

47 South Korean Display Panel Manufacturers Facing Increasing Difficulties

48 Samsung Electronics Strikes US$6.6 Bil. Deal to Supply 5G Equipment to Verizon

Huawei Leads Global Telecom Equipment Market in First Half of 2020

49 DivX Files Patent Infringement Suits against Samsung Electronics and LG Electronics

Samsung Electro-Mechanics Develops World's Smallest Power Inductor

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54

05

Samsung to Upgrade Hoam Awards into Korean Version of Nobel Prize

71 Hotel Lotte Increasing Financing Volume Lotte Group to Invest 290 Bil. Won in

Doosan Solus Acquisition Fund72 LG Chem to Spin off Battery Business

into Wholly Owned Subsidiary Daelim Industrial Adopts a Holding

Company Structure73 POSCO’s Labor Union and Management

Agree to Freeze Wage in 202074 POSCO Reaps First Dividend on

Investment in Roy Hill Mine in Australia

Ssangyong E&C Chairman Flies to Dubai to Visit Construction Site

75 GM Korea President Expresses Complaints about Unreasonable Union Demands

SMe & STArTUP76 About 40% of Korean Startups Doing

Business Abroad Begin with World Market in Mind

SCIeNCe & TeCHNOLOGy78 UNIST Develops Chip for Faster and

Easier Virus Detection UNIST Reduces Solar Cell Production

Cost with Water79 Biopolymer-based Photocatalyst

Developed for More Efficient Hydrogen Production

New Technology Lowers Fire Hazards of Li-ion Batteries, Increasing Charging Speeds 4 Times

80 Korean Research Team Identifies Energy Sources of Cancer Cells

KIST Develops Atomic Catalyst for Solid Oxide Fuel Cells

LIFeSTyLe81 Many Companies Positive about

Telecommuting as Anti-COVID-19 Measure

Germany, New Zealand and South Korea Classified as Countries Safest from COVID-19

82 46 Million Tweets Generated about BTS’s Number One Song on Billboard Chart

KT to Introduce AI-powered Companion Robots for Kids and Senior Citizens

50 Enforcement Decree of ‘Netflix Law’ Feared to Hurt Korean Internet Companies

51 Industry Expert Calls for Proactive Response to Mandatory In-app Payment

Supreme Court to Handle KCC-Facebook Litigation

52 Court Sides with Facebook Again, Fueling Controversy over Effectiveness of ‘Netflix Act’

53 Government and Political Circles Join Anti-Google Move

INDUSTry54 Incheon Poised to Lead Korea's

Economic Growth in Post-viral Era56 State-run Energy Companies

Extremely Inefficient in Overseas Resources Development

Korean Home Electronics Companies Withdrawing from China

57 Samsung and LG Go Separate Ways in LCD Business

58 Automotive Industry Contracts in August South Korean Automakers’ Exports

Show Some Recovery in August59 Hyundai Motor Exports Hydrogen Fuel

Cell Systems to Europe60 Hyundai Motor and LG Chem

Promoting Joint Venture Battery Plant in Indonesia

Toyota Launches Hydrogen Fuel Cell Joint Venture with Chinese Companies

61 Korean Battery Companies Show Mixed Reactions to Tesla's EV Batteries

62 Ford in Support of SK Innovation in Battery Lawsuit with LG Chem

63 Hyundai Motor Group, SK Innovation to Collaborate on EV Battery Ecosystem Development

64 Merger between Korea's Two Top Shipbuilders Delayed by COVID-19

65 Korea, China and Japan Competing for LNG-powered Vessel Orders

66 Korean Shipbuilders in Competition to Develop Eco-friendly and Fuel-saving Smart Ships

67 Oil Refining and Chemical Sectors Decoupling from Each Other

South Korean Steelmakers Participate in LNG Development Project in Canada

Ir & MANAGeMeNT68 LG Chairman Koo Donates 1 Bil. Won

for Development of COVID-19 Vaccine Korean Air Sells In-flight Meal and

Duty-free Businesses69 Samsung to Upgrade Hoam Awards

into Korean Version of Nobel Prize SK Innovation Forms 'SOVAC Avengers'

with 11 Social Ventures70 Founder Families Control Business

Groups with a Mere 3.6% Stake

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The Moon Jae-in administration defined conglomerates, which represent a very large

portion of the South Korean economy, as deep-rooted evils and has put pressure on them with a variety of regulations. However, it suddenly came up with ‘Korea New Deal’ projects after COVID-19 drove them to a precipice.

Ruling party leader Lee Nak-yon spoke at the National Assembly on Sep. 7 that innovation is necessary for the success of the projects and the growth of new industries alike. “The ruling party and the government will work on aggressive deregulation for freer enterprise activities,” he declared.

In a few days, however, the ruling party law makers began to dis-cuss amendments to the Commercial Act, the Monopoly Regulation and Fair Trade Act, and the Financial Group Supervision Act in the National Assembly, which may threaten the autonomy of enterprises. The govern-ment and the ruling party are pulling a knife on them yet again under the guise of fair competition, amid companies groaning under the weight of the pandemic.

The business community is dead set against the amendments because those contain unprecedentedly radical regulations. Meanwhile, those in power are claiming that the regulations are necessary because conglomer-ates are unique to South Korea.

Enterprises are expressing concerns that the amended laws will allow aggressive management intervention by foreign capitalists and competi-tors in the form of separate audit committee member appointment and so on. In fact, even Samsung and Hyundai Motor Groups have already suf-fered from interference by U.S. hedge fund Elliott Management. They may have to increase their shareholdings by investing tens of trillions of won and prepare for many more lawsuits, and yet their voice is not reflected at all in the ongoing discussions.

Under the circumstances, Korea Chamber of Commerce and Industry Chairman Park Yong-man held a press conference and criticized the bills on Sep. 21. “The bills are nothing but populism forcing the sacrifice of the economy,” he remarked.

The bills are related to the very survival of enterprises. What they are asking for now is not preferential treatment but protection from reverse discrimination attributable to excessive and nonsensical regulations unique to South Korea. The law makers, whether they belong to the ruling party or the opposition party, are would be well advised to listen to them and look into how each of the provisions of the bills will affect the via-bility of South Korean enterprises and the future of the South Korean economy.

To our readersKorea’s Most Influential Business Monthly Since 1983

Publisher: Park Jung-hwanChief-in-Editor: Yu Kun-ha

General Editor: Lee Kwang-sooSupplementary Editor: Lee Song-hoonManaging Editor: Youn Won-chang Culture/Tourism Editor: Choi Mun-heeReporter: Cho Jin-young, Marie Kim, Jung Suk-yee, Jung Min-hee, Michael Hurh, Sara RaiContributing Writers: Seok Joon, Suh Bo-yun, Gho Chang-soo Designer: Jang Seung-eun

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‘Korea New Deal’ with Both Hands of Leading Enterprises Tied Up?

HDC Hyundai Development Co.’s planned acquisition of Asiana Airlines has fallen

through as the preferred bidder refused to accept creditors’ latest offer to cut the sale price.

Creditors of Asiana Airlines declared on Sept. 11 that Kumho Industrial’s con-tract with HDC Hyundai Development to sell the struggling airline has been can-celed. Korea Development Bank (KDB), the carrier’s main creditor, said the deal has collapsed. “We believe HDC has no intention of acquiring Asiana Airlines,” a KDB official said. The bank is expected to inform HDC early next week of its decision to end talks.

The collapse of the deal has been expected. The difference of opinions between HDC Hyundai Development and Kumho Industrial, which owns the beleaguered airline, has not narrowed for months. HDC has consistently called for another round of due diligence. On the surface, it said that it could not trust Kumho Industrial, but its true intention

appeared to be to invent excuses for declaring the collapse of the deal.

HDC cited the deterioration of Asiana Airlines’ financial conditions and financial support for insolvent affiliates and negative audit opinions from outside auditors as reasons for a second round of due diligence. It felt that it would need more funds after acquisition to normalize the struggling airline.

HDC appears to be prepared for the possibility of a legal battle following the collapse of the takeover talks. In 2008, a lawsuit was filed by Hanwha Group to get back the performance deposit after its bid to take over Daewoo Shipbuilding & Marine Engineering fell through due to a delay in contract signing. At the time, the Supreme Court accepted Hanwha's claim that it did not have a chance to conduct due diligence and ruled that some of the deposit and delayed interest should be returned to Hanwha.

The creditors have prepared a Plan B to normalize the operation of Asiana Airlines. They will implement a sweep-

ing restructuring plan, which will include adjustment of the routes the airline serves, cost-cutting and downsizing. They will also consider separate sales of Asiana Airlines’ affiliates, including Air Busan and Air Seoul.

"The creditors are expected to resume efforts to sell Asiana Airlines once situations improve," an industry analyst said.

Meanwhile, the creditors have kept mum on HDC Hyundai Development's request for a second round of due dili-gence. This may spark off criticisms over who are to blame over the abortion of the M&A deal.

The First Beneficiary of Key Industry Stabilization Fund

With the collapse of the deal, Korea Development Bank (KDB) said in a briefing that the government will imme-diately inject 2.4 trillion won from the Key Industry Stabilization Fund into the airline to normalize its operation.

The creditors will assume control of the airline through a debt/equity swap. KDB and the Export-Import Bank of Korea hold 800 billion won worth of per-petual bonds issued by Asiana Airlines. When these bonds are converted into shares, the two creditors will become Asiana’s largest shareholder with a 37 percent stake, higher than Kumho Indus-trial’s 31 percent. They are expected to resume sale efforts after restructuring the deficit-ridden airline.

The decision to inject 2.4 trillion won into Asiana was made at a meeting of government officials, which was attend-ed by Minister of Land, Infrastructure and Transport Kim Hyun-mi and KDB Chairman Lee Dong-gull.

The creditors also decided to provide 120 billion won to Kumho Buslines, an affiliate of Kumho Asiana Group which is in financial difficulties due to the COVID-19 pandemic.

With the deal's breakdown, creditors are expected to activate a plan B. Asiana Airlines is likely to enter into a voluntary agreement with creditors again as it did 10 years ago. In this case, creditors will

Expected Result

HDC’s Takeover of Asiana Airlines Falls ThroughBy Michael Herh

HDC Hyundai Development Co.’s planned acquisition of Asiana Airlines has collapsed.

08

focus

become the largest shareholder of Asiana Airlines through a debt-for-equity swap and revamp it.

The creditors have also begun dis-cussing a capital reduction on Kumho Industrial’s stake. They are also discuss-ing a plan to normalize Asiana Airlines' management by providing new funding at the same time.

Asiana Airlines have more than 2 trillion won in short-term loans that fall due over the next one year. In particu-lar, it could face redemption asset-backed securities (ABS) worth 700 billion won, if its credit rating is downgraded due to the collapse of the sale deal. This is why the creditors decided to immediately inject 2.4 trillion won into the airline.

Government Criticized for Extreme Waste of Taxpayers’ Money

Critics say the government's finan-cial support for Asiana Airlines is "an extreme waste of taxpayers' money."

The South Korean government recently decided to invest 2.4 trillion won in Asiana Airlines from its key industry stabilization fund. Specifical-

ly, 2.1 trillion won will be spent for the purpose of corporate stabilization and the rest will be added to its liquidity. An operating loan will account for 80 per-cent of the money and the rest will be in the form of convertible bond purchase.

Those in the financial and aviation industries are criticizing the govern-ment in that the financial assistance exceeds the airline’s losses attributable to COVID-19. “The money is something with which two airlines of the size of Korean Air can be bought and this is an extreme waste of taxpayers’ money,” one of them pointed out.

The Korea Development Bank and the Export-Import Bank of Korea already provided 3.3 trillion won for Asiana Airlines last year and this year. In other words, no less than 5.7 trillion won is to be provided for the airline. For reference, the current market caps of Korean Air and Asiana Airlines are approximately 3.3 trillion won and 900 billion won, respectively.

Those in the industries are also criti-cizing the Korea Development Bank and Kumho Group, saying that they are shirking their responsibility for the failed

sale of Asiana Airlines while covering the resultant losses with the govern-ment fund. “The deal failed and Kumho Buslines cannot receive the proceeds, and yet the government is planning to continue to financially support the express bus company under creditor con-trol,” they said.

In the meantime, Asiana Airlines announced on Sept. 24 that it would con-vert its A350 and B777 passenger jets into cargo planes in order to cope with COVID-19 by increasing its cargo trans-port volume.

In the second quarter of this year, the airline posted an operating profit of 115.1 billion won and most of the profit was from cargo transportation. The upcoming conversion of its A350-900 will increase its cargo transport volume by five tons. Then, 23 tons of cargo will be transport-ed per flight.

Its repurposed aircraft departed from Incheon to Los Angeles on Sep. 24 with 20 tons of electronic components, clothes, e-commerce products, and so on. Next month, the aircraft will be used for high-demand routes such as Incheon-Ho Chi Minh.

The Korean government will immediately inject 2.4 trillion won from the Key Industry Stabilization Fund into the airline to normalize its operation.

focus

09

The U.S.-based non-profit organi-zation Social Progress Impera-

tive and Deloitte Korea, which have been strategic partners since 2013, announced that South Korea is the 17th-best country to live in, out of 163 countries worldwide, according to the former’s Social Progress Index for this year.

South Korea rose six notches this year. The index has covered more than 100 countries since 2014 and this year’s ranking of South Korea is its highest record since 2014.

Specifically, South Korea scored 96.92 and remained in the seventh place in Basic Human Needs. In Well-being, it scored 90.12 and rose from 25th to 17th. In Opportunity, it scored 80.13 and climbed four notches to 22nd. In the Well-being category, South Korea boosted its score from 61.02 to 79.78 and ranking from 92nd to 80th in Qual-ity of Environment. In Opportunity, it jumped from 15th to third in Access to

Higher Education.The list of 163 countries is topped

by Norway, which retained its place for three years in a row. Norway came in eighth with 96.85 in Basic Human Needs, first with 93.39 in Well-being and third with 87.95 in Opportunity. It

is followed by Denmark, Finland, New Zealand, Sweden, Switzerland, Canada, Australia, Iceland and the Netherlands.

The United States, Japan and China ranked 28th, 13th and 100th, respective-ly. Japan fell three notches and China fell 11 notches in one year.

Statistics Korea announced on Sept. 2 that South Korea came in

10th in the World Intellectual Property Organization’s global innovation index released that day. The list is topped by Switzerland, which is followed by Sweden and the United States. When it comes to Asian countries, Singapore, China and Japan came in eighth, 14th and 16th, respectively.

The organization’s global innovation

index, which began to be drawn up in 2007, is to provide information and data required for public policy and business strategy establishment for each WIPO member countries based on its measured innovation capabilities. This year, it cov-ered 131 countries in total in the seven fields of human capital and research, knowledge and technology outputs, infrastructure, market sophistication, business sophistication, creative outputs,

and institutions.South Korea took the 21st place in

2012, 16th in 2014, 11th in 2016, and 11th in 2019. This year, it rose from 13th to 10th in knowledge and technology outputs and creative outputs, came in seventh in business sophistication, and retained its top place in human capital and research.

South Korea has been ranked 17 in the Social Progress Index for this year.

Retains Top Place in Human Capital and Research

South Korea Surpasses Japan and China in Global Innovation IndexBy Kim Eun-jin

The Highest Record since 2014

South Korea 17th-best to Live InBy Jung Suk-yee

South Korea is ranked 10th in the World Intellectual Property Organization’s global innovation index.

10

national

The Korea Institute for International Economic Policy advised the South Korean government to clarify its

stance on the Xinjiang Uighur, South China Sea and Hong Kong national security law issues with U.S.-China disputes escalating in non-economic sectors as well as trade.

At present, the conflicts are being witnessed in a variety of fields, ranging from COVID-19 and Hong Kong national secu-rity law to Huawei 5G equipment and cybersecurity. According to the institute, the frequency of non-economic clashes between the two superpowers is likely to increase with time and China is being increasingly isolated after the enactment of the Hong Kong national security law.

“Their economic and financial sanctions are likely to tar-get a small number of individuals and certain enterprises for the time being with the global economy slowing down due to COVID-19,” it explained, adding, “Meanwhile, their disputes are likely to increase with regard to human rights issues, mili-tary issues, political issues, and the like. ”

Canada, the United Kingdom, France, Germany, Italy and Japan have controlled their exports to China since July in rela-

tion to the national security law. It is said that the People’s Lib-eration Army and the Ministry of State Security of China will get access to highly sensitive technologies once the Chinese Communist Party applies the law.

In addition, the six countries urged China via the United Nations Human Rights Council to respect human rights and individual freedom after news came out about one million Uighurs detained without trial. Russia, Serbia, Bangladesh and Algeria, which supported China’s policy in the region until July last year, withdrew their support in June this year.

China’s isolation also has to do with the July 2016 ruling of the Permanent Court of Arbitration that rejected China’s nine-dash line claims in the South China Sea. The United Kingdom is planning to station an aircraft carrier in the South China Sea for military coop-eration with Australia. Japan and the United States have conducted annual joint military exercises in the region since 2017.

The Ministry of Commerce of China released regulations on blacklist entities on Sept. 19 in response to the U.S.

government’s restrictions on Tencent.The regulations are applicable to every foreign enterprise,

organization or individual blocking a Chinese company for a non-commercial purpose or seriously infringing upon its legiti-mate rights. The Chinese government is yet to disclose specific targets.

Every entity on the blacklist is subject to prohibition or limi-tation with regard to export, import and investment in relation to China. In addition, its executives and staff members cannot enter or live in China and fines may be imposed in some cases. U.S. companies such as Apple, Cisco, Qualcomm, Boeing and

Tesla are being mentioned as the first group to be put on the blacklist.

South Korean companies are likely to take a hit in that case. Samsung Display and LG Innotek are currently supply-ing iPhone display panels and camera components to Apple, respectively. LG Display has supplied iPhone display panels since last year and its supply for the iPhone 12 Max, which will be unveiled next month, amounts to 20 million units. LG Chem is supplying batteries to Tesla.

South Korea has been ranked 17 in the Social Progress Index for this year.

Image captured from Nikkei Asian Review

A Recommendation from State-run Think Tank

South Korean Government Advised to Clarify Its Stance on China-related Issues

China Releases Regulations on Blacklist Entities

South Korean Companies Stuck between the United States and China

By Jung Suk-yee

By Jung Suk-yee

11

national

Emerging countries are raising their trade barriers with the spread of COVID-19 reduc-

ing their foreign exchange reserves. For example, Turkey is trying to block the outflow of funds based on its free trade agreements with its manufacturing and tourism sectors paralyzed.

The South Korean government is closely watching the moves of Turkey and India in particular. According to the government, Turkey is attempting to with-draw from its FTA with South Korea due to trade deficits amid the increasing pos-sibility of sovereign default. India’s dis-content with its FTA with South Korea is substantial, too. For India, South Korea is a country causing a massive trade deficit second only to its trade deficit with China.

Their complaints about the bilateral FTAs are something unexpected in that both countries have benefited from the agreements. According to the Korea Institute for International Economic Policy, South Korea’s imports from Turkey increased by an annual average of US$174 million in 2013 to 2017 as

compared with 2008 to 2012 after their FTA took effect in 2013. Although both Turkey and India are making an issue of chronic trade deficits, this is somewhat excessive given that the FTAs have led to more local investments and intermedi-ate goods exports based on more South Korean companies in those countries. South Korea’s direct investment in Tur-key more than doubled from US$130

million to US$270 million through the implementation of the FTA.

Turkey is currently undergoing a decrease in forex reserves and increas-ing forex risks attributable to the tourism sector as well as a recession caused by COVID-19. Many Turkish companies in need of foreign currencies for intermedi-ate goods trade and so on are becoming inoperable one after another.

India, in the meantime, is currently expanding its countervailing duties while making an issue of the FTA. This is because a domestic breakthrough has been hard to find. Also hard to find is South Korea’s solution. “Although India is mentioning the trade deficit, most of it is because South Korean companies such as Hyundai Motor Group entered the Indian market at the request of the Indi-an government,” the institute explained, adding, “If South Korea increases its investment in India to soothe it, more intermediate goods will be shipped to South Korean companies’ manufactur-ing facilities in the country, which means even more trade deficits.”

To Block Outflow of Foreign Exchanges

Turkey and India Raising Trade Barriers against South KoreaBy Jung Suk-yee

Hyundai Motor manufacturing plant in Izmit, Turkey

Hyundai Motor's plant in Chennai of India

12

national

Hyundai Motor's plant in Chennai of India

Since 2015, the Korea Forest Ser-vice (KFS) has reduced 650,000

tons of greenhouse gas (GHG) emis-sions in Cambodia through the Reducing Emissions from Deforestation and Forest Degradation plus (REDD+) Project car-ried out in Kampong Thom Province of the Southeast Asian country.

The reduction amount is equivalent to annual GHG emissions from about 340,000 passenger cars (energy efficien-cy level 3), which produce 1.92 tons of emissions per unit.

Moreover, the KFS’s five-year green-

house gas reduction activities until 2019 were officially certified by the Veri-fied Carbon Standard (VCS) on Sept. 3, enabling it to make profits by selling its emission rights in voluntary carbon mar-kets in the future.

The value of the KFS’s emission rights is estimated at US$3 million, far exceeding the total project cost of US$1.6 million. The calculation is based on the price of carbon credits (US$5/ton) applied by the Green Climate Fund (GCF) to REDD+ projects in developing countries such as Brazil.

The KFS pushed forward with the Korea-Cambodia Pilot REDD+ Project based on a business agreement signed with the Forest Administration of Cam-bodia in December 2014. It launched a project group in 2015. The project aims to jointly respond to climate change boost the income of local residents through forest conservation.

The Kore a Forest Service will host the 2021 World Forest Con-

gress (WFC) at COEX in Seoul for five days from May 24 to 28, 2021.

The KFS organizes the conference in cooperation with the Seoul Metropoli-tan Government and the U.N. Food and Agriculture Organization (FAO). About 10,000 experts from governments, inter-national organizations, academia and NGOs in 160 countries are expected to attend the event. They will discuss for-est issues such as responses to climate change, biodiversity, forest restoration and forest welfare (resting and healing gardens).

The event will consist of the Plenary Meeting, the High-level Segment, the Subthemes Session, Side Event and Vis-its to Forests.

The main theme of the 2021 WFC is

"Building a Green, Healthy and Resil-ient Future with Forests." The sub-themes are (1) Turning the tide: revers-ing deforestation and forest degradation; (2) Nature-based solutions for climate-change adaptation and mitigation and biodiversity conservation; (3) The green pathway to growth and sustainability; (4) Forests and human health: revisit-ing the connections; (5) Managing and communicating forest information and knowledge; and (6) Forests without boundaries: enhancing management and cooperation.

The WFC is the most influential international conference in the forest sector. During the congress, recommen-dations and declarations on important forest-related issues are made. The event is held every six years by the FAO. The WFC is a "Forest Olympic Games"

attended by forest stakeholders from the public and private sectors, non-gov-ernmental organizations, civic groups, scientific or professional organizations, academic societies, as well as ordinary people interested in forests and the envi-ronment.

Its key agendas will include the U.N. Sustainable Development Goals, U.N. Forest Strategy, the U.N. Decade on Ecosystem Restoration (UN DER), the Paris Agreement, and a biodiversity framework after 2020.

Participants will also introduce and discuss Korea's excellent forest policies and technology such as responses to for-est disasters, in-forest recreation, forest welfare, forest IT, timber and biomass.

Choi Byeong-am, deputy minister of Korea Forest Service, announces the results of a pilot project to reduce greenhouse gas emissions by preventing deforestation in developing countries.

Officials unveil an electronic bulletin to start the countdown to the World Forest Congress (WFC) in a ceremony held on May 25, 2020.

KFS Secures Emission Rights Worth US$3 Mil.

Korea and Cambodia Jointly Reduce Greenhouse Gas Emissions by 650,000 Tons

About 10,000 Experts from 160 Countries to Attend

Seoul to Host World Forestry Congress in May 2021

By Jung Suk-yee

By Jung Suk-yee

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tancing enters the third stage.”The agency also explained that its sluggish domestic demand is likely

to result in an inflation rate lower than the central bank’s target. “Then, the bank will have to conduct monetary easing in the form of rate cut and limited asset purchase,” it said.

International credit rating agency Fitch Rat-ings adjusted its South Korean economic

growth forecast for this year from negative 0.9 percent to negative 1.1 percent on Sept. 8. According to the agency, the Bank of Korea is likely to cut the key rate by 0.25 percentage point within this year.

“South Korea’s private consumption is pre-dicted to continue to fall until the end of the third quarter of this year due to the second wave of COVID-19 and tighter social distancing, and yet the degree of economic recession in South Korea attributable to the pandemic is smaller than in most other countries,” it mentioned.

“South Korea has been successful in quaran-tine even without strict restrictions on economic activities, its consumption spending rebounded in the second quarter, and investment showed only a limited decrease in construction and facility investments,” it went on to say, continuing, “Still, its growth rate may be affected if its social dis-

International credit rating agency S&P changed its South Korean economic growth

estimate for this year from negative 1.5 percent to negative 0.9 percent on Sept. 24.

The upward adjustment is based on its con-clusion that China will lead an Asia-Pacific eco-nomic recovery and South Korea will be able to benefit from it.

The agency lowered its South Korean eco-nomic growth estimate for next year from 4 per-cent to 3.6 percent. This adjustment reflects the base effect that this year’s growth rate will be higher than expected.

The agency raised its 2020 estimates for China, South Korea, Taiwan and Vietnam in view of improving trade conditions and increasing con-sumption expenditures. On the other hand, it said

Fitch Ratings has lowered South Korea's economic growth estimate for this year from negative 0.9 percent to negative 1.1 percent.

S&P has adjusted its South Korean economic growth estimate for this year from negative 1.5 per-cent to negative 0.9 percent.

BOK Forecast to Cut Key Rate by 0.25% Point This Year

Fitch Lowers South Korean Economic Growth Forecast

Korea to Benefit from China's Economic Recovery

S&P Raises S. Korea’s Economic Growth Estimate

By Jung Suk-yee

By Jung Suk-yee

that it would take time until most Southeast Asian economies and the Indian, Japanese and Australian economies return to normal.

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The Federation of Korean Industries announced on Sept. 7 that the overseas sales of the top 100 South Korean

enterprises dropped 19.8 percent year on year to 146.3 trillion won in the second quarter of this year in the wake of COVID-19.

In the first quarter of this year, the overseas sales increased 0.65 percent to 170.4 trillion won with the economic impact of the pandemic limited to Asia. However, in the second quar-ter, the pandemic engulfed the companies, especially those in the electrical and electronics, automobile and auto parts, and energy and chemical industries.

Specifically, the overseas sales of the electrical and elec-tronics sector fell 5.1 percent year on year to 71 trillion won. Those of automobile and auto parts dropped 36.5 percent, those of energy and chemical dropped 30.9 percent, and those of steelmakers plunged 80.1 percent.

Those enterprises’ sales in Asia, the Americas and Europe decreased 24 percent, 12.6 percent and 11.2 percent, respec-tively. Still, the combined sales in China of Samsung Elec-tronics, Hyundai Motor Company, LG Electronics, SK Hynix and Hyundai Mobis increased 5.9 percent from a year earlier

and 19.6 percent from the previous quarter. According to the federation, this has to do with a fast recovery of the Chinese economy, in which a real growth rate of 3.2 percent was posted in the second quarter and large-scale infrastructure investments are scheduled in relation to 5G communications, artificial intel-ligence, the Internet of Things, etc.

The Bank of Korea announced on Sept. 1 that South Korea’s exports hit a 56.5-year low and its GDP growth

rate dropped to negative 3.2 percent, the worst since the fourth quarter of 2008, in the second quarter of this year. The country’s GDP growth rate remained below zero for the second consecu-tive quarter after negative 1.3 percent in the previous quarter.

In the second quarter, South Korea’s exports dropped 16.1 percent in the wake of COVID-19. The rate of decline is the highest since the fourth quarter of 1963, when the exports plum-meted 24 percent.

Under the circumstances, the contribution of net exports to GDP growth fell to negative 4.1 percentage points, which means the sluggish exports dragged down the GDP growth rate by 4.1 percent. South Korea’s imports fell 6.7 percent in the second quarter, too. Facility and construction investments fell 0.5 per-cent and 1.5 percent, respectively. On the other hand, private consumption rose 1.5 percent, led by disaster subsidies from the

government and its individual consumption tax cut.In the second quarter, manufacturing production and primary

industry output fell 8.9 percent and 9.5 percent from the previ-ous quarter, respectively. The former figure is the worst since the second quarter of 1963, when it dropped 10.4 percent.

Weighed upon by COVID-19 Pandemic

South Korean Companies’ Overseas Sales Drop 20% in Q2

Exports Plunge 16.1%

South Korea’s Exports and GDP Growth Rate Drop in Q2

By Jung Suk-yee

By Jung Suk-yee

This file photo taken in May shows Kia Motors’ almost empty product parking lot located in Gwangju.

South Korea’s exports hit a 56.5-year low in the second quarter of 2020.

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Private Sector Credit Reaches 3,700 Tril. Won

Household and Corporate Debts Hit All-time HighBy Jung Suk-yee

The Bank of Korea announced on Sept. 24 that the pri-vate-sector credit was equivalent to 206.2 percent of the

nominal GDP of South Korea at the end of the second quarter of this year. The figure rose 5.2 percentage points in three months to an all-time high since records began in 1975.

In the second quarter, household and corporate debts snow-balled due to COVID-19 and loans increased for stock and real estate investments. Specifically, the debts totaled 3,716.8 trillion won, up 7.6 percent from a year earlier.

The household debts added up to 1,637.3 trillion won with a year-on-year increase of 5.2 percent. Mortgage and non-mort-gage loans increased 6.4 percent and 3.9 percent, respectively.

The corporate debts totaled 2,079.5 trillion won with a year-on-year increase of 9.6 percent, the highest rate of increase since the third quarter of 2009. The central bank pointed out that the credit risks of enterprises may increase if the lingering pandem-ic continues to hinder economic recovery.

The Korea Economic Research Institute said in its report on Sept. 16 that South Korea’s government spending-

to-GDP ratio increased by 1.4 percentage points in the period of 2010 to 2018, the second-highest in the OECD behind Colombia’s 1.8 percentage points. The institute also said that only seven countries showed that trend in the entire group and some fiscal rules to function as a brake are urgently needed for

South Korea.South Korea’s government spending-to-GDP ratio is con-

tinuing to increase. It reached 15.8 percent in 2018, 16.5 per-cent in 2019 and 18.4 percent in the first half of this year. It already exceeded the levels at which South Korea’s economic growth is maximized (15.6 percent) and its unemployment rate is minimized (18.3 percent).

The Ministry of Economy and Finance, in the meantime, announced on Sept. 1 that South Korea’s national debt-to-GDP ratio for 2024 is estimated at 58.3 percent. The ratio, which already amounts to 43.5 percent, is likely to reach 50.9 percent in 2022. Its fiscal deficit not reflecting social security funds is predicted to amount to 127.5 trillion won in 2024, equivalent to 5.6 percent of the GDP. In other words, the country’s fiscal soundness is already deteriorating.

The OECD announced on Sep. 16 that the South Korean economy would show a negative growth of 1 percent this year. The figure is 0.2 percentage point higher than its June esti-mate, the highest in the OECD, and the second-highest in G20. However, the upward adjustment has been halved compared to August due to the second wave of COVID-19 that started in the middle of last month.

Fiscal Rules Urgently Needed

South Korean Government’s Spending Increasing Too FastBy Jung Suk-yee

Korea's private-sector credit is more than double the country's nominal GDP.

South Korea’s government spending-to-GDP ratio reached 18.4 percent in the first half of this year.

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For 4 Months in a Row

Unemployment Benefit Payment Tops One Trillion Won Again in AugustBy Jung Suk-yee

The unemployment benefits paid last month totaled 1,097.4 billion won, topping one trillion won for the

fourth consecutive month after having exceeded that amount for the first time ever in May. Although the paid benefits hit an all-time high of 1,188.5 billion won in July and edged down last month, the figure for this month is likely to rebound in that it will reflect the second wave of COVID-19.

A total of 90,000 persons applied for unemployment bene-fits last month whereas the number amounted to 114,000 in July, 106,000 in June and 111,000 in May. Last month, 750,000 persons received the benefits, close to the figures of the previous months.

In August this year, employment conditions for those in their 40s and older somewhat improved based on the government’s projects in the public sector. However, those in their 20s and

30s are still facing dire conditions. The number of those aged 60 and older and covered by the employment insurance increased 208,000 last month, the largest increase since the outbreak of COVID-19.

The same trend was witnessed for those in their 40s and 50s. On the contrary, the number of those aged 29 and younger and covered by the same insurance decreased 59,000 and the amount of decrease was 52,000 for those in their 30s.

Last year, the number of those aged 65 and over accounted for more than 15 percent of the total popu-

lation of South Korea for the first time. With the working age population and the young population continuing to decrease on the contrary, a rapid decline in labor input is predicted to affect South Korea’s potential economic growth rate.

Statistics Korea announced on Aug. 28 that the number of senior citizens totaled 7.75 million last year to represent 15.5 percent of the entire population.

South Korea became an aged society in 2017 as the ratio reached 14.2 percent. The rate of increase in the number of senior citizens was 0.6 percentage point in each of 2017 and 2018 and rose to 0.7 percentage point last year. The ratio stood at 7.3 percent in 2000 but more than doubled in 19 years.

On the other hand, in 2019, those aged 14 and under decreased from 6.48 million (13 percent) to 6.31 million (12.6 percent) and the other age group decreased from 36.1 million (72.2 percent) to 35.94 million (71.9 percent). As a result, the ratio of the number of senior citizens to 100 working-age per-sons soared from 10.2 to 21.5 in just one year. Besides, the ratio of the number of senior citizens to 100 persons in the young population group jumped 8.6 percent from 114.1 to 122.7.

These demographic changes are poised to adversely affect the South Korean economy. “South Korea’s potential eco-nomic growth rate has fallen since 2010 and this is because the increase in the input of production elements such as labor and capital has slowed down,” the Bank of Korea explained last year, estimating the potential growth rate at 2.5 percent to 2.6 percent. More recently, the OECD estimated the rate at 1.2 percent for the period of 2020 to 2060, mentioning the demo-graphic changes as a key factor.

Statistics Korea also announced that 25.89 million people were living in the capital area, that is, Seoul, Gyeonggi and Incheon last year. The ratio, approximately 50 percent, is an all-time high.

Senior Citizens Account for 15.5% of Population

Korean Society Is Aging RapidlyBy Jung Suk-yee

Jobseekers waiting for a briefing on unemployment benefits

The number of senior citizens totaled 7.75 million in 2019, accounting for 15.5 percent of the entire population.

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The Korean government plans to submit amendments to the Monopoly Regulation and Fair Trade Act, the Commercial Act and the Financial Group Supervision Act to the National Assembly this month.

Three bills for corporate regulation will be submitted to the National Assembly late this month.

The South Korean government is planning to submit amendments to the Monopoly Regulation and Fair Trade Act, the Commercial Act and the Financial Group Supervision Act to the National Assembly late this month.

Experts point out that the bills are likely to result in so-called shareholder dictatorship through strengthening of shareholder democracy, reduced rights of major shareholders, disappearance of minority shareholders and financial invest-ment capital filling the vacuum. “The original purpose of the bills is minority shareholder protection, but what is likely to occur is weakened management rights and more influence from foreign and institutional investors,” one of them men-tioned.

The side effects of shareholder dictatorship have already been witnessed in some countries that adopted a higher level of shareholder democracy. According to the Korea Economic Research Institute, 10 activist funds attacked 48 global enter-prises back in 2014 and the enterprises’ growth, profitability and many other indices deteriorated in 2015.

Specifically, their employment fell 4.8 percent and 18.1 percent in 2014 and 2015, respectively. Likewise, their capital

expenditures fell 2.4 percent in 2014 and dropped 23.8 percent in 2015, R&D investment was maintained in 2014 and plum-meted 20.8 percent in 2015, and net profit plunged 46.2 percent and 83.6 percent, respectively.

Meanwhile, the enterprises substantially increased their share buyback and dividend payment. To be specific, the trea-sury shares increased 7 percent to 8 percent year on year before the interference but 20.3 percent in 2014. The payment jumped 63.8 percent during the interference, too. Although the payment decreased after the attack, the net profit plummeted more than that to cause a payout ratio of up to 397 percent.

"South Korea carried out the most intensive conglomerate reform in the world during the 1997 Asian financial crisis, and yet the society has been polarized more and more,” said profes-sor Shin Jang-seop at the National University of Singapore, add-ing, “This is because the reform was a shareholder-oriented one focusing on short-term corporate profits.”

KAIST professor Lee Byung-tae expressed concerns over inefficiency in the use of resources. “Entrepreneurs now have to concentrate their resources and efforts on retaining control and resort to expedients instead of studying how to survive in the global market, which has nothing to do with entrepreneurs in other countries,” he said.

Bills Likely to Result in 'Shareholder Dictatorship'

Bills for Tighter Corporate Regulations Raising ConcernsBy Jung Suk-yee

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The People Power Party is planning to advocate the government’s and the ruling

party’s amendments to the Commer-cial Act, the Monopoly Regulation and Fair Trade Act and the Financial Group Supervision Act and come up with mea-sures for side effect prevention at the same time. The party is going to look into the potential side effects of the introduction of shareholder derivative litigation, major shareholders’ voting rights to be limited to 3 percent during separate audit committee member elec-tion, and revocation of the Korea Fair Trade Commission’s exclusive right to accuse.

“In the United States, the multiple derivative suit has been exceptionally accepted on condition that the separa-tion of legal personality between parent and subsidiary companies is not easy,” said Choi Joon-seon, honorary professor at the Sungkyunkwan University Law School, adding, “In Japan, it has been applied only to fully-owned subsidiaries, that is, the bill advocating shareholder derivative litigation is almost unprec-edented worldwide.”

The commercial law revision for the litigation, which will allow a par-ent company shareholder to file a suit against a subsidiary board member, is likely to mean continuous litigation risks on the part of enterprises. The Federa-tion of Korean Industries recently said that the introduction of shareholder derivative litigation would increase list-ed companies’ litigation risks by up to 390 percent.

“Once it is introduced, an increas-ing number of foreign competitors will

file suits with malicious intentions against South Korean companies,” Seoul National University Professor Lee Gyung-mook pointed out. The honor-ary professor also mentioned that spec-ulative foreign capitalists would take advantage of the new bill with South Korean companies having no means for protecting themselves.

“As for Samsung Electronics, which has the largest market cap in South Korea, the suit can be filed with no more than 40 billion won or so,” said a busi-ness community source, adding, “Only 1.25 billion won or so is required to acquire 0.01 percent of Samsung Life Insurance, the largest financial subsid-iary of Samsung Group, and lawsuits

can be brought against the five Samsung Group subsidiaries including Samsung Card and Samsung Asset Management in this manner.”

In addition, it takes just 5.12 bil-lion won to get 0.01 percent of Hyundai Motor Group, the second-largest con-glomerate in South Korea. SK Group, the third-largest, is particularly vulner-able to the risk as its key subsidiar-ies’ shareholdings in their subsidiaries are relatively larger. For example, SK Telecom has a shareholding of over 50 percent in no less than 18 subsidiaries, including SK Broadband and SK Com-munications. Approximately 1.94 billion won is enough to acquire 0.01 percent of SK Telecom shares.

Opposition Party Backs Ruling Party's Amendments

Shareholder Derivative Litigation Poised to Cause More Enterprise RisksBy Jung Suk-yee

Korea Chamber of Commerce and Industry Chairman Park Yong-man visits the National Assembly on Sept. 22 for a meeting with People Power Party leader Kim Jong-in.

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Major financial holding companies are planning to invest at least 70 trillion

won for five years to come in the South Korean government’s New Deal Fund, which was announced on Sep. 3 and is scheduled to reach 20 trillion won in size.

Under the circumstances, concerns are mounting over political pressure on the financial sector. Although the gov-ernment is stressing that there will be no forced participation in the fund for its New Deal projects, financial companies cannot be completely free from what the

government implies in that the financial sector is typically subject to various reg-ulations.

Those companies’ feelings are mixed although they welcomed the launching of the fund on the face of it. First of all, their financial burden is likely to increase a lot. This year, they already spent a lot of money with regard to the government’s key industry stabilization fund, stock mar-ket stabilization fund, and the like. More recently, they postponed interest payment deadlines and loan maturity dates by addi-tional six months for small companies and businesses suffering from COVID-19.

“Government-led funds are not per-fectly free from the risk of poor manage-ment and it is not sure whether the money will flow to productive destinations,” said an anonymous industry source, adding, “Besides, banks in charge of the selling may have to face mis-selling risks as in the recent case of Lime Fund.”

Another burden is the fact that a number of government-led funds have fizzled out. The examples include more than 40 green industry funds launched during the Lee Myung-bak administra-tion and those launched during the Park Geun-hye administration in relation to inter-Korean unification. The funds attracted a lot of money in their early stages with the government backing but lost their attractiveness after regime changes.

Financial Holding Companies to Invest 70 Tril. Won

Government Twist Banks' Arm to Invest in New Deal FundBy Jung Suk-yee

The Korean government has twisted the arm of major financial holding companies to invest at least 70 trillion won for five years to come in the New Deal Fund.

The principal of the South Korean government’s New Deal Fund is

likely to be protected to some extent. The preparation of the 20 trillion won fund is scheduled to be completed in 2025 while the current presidential term ends in May 2022. It is pointed out by some that the principal protection based on taxpayers’ money is far from desirable and the conti-nuity of the fund cannot be guaranteed in view of the presidential term.

On Sep. 3, Deputy Prime Minister Hong Nam-ki made an announcement on how

to prepare the fund and support financing via the fund. Specifically, the fund will be divided into the New Deal Policy Fund as a master-feeder fund based on fiscal input and the New Deal Infrastructure Fund to come with tax incentives. The government is planning to boost the private sector’s par-ticipation in the funds by improving relevant systems and rules. According to the gov-ernment, the fund is expected to play an important role in shifting the abundant liquid-ity in the market from less productive parts such as real estate toward more productive

ones such as investment.The partial principal protection, howev-

er, is already causing controversy. The gov-ernment will make an average subordinated investment of 35 percent in the fund, which means investment losses of up to 35 per-cent will be absorbed by the government.

Principal Protection with Taxpayers’ Money

Principal of New Deal Fund to Be Protected in Part

President Moon Jae-in presides over the govern-ment’s first New Deal Strategy Meeting on Sept. 3.

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Critics say the government's financial support for Asiana Airlines is "an extreme waste of taxpayers' money."

The South Korean government recently decided to invest 2.4 trillion won in Asiana Air-

lines from its key industry stabilization fund. Specifically, 2.1 trillion won will be spent for the purpose of corporate sta-bilization and the rest will be added to its liquidity. An operating loan will account for 80 percent of the money and the rest will be in the form of convertible bond purchase.

Those in the financial and aviation industries are criticizing the govern-ment in that the financial assistance

exceeds the airline’s losses attributable to COVID-19. “The money is something with which two airlines of the size of Korean Air can be bought and this is an extreme waste of taxpayers’ money,” one of them pointed out.

The Korea Development Bank and the Export-Import Bank of Korea already provided 3.3 trillion won for Asiana Airlines last year and this year. In other words, no less than 5.7 trillion won is to be provided for the airline. For reference, the current market caps of Korean Air and Asiana Airlines are approximately

3.3 trillion won and 900 billion won, respectively.

Those in the industries are also criti-cizing the Korea Development Bank and Kumho Group, saying that they are shirking their responsibility for the failed sale of Asiana Airlines while covering the resultant losses with the govern-ment fund. “The deal failed and Kumho Buslines cannot receive the proceeds, and yet the government is planning to continue to financially support the express bus company under creditor con-trol,” they said.

'An Extreme Waste of Taxpayers’ Money'

Government Criticized for Excessive Financial Assistance for Asiana AirlinesBy Jung Suk-yee

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Samsung Group is facing mul-tiple threats and challenges at the same time.

Amid a growing sense of a crisis among Korean companies due to the resurgence of COVID-19, concern is growing over the multiple threats facing Samsung Group. In particular, Samsung Electronics is caught in the middle by the prosecution’s indictment against vice chairman Lee Jae-yong, anti-Samsung laws, U.S.-China trade disputes and diplo-matic disputes between South Korea and Japan, which are compounding the mat-ter with the role of the Samsung Group’s apparent heir.

Chief prosecutor Lee Bok-hyun of the Seoul Central District Prosecutors’ Office announces on Sep.1 the result of its investigation on Samsung Electron-ics vice chairman Lee Jae-yong’s alleged involvement in illegal activities commit-ted by group officials to ensure a transfer of managerial control to him.

Ignoring the recommendation of the Investigation Review Committee not to indict him and stop all investigations against vice chairman Lee, the prosecu-tion put Samsung Electronics vice chair-man Lee Jae-yong on trial after 21 months of investigation. The business community expressed concerns with the investigation deliberation committee and expert opinion collection, which were regarded as mini-mum safeguards, having failed to block the indictment.

“The prosecution pushed ahead with its investigation to reach an already made

con clusion,” said a group in the commu-nity, adding, “This shows that the pros-ecution can shake any enterprise to its foundation once it decides to do so, which is extremely fearful, and its decision not reflecting the current dire economic con-ditions will affect the entire South Korean economy as well as Samsung Group.”

In June this year, the deliberation committee advised the prosecution to stop its investigation and not to indict the vice chairman and the others involved in the Samsung Biologics accounting scandal and so on. Specifically, a total of 10 out of 13 committee members gave the advice. “The committee was organized by none other than the prosecution itself for prose-cutorial reform and its defiance is nothing but abuse of power and resistance to the rule of law,” said professor Lee Byung-tae at the KAIST College of Business.

Samsung Group’s business uncertain-ties are increasing after the prosecution’s announcement. Especially, Samsung Electronics’ global M&A activities and large-scale investments are likely to be put on hold for years with competition for survival intensifying in the global semi-conductor industry. It is said that the vice chairman and the management will have to stand trial for up to five years and their court appearance and trial preparation will hinder the group’s M&A and invest-ment decisions for that period of time.

A legislative threat coming from the government and ruling party’s move to revise the Insurance Business Act and Commercial Act is also weighing on

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By Michael Herh

Crisis of Samsung Group

Samsung Group Facing Multiple Threats

Samsung Group. In particular, if the Insurance Business Act is revised as promoted by the government, Samsung Life Insur-ance will have to dispose of its stake in Samsung Electronics. Samsung Life Insurance has to sell more than 20 trillion won worth of Samsung Electronics shares. Samsung Life Insurance will have to pay 5 trillion won in corporate tax alone after sell-ing off the stake. In this case, Samsung's corporate governance structure could be greatly shaken.

Samsung Electronics is also facing challenges from foreign competitors. Taiwan's TSMC, which is the world's No. 1 found-ry company, has decided to build a 2-nanometer semiconductor plant ahead of Samsung Electronics by spending 22 trillion won. In the meantime, U.S. chipmaker Nvidia acquired ARM, the world's largest semiconductor design company.

Prosecution's Indictment against Vice Chairman Lee Jae-yong

Despite the Prosecution Investigation Deliberation Commit-tee’s advice not to do so, the prosecution indicted the vice chair-man on Sept. 1 regarding his management succession, influ-enced by the ruling party and the civic organizations that have increased their power under the current administration. The 21-month investigation on the vice chairman started from civic groups’ accusation in 2016, too.

The business community expressed concerns with the inves-tigation deliberation committee and expert opinion collection, which were regarded as minimum safeguards, having failed to block the indictment.

“The prosecution pushed ahead with its investigation to

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reach an already made conclusion,” said a group in the com-munity, adding, “This shows that the prosecution can shake any enterprise to its foundation once it decides to do so, which is extremely fearful, and its decision not reflecting the current dire economic conditions will affect the entire South Korean economy as well as Samsung Group.”

In June this year, the deliberation committee advised the prosecution to stop its investigation and not to indict the vice chairman and the others involved in the Samsung Biologics accounting scandal and so on. Specifically, a total of 10 out of 13 committee members gave the advice. “The committee was organized by none other than the prosecution itself for prosecu-torial reform and its defiance is nothing but abuse of power and resistance to the rule of law,” said professor Lee Byung-tae at the KAIST College of Business.

The vice chairman was imprisoned on a charge of bribery in February 2017 and released on probation in February 2018.

According to the prosecution, Samsung Group conduct-ed fraudulent accounting and the merger in an organized way so that the vice chairman can inherit the group and have more control. On the other hand, Samsung Group is claiming that Samsung Biologics’ change in accounting reflected the growth potential of the biotech sector and the merger has nothing to do with corporate succession.

South Korean enterprises are complaining about the prose-cution’s investigative practices characterized by being very strict towards them and lenient towards those in power. During the investigation that continued for more than 600 days, the prose-cution conducted about 50 searches and seizures and summoned about 100 executives and staff members on over 430 different occasions. Besides, when it comes to the Samsung C&T merger, the investigation continued for more than three and a half years.

Citizens United for Better Society, another civic organiza-tion, pointed out that the left-wing civic groups urged his indict-ment and the prosecution and the justice minister agreed with them and this means the indictment was for political rather than legal purposes.

“Some people’s hatred towards the haves and Samsung Group is increasing as the group is continuing to grow in the global mar-ket,” said a source in the business community, adding, “It is hard to understand why they are so strict towards Samsung in particular although it is true that the group is not perfectly clean.”

After the prosecution’s announcement, Samsung Group’s business uncertainties are increasing Especially, Samsung Elec-tronics’ global M&A activities and large-scale investments are likely to be put on hold for years with competition for survival intensifying in the global semiconductor industry. It is said that the vice chairman and the management will have to stand trial for up to five years and their court appearance and trial prepara-tion will hinder the group’s M&A and investment decisions for that period of time. The company currently has sufficient finan-cial resources to do so. As of the end of the first quarter of this year, its cash and net cash in hand amounted to over 113 trillion won and 98 trillion won, respectively. Especially, system-on-chip companies are likely to be its targets in that it is aiming to dominate the market within 10 years.

Meanwhile, multiple lawmakers are moving ahead with anti-Samsung Group bills in the current session of the National Assembly. The examples include an amendment to the Insurance Business Act tabled by Democratic Party of Korea lawmakers Park Yong-jin and Lee Yong-woo. Once the bill is passed, Sam-sung Life Insurance must sell a lot of its Samsung Electronics shares, which may affect the group’s governance structure.

Anti-Samsung Law: Insurance Business Act to Be Amended

The amendment to the Insurance Business Act tabled in June by Democratic Party of Korea lawmakers Park Yong-jin and Lee Yong-woo is scheduled to be discussed in the regular ses-sion of the National Assembly in September.

On Aug. 24, Democratic Party of Korea lawmaker Park Yong-jin asked the Financial Services Commission to simulate the amount of dividends to go to Samsung Electronics share-holders when the Insurance Business Act amendment he tabled is passed. Earlier, the Financial Services Commission (FSC) already made an official announcement in favor of the amend-ment on July 30, causing a stir.

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An amendment to the Insurance Business Act is expected to be passed by the National Assembly soon.

Samsung Electronics vice chairman Lee Jae-yong appears at the Seoul Central District Court on June 8 for questioning. The court rejected the prosecution's request for an arrest warrant for him.

The lawmaker tabled the same amendment in both the previ-ous and current sessions of the National Assembly so that Sam-sung Life Insurance’s shareholding in Samsung Electronics can be limited based on market value-based calculation instead of acquisition cost-based calculation. The amendment is likely to be passed this time unlike in the previous session.

According to the current Insurance Business Act, an insur-ance company’s shareholding in a major shareholder or a subsid-iary for loss and risk prevention is limited to 3 percent of its total assets and the stock price in this case is calculated on an acquisi-tion cost instead of market value basis. The amendment, tabled last month, is to calculate the price on a market value basis.

At present, Samsung Life Insurance’s and Samsung Fire & Marine Insurance’s shareholdings in Samsung Electronics are estimated at 500 billion won and 100 billion won on an acquisi-tion cost basis, respectively. Those are equivalent to approxi-mately 0.1 percent of the respective total assets of the com-panies. On a market value basis, however, the figures jump to 29,436.8 billion won (9.5 percent) and 5,239.3 billion won (6.2 percent), respectively. Once the law is revised, they must sell 23 trillion won of Samsung Electronics shares within a grace period of five years.

Once the amendment is passed, Samsung Life Insurance must sell approximately 23 trillion won of Samsung Electronics shares and the sale will entail a corporate tax of about five tril-lion won. Those in the business community are saying that the amendment is to impose excessive taxes and legislation activi-ties for the same purpose are likely to follow once the calcula-tion method is changed.

Samsung Life Insurance is also paying much attention to the amendment. “It is still inappropriate for us to make any prediction or response with the change in calculation method being discussed in the National Assembly,” CFO Yoo Ho-seok remarked on Aug. 13.

Securities companies are predicting that the sale will be completed within Samsung Group. In the group, Samsung C&T governs Samsung Life Insurance and Samsung Life Insurance governs Samsung Electronics. Samsung Life Insurance is cur-rently the second-large shareholder in Samsung Electronics, beyond the National Pension Service, with a shareholding of 8.51 percent. It is an amount with which the governance struc-ture of Samsung Group as a whole can be shaken.

Another possibility is that Samsung C&T will step in for a swap between the shares and Samsung Biologics shares. If Samsung C&T obtains the Samsung Electronics shares, it can tighten its control over Samsung Electronics and dividends can be paid. Earlier, Samsung Life Insurance received 719.6 billion won in dividends from Samsung Electronics. Samsung Elec-tronics vice chairman Lee Jae-yong, who owns 17.48 percent of Samsung C&T, can get dividend income and solidify his control in Samsung Electronics by using his Samsung C&T shares.

This, however, is unlikely to actually occur in that Samsung C&T becomes a holding company in this case. Samsung C&T as a holding company must own at least 20 percent of Samsung

Electronics. Samsung C&T currently has 5 percent of Samsung Electronics along with financial resources not enough to raise the figure by 15 percentage points.

Division of Samsung Electronics into operating and holding companies and merger between the holding company and Sam-sung C&T has been mentioned for a while. However, this is just an idea related to a long-term change in governance structure. “This method will allow the utilization of treasury shares and greater control can result from in-kind investment of owners’ shares in the merged company,” Yuanta Securities explained, adding, “However, this depends on whether market participants will agree and how financial subsidiaries will be handled.”

According to many in the business community, any change in Samsung Group’s governance structure is likely to take con-crete shape after the vice chairman’s judicial risks are elimi-nated. In May this year, he declared that his children would not inherit the company and he would come up with New Samsung. “After the elimination of the risks, the capital separation pres-sure on Samsung is likely to be relaxed at the same time as gov-ernance structure improvement,” one of them mentioned.

The bill is likely to be passed within this year with both the majority ruling party and the government in favor of it. “Regu-lations regarding an insurer’s investment in a subsidiary in the same business group are in effect only in South Korea and Japan and the regulations in Japan are based on acquisition costs,” said an industry source, adding, “The amendment is likely to cause many side effects with few positive effects.”

Chinese Companies Challenging, Undaunted by U.S. Sanctions

Risks surrounding Samsung Electronics vice chairman Lee Jae-yong are another crisis factor, affecting the company’s posi-tion in the global semiconductor industry. The vice chairman has undergone prosecutorial investigations for years. Under the circumstances, Samsung Electronics has failed to come up with a new corporate vision to replace that released in 2008 and Chinese competitors are increasingly imitating its business strategies.

Another challenge is the ongoing trade disputes between the United States and China. The United States is about to imple-ment regulations so that semiconductor products manufactured

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Samsung Life Insurance is under pressure to sell approximately 23 trillion won worth of Samsung Electronics shares.

based on U.S. facilities cannot be supplied to Huawei, which is one of the biggest clients for Samsung Electronics. The United States is home to the world’s top semiconductor equipment suppliers such as Applied Materials and Lam Research, which means Samsung Electronics cannot be free from U.S. pres-sure. Besides, TSMC announced last month that it would invest US$12 billion to build a foundry in the United States.

China’s rise in the global IT sector is another threat to Sam-sung Electronics. It already lost the global LCD display market to BOE and CSOT and Chinese companies are about to over-take Samsung Electronics in the OLED display market.

Chairman Li Dongsheng of TCL, China's leading TV maker, officially announced on Aug. 31 that TCL will enter the OLED panel market. OLED displays are a key business area that Samsung Display and LG Display are focusing on to chase off China, which aims to rise as a powerhouse in the display indus-try. In the market for small and medium-sized OLED panels, which are used for smartphones and other devices, Samsung Display enjoys a nearly 90 percent share. In the market for large OLED panels for TVs, LG Display is the only manufacturer in the world. Yet TCL's move is expected to pose a threat to Kore-an companies, especially Samsung Electronics which controls about 30 percent of the global TV market.

In the LCD sector, Korea has already lost ground to China. BOE, China's No. 1 display company, quickly upgraded its tech-nology after acquiring Hydis (the LCD division of Hynix) in 2003. It gained an 18.6 percent share in the LCD market in 2018, surpassing LG Display (17.4 percent) and Samsung Dis-play (13.8 percent).

Although Samsung Display tried to make a quick transition from LCD panels to OLED displays based on profits earned from the LCD business, it does not have much room to invest in OLED technology compared to Chinese companies that receive subsidies and tax support from the Chinese government. In 2017, Samsung Display invested 13.55 trillion won in facilities. But its investment stood at only 1.63 trillion won in the first half of this year. Although Samsung is seeking to keep its leadership in the display market through quantum nano emitting diode (QNED) and Micro LED panels, its technological prowess alone is not enough to roll back Chinese makers in a price war.

When it comes to the TV market, TCL, Hisense and Xiaomi are nipping at the heels of Samsung Electronics. The combined smartphone market share of Xiaomi, Huawei, Oppo and Vivo is much higher than that of Samsung Electronics and Huawei is outperforming Samsung Electronics in the 5G communications equipment market.

In semiconductors, China is already showing rapid growth in all areas including foundry, memory semiconductors and system semiconductors. In contrast, Samsung's "super-gap" strategy based on bold preemptive investment is likely to be sig-nificantly weakened by the prosecution's indictment of Samsung vice chairman Lee Jae-yong.

China has not given up its will to strengthen its semicon-ductor industry, although its plan to foster the industry through Huawei has been thwarted by the U.S. sanctions. In the field of system semiconductors such as mobile application proces-sors (APs), it is fostering UniSOC, a subsidiary of Tsinghua Unigroup under the Chinese government. On top of that, ARM China recently announced that it would operate as an inde-pendent company, revving up the fabless ecosystem in China. Industry watchers say that some intellectual property (IP) of ARM could be used without permission in China, as China's sovereign wealth fund owns 51 percent of ARM China. Sam-sung Electronics, which is closely trailing front-running Qual-comm based on its own Exynos AP, could face difficulties if UniSOC and ARM China forge a technology partnership.

China is also coming strong in the foundry market where Samsung Electronics aims to rise to the top in 2030. China is virtually putting its utmost efforts into nurturing SMIC as U.S. sanctions have made it impossible to collaborate with Taiwan's TSMC. Last month, the Chinese government decided to exempt semiconductor manufacturing companies that have been doing business in China for more than 15 years from corporate tax for up to 10 years if they use under-28-nm micro-fabrication pro-cesses. The move is intended to provide a tax break for SMIC. SMIC raised nearly US$8 billion in the Chinese capital market in July and plans to invest US$4.3 billion in facilities, about twice its sales in 2019. SMIC is also planning to procure 20 billion yuan by going public in Shanghai. A fund led by the Chi-nese government is scheduled to invest US$2.25 billion in the largest foundry in China.

In the DRAM market, CXMT is planning to start manu-facturing 17-nm chips within this year and YMTC’s 128-layer NAND flash manufacturing is scheduled to start within this year as well. Foundry company SMIC’s capital expenditures for this year are estimated to reach US$4.3 billion so that its main process technology is shifted from 14-nm to 7-nm. If these com-panies succeed in mass-producing these products as announced, their technology gap with Samsung Electronics will narrow to less than two years. These products are likely to be sold in China at least. Unisoc, a subsidiary of Tsinghua Unigroup, is ready to take the place of Huawei in China’s system-on-chip industry growth roadmap.

The fast moves of Taiwanese and U.S. companies are also

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Chinese companies are rapidly chasing Korean companies in the semiconductor and display sectors.

shaking Samsung Electronics' position. TSMC is planning to expand its foundry market share gap with Samsung by starting a 2-nm process in 2024. Nvidia, the leader of the global artificial intelligence market acquired ARM, which would change Sam-sung’s fabless expansion strategy.

TSMC, the largest foundry in the world, recently decided to invest US$10 billion to build new facilities in Taiwan. Earlier, TSMC announced that it would build a 5-nm foundry in Arizona by investing US$12 billion.

TSMC’s aggressive investment is intended to keep Sam-sung Electronics in check. Samsung Electronics announced on May 21 that it would build EUV foundry production lines in Pyeongtaek by investing 10 trillion won. At present, TSMC and Samsung Electronics are the only two companies in the industry that are capable of manufacturing 7-nm and more advanced products. Samsung Electronics is aiming to dominate the global system-on-chip market from 2030 and it needs to catch up with TSMC in order to do so.

Foundry Sales Gap between Samsung and TSMC Widens

Taiwan's TSMC has widened its gap with Samsung Elec-tronics in terms of foundry sales, even after the U.S. sanctions against Huawei. This development raises the question wheth-er Samsung Electronics will be able to overtake TSMC in the foundry field. Samsung Electronics vice chairman Lee Jae-yong declared the “Semiconductor Vision 2030" to become the world’s No. 1 player in the system semiconductor market.

TSMC said on its official homepage on Sep. 10 that its sales reached 122.9 billion Taiwanese dollars (about 5 trillion won) in August. The figure is a 15.8 percent increase from a year ago and a 16 percent increase from July. In July, it suffered a 12.3 percent drop in sales in from June.

Earlier, TSMC said in a briefing on its second-quarter earn-ings that it has not received any new orders from Huawei since May, and that it will not be able to deliver semiconductors to Huawei beginning Sept. 15. As sales plunged in July, industry sources said that the U.S. sanctions against Huawei began to weigh upon TSMC’s sales. Huawei accounted for 14 percent of TSMC's annual sales.

However, as sales recovered in August, some experts said that the U.S. sanctions on Huawei actually did not affect TSMC’s sales as much as initially expected. In the first eight months of this year, TSMC's cumulative sales hit 850 billion Taiwanese dollars (about 34.51 trillion won), up 30.7 percent from the same period of 2019.

Therefore, the drop in TSMC’s sales in July is believed to have been caused by concerns about a downturn of the semicon-ductor market in the second half of 2020, which were fueled by a decline in semiconductor prices.

The smaller-than-expected impact of U.S. sanctions on Huawei may be explained in part by the fact that Huawei places chip manu-facturing contracts on TSMC through its subsidiary, HiSilicon.

A rebound in TSMC's sales in August means that while its supply to Huawei had stopped since May, the company received orders from global customers that offset the Hua-wei impact. Therefore, TSMC’s sales are highly unlikely to plunge. Some experts speculate that TSMC’s customers such as Apple, Google, Qualcomm, Nvidia, and AMD have increased their orders to TSMC to establish more solid relationships with TSMC. In fact, TSMC is expanding its business with large U.S. customers such as AMD and Apple. Apple receives ARM-based CPUs for its new Mac models and the A14 mobile AP for the iPhone 12 from TSMC. AMD is planning to introduce the Zen 3 CPU for PCs and the Radeon RX6000 GPU series in October. It is expected to rely on TSMC for production of these products.

Meanwhile, some experts speculate that Huawei’s orders were placed on TSMC through other semiconductor design companies. MediaTek of Taiwan announced that it posted US$32.7 billion in sales in August. The figure is up 41.9 percent from the same period of 2019 and 22.5 percent from July. Medi-aTek is designing mobile APs and 5G communication modems and outsources production to TSMC.

Huawei accounts for 6 percent of Samsung Electronics’ annual sales. On the other hand, TSMC relied on Huawei for 14 percent of its annual sales. It cut off its business ties with Hua-wei but still remains strong.

As TSMC continues to grow despite severed transactions with Huawei, the challenges facing Samsung Electronics are getting tougher. The Korean semiconductor giant is pushing for the “Semiconductor Vision 2030” to become number one in the system semiconductor market by 2030. It has recently won a series of foundry orders from big customers including IBM, Qualcomm and Nvidia. But these orders are not enough for the company to catch up with TSMC.

Market research firm TrendForce predicted that TSMC and Samsung Electronics will account for 53.9 percent and 17.4 per-cent of the global foundry market in the third quarter of 2020. This means that the gap will further widen from 51.5 percent vs. 18.8 percent in the second quarter. The widening gap in sales between the two companies is the reason why some experts believe that the U.S. sanctions on Huawei would not serious affect TSMC. Therefore, the prospect for Samsung Electronics to overtake TSMC appears to be not quite bright.

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Samsung Electronics vice chairman Lee Jae-yong (second from left) visits the company’s semiconductor manufacturing plant located in Shanxi, China on May 18.

The Bank of Korea announced on Sept. 3 that South Korea’s foreign exchange reserves totaled US$418.95

billion as of the end of last month, showing a month-on-month increase of US$2.42 billion. Its foreign exchange reserves increased for the fifth consecutive month and hit an all-time high yet again.

Last month, the central bank succeeded in increasing the revenue from its foreign currency-denominated assets while the U.S. dollar depreciated to result in an increase in the value of its foreign currency assets converted to the U.S. dollar and the increase in the reserves.

Marketable securities such as government and government agency bonds and asset-backed securities increased by US$3.41 billion to US$382.79 billion last month. Deposits in foreign central banks and major global banks fell US$1.04 billion to US$23.82 billion. The IMF special drawing rights edged up by US$30 million to US$3.15 billion and the IMF position also edged up by US$40 million to US$4.4 billion. The gold reserves, which are denominated by the price at the time of pur-

chase, remained at US$4.79 billion.As of the end of July this year, South Korea (US$416.5 bil-

lion) ranked ninth in the world in terms of the size of foreign exchange reserves. China (US$3.1544 trillion) topped the list, followed by Japan (approximately US$1.4 trillion) and Switzer-land (approximately US$1 trillion).

Ranked 9th in World in Terms of Forex Reserves

South Korea’s Foreign Exchange Reserves Hit an All-time HighBy Yoon Young-sil

The Bank of Korea announced on Sept. 17 that residents’ U.S. dollar deposits increased by US$370 million to

US$76.59 billion last month, which is the highest since records began in June 2012.

The deposits, which can be defined as those owned by local individuals and companies, foreigners staying for at least six months in South Korea, and foreign companies doing business in South Korea, reached a new high in each of June (US$73.46 billion), July (US$76.22 billion) and August.

Specifically, enterprises’ U.S. dollar deposits increased US$550 million to US$60.85 billion last month, when those of individuals fell US$180 million to US$15.74 billion.

“The increase on the part of enterprises has to do with pay-ments for imports and the economic impact of COVID-19,” the central bank explained. Their U.S. dollar deposits increased US$5.7 billion to US$50.41 billion in March and then continued to increase until August.

Last month, the overall foreign currency deposits also

reached a new high of US$88.54 billion with a monthly increase of US$1.14 billion. The euro deposits increased US$540 million to US$4.15 billion whereas the yen deposits dropped US$1.49 billion to US$4.76 billion.

Dollar Deposits Hit a New High in August

Enterprises Hoarding U.S. Dollar for Uncertainties Triggered by COVID-19By Yoon Young-sil

U.S. dollars stored in Hana Bank

Residents’ U.S. dollar deposits increased by US$370 million in August, hitting a new high.

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Hong Kong-based brokerage CLSA released a report titled Moon’s Debut as a Fund Manager on Sept. 7 to

warn about potential side effects of the South Korean govern-ment’s New Deal Funds.

Banks, which are supposed to sell the funds as main sellers, are in a dilemma as their fund marketing now entails more respon-sibilities after a series of mis-sold funds. The New Deal Funds will come with the risk of principal loss, and they cannot be passive with the funds being promoted by none other than the president himself. The sale of the funds is scheduled to start next year.

Of those funds, the New Deal Policy Fund will reach 20 tril-lion won by the target year of 2025. The government and state-run financial institutions will raise the master fund by investing seven trillion won, operators will raise feeder funds based on it, and then financial companies, pension funds and the public can invest 13 trillion won in the feeder funds. According to the gov-ernment, public funds will constitute subordinated investments so that an investment loss of up to 10 percent can be fiscally covered and principal protection is almost possible.

In other words, the New Deal Policy Fund is no principal-

protected fund and, as such, banks need to be more careful in handling it. “Our investment product marketing cannot but become more conservative with the recent suspension of redemp-tion of some private and public funds leading to more responsi-bilities on our part than on the part of investors and investment product suppliers,” a bank said, adding, “Still, the government is telling us to sell the risky fund as much as possible.”

The government’s official stance is that it is up to each bank whether to sell it or not. However, banks cannot rely on it in that the fund is a government-led one. “The boards of many banks are likely to give priority to the fund with the public fund market stagnant,” it went on to say, continuing, “Nonetheless, it cannot be ruled out that we will be held accountable if any prob-lem arises regarding the fund.”

President-promoted Funds

Banks in Dilemma for New Deal FundsBy Yoon Young-sil

The South Korean government is preparing this year’s fourth supplementary budget after drawing up a record

budget plan for next year and this is significantly affecting the bond market.

On Sept. 7, the three-year government bond yield jumped 0.044 percentage point to 0.973 percent. It is 0.178 percentage point higher than this year’s low recorded on Aug. 5. Likewise, the 10-year government bond yield rose from 1.527 percent to 1.572 percent that day and from 1.281 percent to 1.572 percent from July 30 to Sept. 7.

The decline in government bond price is because the gov-ernment has issued a lot of bonds in coping with COVID-19 and the issuance will reach a new high next year.

The government issued 97.1 trillion won of deficit bonds until this year’s third supplementary budget. The amount will top 100 trillion won for the first time if the fourth supplemen-tary budget, seven trillion won or so, is fully covered by deficit

bonds. Besides, the figure for next year is estimated at 89.7 tril-lion won, approximately 2.5 times that of 2019.

This increase in government bond issuance is likely to lead to a rise in market interest rates and an increase in financing costs on the part of enterprises. The Bank of Korea, in the mean-time, is showing no signs of intervention after its purchase of 1.5 trillion won of government bonds on Aug. 31. The central bank is planning to purchase more government bonds in the event of market instability such as a spike in market interest rates. According to the bank, the current situation is far from being unstable in view of domestic financial institutions’ and foreigners’ demand.

Financing Costs of Enterprises Likely to Go up

Bond Market Fluctuating Due to Government BondsBy Yoon Young-sil

A CLSA report on the South Korean government’s New Deal Funds

Increased government bond issuance is likely to increase financing costs of enterprises.

MONEY

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South Korean banks’ BIS capital adequacy ratio fell due to an increase in lending related to the COVID-19 situation.

The Financial Supervisory Service announced on Aug. 31 that the ratio was 14.53 percent at the end of June this year, down 0.91 percentage point from the previous quarter. The ratio has fallen since the end of last year.

Those banks’ risk-weighted assets increased 4.1 percent in the second half, when their total capital rose 2 percent. Spe-cifically, the former increased 67.8 trillion won, led by a higher level of market volatility and a 48.6 trillion won increase in cor-porate loans. During the same period, the total capital increased 6.4 trillion won.

The capital adequacy ratios of Shinhan, Hana, NH, Woori and KB Kookmin Banks fell to 15.49 percent, 15.37 percent, 14.84 percent, 14.66 percent and 14.39 percent, respectively. Those of KB Kookmin, Hana, K and Kakao Banks dropped 62, 22, 94 and 26 basis points, respectively. On the other hand, those of Kwangju Bank and Jeonbuk Bank rose to 18.22 percent and 15.03 percent.

The capital adequacy ratios of Korea Development Bank and the Export-Import Bank of Korea fell substantially as a result of their support against COVID-19. Specifically, that of the former decreased from 13.33 percent to 12.85 percent in the second quarter to dip below 13 percent for the first time in two decades. The latter’s fell 0.3 percentage point to 13.45 percent.

When it comes to the capital adequacy ratios of major finan-cial holding companies, KB, Shinhan, Hana and NH posted 14.13 percent, 14.09 percent, 14.08 percent and 13.91 percent, respec-tively. That of Woori rose 0.93 percentage point to 12.72 percent. Bank holding companies’ average BIS capital adequacy ratio rose 0.26 percentage point to 13.68 percent in the second quarter.

Risk-weighted Assets Increase

BIS Capital Adequacy Ratio of South Korean Banks FallsBy Yoon Young-sil

The COVID-19 pandemic is changing the global business strategies of South Korean financial companies, which

are now focusing more on risk management and digital banking rather than market expansion and growth. In addition, they are expanding their collaboration abroad with the domestic market stagnant due to low interest rates and diverse regulations.

Shinhan Bank is planning to release and upgrade its mobile banking platform SOL in different countries and launch strategic digital banking products there in cooperation with local platform service providers. The bank already launched SNS-based credit card and loan marketing in Vietnam in collaboration with Zalo and e-wallet services in Cambodia with MVL.

Hana Bank China is working with Alibaba and Ctrip, which is the world’s second-largest online travel platform. The bank and Ctrip recently launched mobile loan products. Woori Bank’s mobile banking platform Woori WON Banking Vietnam made its debut in the first half of this year and its Global WON Bank-

ing service is currently available in the eight countries including Bangladesh, India, the United Kingdom and the United States.

Those South Korean banks are strengthening their local management systems with the pandemic having made cross-border travel almost impossible. For example, Shinhan Bank recently set up a new unit to cover the Indo-China region and the unit is currently in charge of the bank’s business and local staff training in Vietnam, Cambodia and Myanmar.

Focus Shifts to Risk Management and Digital Banking

South Korean Banks Revamping Global Business StrategiesBy Yoon Young-sil

South Korean banks’ BIS capital adequacy ratio has fallen due to an increase in lending related to the COVID-19 situation.

Shinhan Bank launched Shinhan SOL India on May 21.

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Shinhan Financial Group con-ducted a capital increase through third-party allocation

on Sept. 4. Specifically, Hong Kong-based private equity firms Affinity Equi-ty Partners and Baring Private Equity Asia invested 605 billion won and 553 billion won, respectively. Their invest-ment is equivalent to 7.9 percent of the total issued shares. Their shares will be locked up for one year and subject to sale restrictions for two years.

It seems that the two firms regarded the stock price of the company under-valued. The capital increase was car-ried out with common stocks instead of redeemable convertible preferred stocks or exchangeable bonds.

The discount stood at 2 percent whereas it is approximately 10 percent in most capital increases through third-party allocation. The current stock price of the company is a 10-year low and its current PBR is 0.3.

Although the group’s dividend pay-

out ratio is lower than those of global leading financial companies, its cash div-idend yield for this year is estimated at 5 percent to 6 percent. Additional dividend payment is probable as well. The firms also demanded more dividends.

It appears that the firms’ goals are trading profits, dividend profits and influ-ence as key shareholders. The two firms are now the third-largest shareholder in the group behind a Japanese shareholder and the Korea National Pension Service.

South Korean banks have been dis-counted compared to global banks due to their fragile governance structures. Their decision-making has been led by the management rather than the board and frequent government interventions have hindered their advancement. Shinhan’s recent capital increase, that is, gover-nance diversification is expected to lead to synergy in terms of autonomous gov-ernance as well as overseas investment, M&A and digital transformation.

The two firms can appoint two out-

side directors in the group. As of June this year, the board of the company con-sists of one inside, two non-executive and 10 outside directors. The number of outside directors as shareholder repre-sentatives will increase from six to eight through the appointment. “The group’s governance structure, which has been led by minority shareholders, the National Pension Service and asset management firms such as BlackRock, is expected to go through a significant change,” said an industry source.

A Lucrative Investment

Global PEFs Purchase Shinhan Financial Common Stocks in QuantityBy Yoon Young-sil

Hong Kong-based private equity firms Affinity Equity Partners and Baring Private Equity Asia invested 605 billion won and 553 billion won, respectively, to acquire Shinhan Financial Group's new shares.

Shinhan Financial Group has joined hands with Affinity Equity Partners

and Baring Private Equity Asia after KB Financial Group formed a strategic partner-ship with The Carlyle Group.

Shinhan F inancia l Group held an extraordinary shareholder meeting on Sept. 4 and voted for a capital increase through third-party allocation to allocate 39.13 mil-lion shares to Centennial Investment Lim-ited and SUPREME, L.P. The value of each share to be issued is 29,600 won and the total issuance value is 1,158.2 billion won.

Centennial Investment is a special pur-pose company for funds advised by Affinity Equity Partners. SUPREME is a special pur-pose company for funds advised by Baring Private Equity Asia. Centennial Investment and SUPREME will own 4 percent and 3.6 percent of Shinhan Financial Group shares with voting rights through the allocation, respectively. The combined ownership, 7.6 percent, is the second-largest behind that of the National Pension Service (9.2 per-cent).

The new shares cannot be sold for two

years. A third party designated by Shinhan Financial Group can preferentially purchase the shares subsequently. Affinity Equity Partners and Baring Private Equity Asia have been given director nomination rights in return for their investment.

It is said that the capital increase has to do with the strategic partnership formed in June. At that time, KB Financial Group issued 240 billion won of exchangeable bonds to Kingsman Investments Limited with regard to its five million shares. Kings-man Investments Limited is an indirect subsidiary of the investment funds includ-ing Carlyle Asia Partners V, L.P. run by The Carlyle Group. As a result of its investment, The Carlyle Group acquired 1.2 percent of KB Financial Group.

Strategic Partnership with Foreign Private Equity Funds

Shinhan Financial Group to Work with Affinity Equity Partners and Baring Private Equity Asia

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The combined market cap of KOSPI and KOSDAQ topped 2,000 trillion won in about 31 months.

On Sept. 15, KOSPI closed at 2,443.58 points to rise for the fourth consecutive trading session. That day, the total market cap of KOSPI reached 1,662.6 trillion won, the highest since May 2, 2018 and the 12th-highest in history. The all-time high, 1,688.8 trillion won, was on Jan. 29, 2018.

KOSDAQ closed at 899.46 points on Sept. 15 to reach the highest level since April 17, 2018. Its market cap hit an all-time high, 347.3 trillion won, again. Until August this year, the record high (330.4 trillion won) was on Jan. 29, 2018. However, no less than eight new records have been set this month alone.

The combined market cap was approximately 2,009.9 tril-lion won on Sept. 15. It is the second-highest in the history of the South Korean stock market, in which the figure reached 2,019.2 trillion won on Jan. 29, 2018.

The Korea Capital Market Institute said in its report on Sept. 15 that South Korea’s representative stock index

showed a rate of return of 5 percent from Jan. 11 to Aug. 31, that is, until the end of August after the first COVID-19 death was reported. The index came in fourth behind those of China (10 percent), Argentina (10 percent) and the United States (7 percent).

“We looked into the representative stock indices of 35 coun-tries and those that recovered faster have three points in com-mon, that is, this year’s economic growth rate not significantly lower than last year’s, the IT sector’s large proportion in the stock market and abundant liquidity in the stock market,” the institute explained, adding, “South Korea met all of these.”

“South Korea’s solid growth forecast and the recent recov-ery of KOSPI and KOSDAQ have been possible based on its successful response to COVID-19 and it should be reminded that the biggest potential risk in the markets at this moment is the second wave of COVID-19,” it said, pointing out that inves-tors need to be cautious with the returns of some sectors in the markets abnormally higher than global averages.

KOSPI's Rate of Return 4th Highest in the World

South Korean Stock Market Recovering Relatively Faster from COVID-19By Yoon Young-sil

The 2nd Time in History

Aggregate Value of South Korean Stock Market Tops 2,000 Trillion WonBy Yoon Young-sil

On Sep. 15, KOSPI and KOSDAQ rose 0.65 percent and 0.59 percent to close at 2,443.58 and 899.46, respectively.

South Korea’s representative stock index KOSPI showed a rate of return of 5 percent from Jan. 11 to Aug. 31.

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The Wall Street Journal has recently reported that KOSPI in terms of

growth in the current half of this year came in fourth among global stock exchanges and ninth in the overall rankings including raw materials, bonds, exchanges, and the like.

KOSPI rose 12.7 percent from Jan. 2 to Sep. 9 this year. During the same period, Dow Jones Transportation Average, S&P 500 Consumer Discretionary and S&P 500 Materials rose 22.6 percent, 16.3 percent and 14.6 percent, respectively. KOSPI is currently the only non-U.S. index on the top 10 list.

The outstanding performance of KOSPI has to do with the recent slowdown of the U.S. stock market and individual investors’ aggressive investment. In the period of Jan. 1 to Sep. 8 this year, KOSPI took the third place on the overall list.

Korea Exchange announced on Sept. 3 that the KOSPI stock trading turnover for the first eight months of this

year amounts to 131 percent whereas the turnover stood at 88 percent last year. Especially, the August turnover is 20 percent whereas the January figure is 9 percent.

The monthly figure stood at 9 percent to 10 percent before the outbreak of COVID-19. However, it jumped to 19 percent immediately after the stock market plunge in March, topped 20 percent in June, and is continuing to increase.

The KOSPI stock trading value is setting new records, too. The average daily trading value, which was five trillion won last year, more than doubled to 11 trillion won on Sep. 1. The value remained at around 10 trillion won in March to May but rose to 13 trillion won in June and then topped 16 trillion won last month.

This has to do with individual investors’ preference for short-term trading. In July this year, those investors’ ratio in KOSPI topped 70 percent for the first time in 18 years. Last

month, their turnover increased 3.5-fold from the average of last year to an all-time high of 315 percent whereas institutional and foreign investors’ turnover ratios reached 38 percent and 42 per-cent, respectively.

Boosted by Liquidity-driven Rally

KOSPI Turnover Increasing Rapidly Due to Frequent Day TradingBy Yoon Young-sil

4th Best among Global Stock Exchanges

KOSPI Standing Out in the Global Stock MarketBy Yoon Young-sil

Rates of return by market for H2 2020 (source: WSJ)

The stock market turnover is on a steep upward curve on a liquidity-driven rally.

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MonEY

Democratic Party of Korea lawmaker Kim Byung-wook tabled an amendment to the Financial Investment Ser-

vices and Capital Markets Act for naked short selling preven-tion on Sept. 10.

The amendment is to provide a legal basis so that stocks allowing short selling and the rest are distinguished by the Financial Services Commission. According to the lawmaker, this is expected to minimize adverse effects after the temporary short selling ban expires on March 15 next year.

Another purpose of the bill is to automate stock lending and borrowing by means of electronic information processing devices and the like. Then, records can be left, the management can become more transparent and mistakes can be prevented.

“As seen in the recent case of naked short selling by Gold-man Sachs, most of the negotiation, confirmation and input related to lending and borrowing in the South Korean stock market are currently based on chats, phones and emails with-out automation and this has facilitated naked short selling while doing increasing damage to individual investors,” he explained.

The bill is to strengthen punishments, too. Specifically, according to the bill, unauthorized short selling is subject to

penalty and criminal punishment instead of fine and the penalty is up to 300 percent of the profits or avoided losses derived from the short selling. Also, penalty is applied to authorized short selling when it is misused for insider trading or market manipulation. The criminal punishment is one year or more in prison.

The Securities and Futures Commission has decided to impose a fine of 730 million won on four foreign

asset management companies and pension funds that conducted naked short selling. The Korea Exchange detected the violation of the law prohibiting it during regular market monitoring.

Short selling is to sell a stock and then buy it back at a lower price. Stock borrowing must precede selling according to the current law on short selling.

According to the Financial Services Commission, the four organizations were wrong about whether they concluded stock borrowing contracts or were in possession of stocks and placed sell orders without owning or borrowing stocks. This occurred before the implementation of the temporary short selling ban in March this year.

To Minimize Adverse Effects of Shorting

Bill Tabled for Naked Short Selling PreventionBy Yoon Young-sil

Shorting Stocks Without Borrowing

Fines Imposed on Foreign Investors Engaged in Naked Short SellingBy Yoon Young-sil

A ruling Democratic Party lawmaker has proposed an amendment to the Financial Investment Services and Capital Markets Act to minimize adverse effects of short selling.

Four foreign investors were fined 730 million won for naked short selling.

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The stock price of LG Chem dropped 6.11 percent to close at 645,000 won per share on Sept. 17. This was

because individual investors were disappointed by the news that the company would split off its battery business unit. The news report cost the company almost six trillion won in market cap in just two days.

Individual investors’ net selling amounted to 146.1 billion won on Sept. 17 alone. On the other hand, foreign and institu-tional investors net-bought 104.1 billion won and 35.2 billion won of LG Chem shares, respectively. The market cap dropped from 51.3 trillion won to 45.5 trillion won on Sep. 16 and 17.

Until Sep. 15, individual investors focused on LG Chem because of the growth potential of its battery business unit. According to them, LG Chem will be just one of many petro-chemical companies once the unit is split off. The unit currently represents about 60 percent of the enterprise value of LG Chem assessed by analysts. “If the unit becomes a fully-owned sub-sidiary, the value of the subsidiary reflected in LG Chem cannot but fall,” one of them explained, adding, “Besides, the stock price of LG Chem will go down further if the unit goes public instead of remaining fully owned by LG Chem.”

The company will hold an extraordinary shareholder meet-

South Korean institutional investors net-sold 73 million Samsung Electronics shares from Jan. 2 to Sept. 16. The

amount is equivalent to approximately 1.2 percent of the total Samsung Electronics shares. Their shareholding in the company fell from 8.7 percent to about 7.5 percent during the period.

Meanwhile, individual investors net-bought 147.05 million shares to increase their shareholding from 3.6 percent to 6.1 percent or so.

As of the end of last year, South Korean institutional inves-tors other than the National Pension Service owned 8.7 percent of Samsung Electronics while affiliated persons, the National Pension Service and individuals accounted for 21.2 percent, 10.6 percent and 3.6 percent, respectively. Foreign investors owned 55.9 percent at that time.

This year, however, individual investors’ investment in the company has increased based on their aggressive purchase. In other words, their move is now as important as institutional

Market Cap Drops by about 6 Tril. Won in 2 Days

Individual Investors Dumping LG Chem Shares for Split-off Plan

Institutional Investors' Shareholding Falls

Individual Investors Now Own More of Samsung Electronics

By Yoon Young-sil

By Yoon Young-sil

ing on Oct. 30 to handle the issue. It must obtain the consent of at least two-thirds of attending shareholders and at least one-third of the total issued shares. At present, LG Corporation is the largest shareholder in LG Chem, which owns 30.75 percent of the company. Meanwhile, individual investors’ combined share-holding stood at 9.82 percent as of the end of 2019. The current ratio is estimated at around 15 percent.

investors’ in predicting the direction of the stock price of Sam-sung Electronics. A number of securities companies are saying that individual investors’ preference for the company is likely to continue for a while.

Individual investors' shareholding in Samsung Electronics continues to rise.

Individual investors, who were disappointed by the news report that LG Chem would split off its battery business unit, dumped their shares.

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JP Morgan has marked down Celltrion’s target share price to 60 percent of the current level.

Celltrion closed at 298,000 won on Sept. 9, down 6.13 percent from the pre-vious day. Foreign investors and institu-tional investors net-sold Celltrion shares worth 44.7 billion won and 56 billion won, respectively. Foreigners net-bought 23.9 billion won worth of Celltrion shares from Aug. 1 to Sept. 8.

A report issued by JP Morgan ana-lyst Cho Ji-hyun on the day was behind the fall in Celltrion’s stock price, stock analysts say. In the report, Cho pointed out that the market share of Remsima, a

treatment of autoimmune disorders, has shrunk in the European market and the sales growth of Truxima, a blood cancer treatment, has slowed down.

Based on this, JP Morgan analyzed that the annual net profit growth rate of Celltrion will peak at 54 percent in 2020 and fall to 21 percent in 2021. The price to earnings ratio calculated by JP Morgan based on a net profit forecast for 2021 is 73 times, which is much higher compared to the global average. JP Mor-gan suggested 190,000 won as the prop-er price until the end of 2021. The figure is 40.25 percent lower than the closing price of 318,000 won on Sept. 8.

JP Morgan also cautioned against being optimistic about Celltrion’s devel-opment of COVID-19 treatments. "The market's optimism on the bio industry is too excessive," the report said. "We need to pay attention to profit funda-mentals rather than uncertainties such as the commercial success of COVID-19 treatments."

But Korean securities firms have favorable views on Celltrion. Accord-ing to financial information provider FnGuide, Korean securities firms set the target share price of Celltrion at 371,769 won on average. Considering Celltrion’s growth trend, the company’s stock price has ample room for a jump, they say. "Celltrion posted an operating profit ratio of 42.4 percent in the second quarter, up 6.9 percentage points from a year earlier, on the back of an improve-ment in its factory operating rate," a stock analyst said. "The development of COVID-19 treatments was also sched-uled to receive support from the govern-ment."

Net Profit Growth Forecast to Slow down Next Year

JP Morgan Report Sends Celltrion Stock PlungingBy Yoon Young-sil

Celltrion's stock price has plunged after JP Morgan revised down its target price of the stock to 60 percent of the current level.

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With the focus of the finan-cial industry shif t ing towards non-contact in the

wake of COVID-19, experts at a recent webinar pointed out that collaboration with online platforms such as digital insur-ance services is essential for the survival of insurance companies.

According to mobile app market research firm AppApe, the number of those actively using the top 10 apps of life and non-life insurance companies is currently less than half of the number of Kakao Bank app users. Specifically, the

number of active app users is approxi-mately 500,000 for Samsung Fire & Marine Insurance, 340,000 for Hyundai Marine & Fire Insurance, 320,000 for DB Insurance, 250,000 for Meritz Fire & Marine Insurance, 230,000 for KB Insurance and 200,000 for Samsung Life Insurance.

On the other hand, the number amounts to 4.08 million for Shinhan Bank, 3.75 million for NH Bank, 7.5 mil-lion for Samsung Pay, 6.75 million for Toss and 5.77 million for Kakao Bank. This implies that insurers’ collaboration

with external online platforms for more contact with customers is a very urgent matter.

“A disruptive innovation in the entire insurance industry is coming up from new digital technologies and insur-ers need to focus on non-financial data to provide their customers with unique products and services,” one of the experts explained, adding, “The survival and development of the industry depends on their insuretech strategy and collabo-ration with big tech players is now a must.”

Insurers Advised to Collaborate with Big Tech Players

Survival of Insurance Industry Hinges on InsuretechBy Yoon Young-sil

Korean insurance companies are advised to collaborate with external online platforms for more contact with customers.

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MonEY

Market research firm DRAMeX-change reported on Sept. 17

that the DDR4 8GB server DRAM price posted US$2.99 without any significant change for three days. The spot price, which was US$2.5 to US$2.6 for the first three weeks of last month, began to rise on Aug. 24, about two weeks before the implementation of U.S. restrictions on Huawei. According to the market research firm, the recent rise has to do with Huawei’s inventory increase and the contract price for the third quarter is likely to show a 10 percent decrease.

In the meantime, another market research firm TrendForce adjusted its server DRAM price decline estimate for the fourth quarter from 10 to 15 percent to 13 to 18 percent that day, mentioning

server ODMs’ excessively large inven-tory as the biggest reason. “It will take a couple of additional quarters for the ODMs to normalize their inventory,” it said, adding, “Clients are unlikely to increase their server DRAM orders until early next year.”

The DRAM price for the fourth quar-ter is predicted to be affected by the large inventory and the restrictions for block-ing supply to Huawei. “Although the Chinese company aggressively procured server DRAMs for the past two weeks, the market is still in oversupply,” Trend-Force analyzed.

Huawei has been a major client for both Samsung Electronics and SK Hynix. It has accounted for approximate-ly 3 percent and 12 percent of the sales

of the South Korean companies, respec-tively.

Especially, DRAM products rep-resent about 80 percent of SK Hynix’s sales. In the second quarter of this year, its consolidated operating profit was 1,947.6 billion won, up 205.3 percent from a year earlier, with the server mem-ory demand and DRAM price boosted as a result of COVID-19. However, the company’s performance is likely to deteriorate in the following period with clients consuming their stocks and the prices of DRAM products estimated to fall by up to 18 percent.

When it comes to Samsung Electron-ics, semiconductor represents 34 per-cent of the total sales and 67 percent of the total operating profit. In the second quarter, its semiconductor business unit led the entire company with 18.23 tril-lion won in sales and 5.43 trillion won in operating profit. The business unit is fac-ing increasing uncertainties although the mobile and consumer electronics divi-sions of Samsung Electronics are expect-ed to come up with solid business figures in the second half.

Server DRAM Spot Price Uptrend Halted

Hard Time Awaits Samsung Electronics and SK HynixBy Kim Eun-jin

The price of server DRAMs in the fourth quarter of this year is forecast to fall 18 percent from the third quarter.

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The U.S. government’s new restrictions on Huawei scheduled to take effect on Sept. 15 will cover display

driver ICs as well as semiconductors and foundries. Under the circumstances, South Korean display panel suppliers such as Samsung Display and LG Display decided to stop supplying their high-end smartphone panels to Huawei as their display driver ICs cannot be manufactured without U.S. equipment and software and Apple is a more important client for them.

At present, most display driver, touch and power manage-ment ICs are manufactured based on ARM’s blueprints and the restrictions will block the chips from going to Huawei. In other words, the South Korean companies’ display panel supply to Huawei will lead to no smartphone anyway. There are cur-rently no alternatives to display chips based on ARM’s design. Although Huawei recently launched a new business unit and is working with SMIC to develop display driver ICs, its efforts are unlikely to bear fruit in the near future.

The impact of the restrictions on the South Korean display industry is expected to be smaller than that on the semiconduc-tor industry. Last year, Huawei accounted for 3.2 percent and

11.4 percent of the annual sales of Samsung Electronics and SK Hynix, respectively. On the other hand, Huawei has procured most of the smartphone display panels it uses from Chinese sup-pliers.

Huawei is expanding its business with BOE, the largest panel manufacturer in China, and testing panels of local suppli-ers such as Visionox, Tianma and CSOT as potential alternatives to Samsung Display and LG Display. In the second quarter of this year, Samsung Display accounted for 72.7 percent of the global smartphone OLED display market, followed by BOE (11.9 percent) and LG Display (4 percent). In that quarter, Hua-wei purchased a large quantity of panels from BOE prior to the restrictions and this led to BOE’s market share improvement on a shipments basis. LG Display is likely to narrow the gap in the third quarter, when new iPhones will debut.

In the meantime, market research firm Strategy Analytics said in its recent report that Huawei’s global smartphone market share might fall to 4.3 percent next year and yet other Chinese manufacturers, such as Oppo, Vivo and Xiaomi, would be able to take its place.

Samsung Display and LG Display have decided to stop supplying their high-end smartphone panels to Huawei.

Display Driver ICs Use U.S. Technology

South Korean Display Panel Suppliers Cut Business Relations with HuaweiBy Kim Eun-jin

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ICT

Wins Orders from IBM, Qualcomm and Nvidia

Samsung Electronics in Hot Pursuit of TSMC in Foundry Market

A Contract Worth US$1 Bil.

Samsung Electronics to Produce Qualcomm’s Snapdragon 875 APs

By Kim Eun-jin

By Michael Herh

Samsung Electronics is starting to expand its turf in the foundry sector. The Korean semiconductor giant has

recently won big orders from key customers, making strides towards its goal of becoming the world's No. 1 player in system semiconductors by 2030.

Samsung Electronics has won an order from Qualcomm to produce the Snapdragon 4 series, APs for 5G mobile com-munications. The Snapdragon 4 series are low- to mid-priced 5G chips to be supplied to Xiaomi, Oppo, and Motorola and are expected to go on sale in the first quarter of 2021.

In addition, Samsung Electronics has clinched a contract from Nvidia to manufacture its next-generation GPUs. NVIDIA unveiled its next-generation GPU “GPOS RTX 30” series on Sept. 1. At the time, it announced that its new product will be produced by Samsung Electronics' 8-nm foundry process.

In early August, Samsung announced it would produce IBM's "Power 10," a CPU for next-generation servers.

Industry watchers say that the recent orders will provide a

springboard for Samsung Electronics in chasing TSMC as the three companies are big customers.

However, as Taiwan's TSMC still takes up more than 50 per-cent of the global foundry market, Samsung Electronics still has many hurdles to clear before finally attaining the goal.

"Samsung Electronics is putting its utmost efforts into upgrading its micro-fabrication and packaging technologies to narrow its gap with TSMC," said an industry insider. In fact, on Aug. 13, Samsung Electronics developed and introduced the industry's first three-dimensional stacking technology that stacks chips produced through a 7-nm EUV (Extreme Ultraviolet) pro-cess several times to make a single semiconductor.

Samsung Electronics will produce all of Qualcomm's AP chips for next-generation smartphones.

Samsung Electronics' foundry division has won a contract to produce the Snapdragon 875 (tentative name), Qualcomm’s lat-est application processor (AP), in a 5-nanometer process.

The Snapdragon 875 is Qualcomm's 5G AP chip for pre-mium smartphones and is scheduled to come out in December. Samsung Electronics’ Galaxy S21 (tentative name) and high-end phones of China's Xiaomi and Oppo will be powered by the new Qualcomm AP.

This is the first time that Samsung Electronics has won the entire order volume for a flagship Qualcomm product. The size of the contract is reportedly close to US$1 billion. Samsung Electronics has recently started volume production of the Snap-dragon 875, using extreme ultraviolet (EUV) lithography equip-

ment at its foundry line in Hwaseong, Gyeonggi Province.The size of the global foundry market reached US$65.5 bil-

lion in 2019, said market research company TrendForce. The market is growing with sales of the top 10 foundry companies already hitting US$57.2 billion in the first three quarters of 2020.

An increase in demand for 5G and artificial intelligence (AI) semiconductor chips is sparking off the rapid growth of the foundry market. As orders keeps flowing into such fables com-panies as Qualcomm, Nvidia and AMD, the foundry market is growing on contract manufacturing for them.

Samsung Electronics will produce Qualcomm's Snapdragon 4 series APs for 5G mobile communications.

Qualcomm’s Snapdragon 875 (tentative name) AP

40

ICT

Taiwan's TSMC, the dominant leader in the global foundry market, has disclosed its plans

to move into 2-nanometer technology.The foundry giant announced at an

online technology symposium on Aug. 25 that it will mass-produce semiconductors based on a two-nanometer process in 2024.

TSMC senior vice president Kevin Zhang said the company will open a new cutting-edge research and development (R&D) center in Hsinchu next year to develop 2-nano technology. Zhang added the company is seeking to acquire land adjacent to the new R&D center to build a production fab for 2-nano products. TSMC plans to spend about 22 trillion won to build the new plant.

TSMC said in 2019 that it will be pos-sible to mass-produce 2-nano products by 2024 by investing US$6.5 billion in R&D.

TSMC's aggressive investments are a response to the rapid growth of the foundry market following the global semiconductor industry’s division into the fabless (semiconductor design) and foundry sectors. AMD of the United States spun off its foundry business in 2008 to establish GlobalFoundries.

Market research firm Omdia forecast that the global foundry market will sur-pass US$81 billion next year from $60.9 billion in 2017. The foundry market is expected to expand 14 percent on year in the third quarter of 2020 to reach US$20.2 billion, according to TrendForce, a mar-ket research firm. The foundry market is expected to top US$80 billion in 2020.

Under these circumstances, TSMC is seeking to cement its technology leader-ship by increasing facility investment. The company’s facility investment grew from

US$10.5 billion in 2018 to US$14.9 billion in 2019 and is expected to reach US$17 billion in 2020. TSMC swept away EUV equipment that ASML shipped in 2019.

TSMC's investment was prompted by Samsung Electronics' threat. Sam-sung mass-produced 7-nm semiconduc-tors based on an EUV process for the first time in the industry in 2019. At the time, TSMC responded by mass-produc-ing 7-nm products using ArF exposure equipment and multi-patterning technol-ogy. But its position as a leading chip-maker was shaken as the circuit visibil-ity of its products was lower than that of Samsung products.

Samsung Electronics' market share uptrend also prompted TSMC to pursue a super-gap strategy. In 2017, TSMC's share was 50.4 percent, while that of Samsung Electronics a mere 6.7 percent, according to Omdia. Samsung Electronics excluded orders from its System LSI Division when calculating its market share rate at the time. But Samsung Electronics' foundry business division increased its presence significantly for the past three years.

Samsung Electronics is in hot pursuit of TSMC, making fast moves towards micro-fabrication processes. Although Samsung Electronics was ahead of TSMC in mass-producing EUV-based 7-nm semiconductors, there are still wide gaps between the two in other sectors.

Samsung’s foundry market share fell 1.4 percentage points to 17.4 percent in the third quarter of 2020, while that of TSMC rose 2.4 percentage points to 53.9 percent, TrendForce said. While TSMC secured diverse customer groups such as Apple, AMD, and NVIDIA, Samsung Electronics' foundry division has a high proportion of

sales related to the company’s System LSI Division which designs its mobile applica-tion processor (AP) Exynos.

Some point out that the transistor concentration of TSMC semiconductors is more than 10 percent higher than that of Samsung Electronics' products.

Samsung Electronics is planning to mass-produce 5-nm semiconductors in the second half of 2020. It has recently started developing a 4-nm process to nar-row its gap with TSMC. It is also plan-ning to have a clear edge over TSMC by applying the multi-bridge channel (MBC) FET process, which is Samsung's proprietary technology, starting from a 3-nm process. Both Samsung Electron-ics and TSMC announced that they will mass-produce 3-nm products in 2022.

In particular, Samsung Electronics is expected to focus most of its semicon-ductor facility investments on foundry in 2020. In the first half of 2020 alone, Sam-sung Electronics invested 14.7 trillion won in semiconductor facility investment and is expected to invest about 30 trillion won for the whole of 2020.

Samsung Electronics’ facility invest-ment in the DRAM sector is estimated at US$4.9 billion in 2020. When invest-ments in NAND flashes and the system LSI sector are included, the company is expected to invest about 10 trillion in memory and system semiconductors thus year, according to IC Insights. Based on this analysis, if Samsung Electronics executes about 20 trillion won in facility investments alone in the foundry sector in 2020, it will make investments similar to those of TSMC (US$17 billion). This will enable Samsung Electronics to nar-row its market share gap with TSMC.

TSMS to Mass Produce 2-nano Products in 2024

TSMC's Super-gap Approach Puts Samsung Electronics on AlertBy Michael Herh TSMC's head office in Taiwan

41

ICT

Nvidia's plan to acquire ARM for US$40 billion, if realized,

will become the largest deal in the M&A history of the semiconductor industry. Nvidia has agreed to buy all of ARM shares held by SoftBank and its subsid-iaries and will seek approval from major countries.

ARM is a fabless company that accounts for more than 90 percent of the basic design of global mobile application processors (APs). If NVIDIA acquires ARM, it will become a semiconductor giant as big as Intel. This is not good news to competitors such as Samsung Electron-ics, according to the Wall Street Journal; as Nvidia can wield enormous power in the semiconductor industry in the future.

When ARM was put up for sale, some experts raised the possibility of Samsung Electronics jumping into the

takeover race. The logic was that as Nvidia can be a threat to Samsung by taking over ARM, Samsung would con-sider acquiring it. However, Samsung Electronics was not very interested in acquiring ARM. Samsung was reportedly concerned about conflicts between ARM and Samsung’s current businesses.

A strong opinion inside Samsung was that acquiring ARM would make it difficult for Samsung to attain the Semi-conductor 2030 vision, which aims to make Samsung the top company in the system semiconductor sector by 2030. "Samsung’s foundry customers such as Qualcomm still suspect that Samsung may look into the structure of their semi-conductors," an industry watcher said. "If Samsung acquires ARM, it will lose many of its foundry customers."

ARM’s price was also a problem. In

2019, ARM's sales amounted to US$1.9 billion, less than 5 percent of the acquisi-tion price offered by Nvidia. Some ana-lysts say that Samsung Electronics is in a position different from that of Nvidia, a company that specializes in GPUs and desperately needs AP-related technolo-gies. Samsung Electronics produces APs on its own and has already reached a high technological level.

Even if Nvidia changes the neutral stance that ARM has maintained towards its customers and raises prices of mobile AP licenses, it will not have a significant impact, Samsung Electronics explains. "While the cost of licensing basic design of a mobile AP does not account for a large share of the AP production cost, the price of ARM is US$40 billion, too high to make both ends meet," a Samsung official said.

Samsung Electronics was not interested in acquiring ARM.

Not Helpful in Attaining Semiconductor 2030 vision

Why Was Samsung Not Interested in Taking over ARM?By Kim Eun-jin

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ICT

Thirteen Korean system semicon-ductor startups, including UX

Factory and GLS, have gained free use of Flexible Access, a comprehensive design package provided by ARM, the world's largest semiconductor design company, through the Korean Ministry of SMEs and Startups.

ARM is the company that Nvidia, a U.S. system semiconductor company, has recently acquired from SoftBank of Japan for US$40 billion.

Flexible Access is a system semi-conductor design package that includes technical support and IPs required for the design, such as CPU and GPU.

The Ministry of SMEs and Startups concluded an "Inclusive Company" busi-ness agreement with ARM and Seoul National University in April to support

the growth of innovative companies in system semiconductors.

The agreement was the first Inclusive Company agreement that ARM signed to provide comprehensive support, includ-ing free use of its design package, men-toring, and prototyping, to innovative startups and venture companies.

ARM launched Flexible Access, a voluntary win-win program, allowing early-stage startups to use ARM’s excel-lent infrastructure free of charge. The number of companies benefiting from ARM’s support program was expanded from 10 to 13.

The Flexible Access program pro-vides support to startups with a cumula-tive investment of less than US$5 million or annual sales of less than US$1 million.

The 13 companies were selected

from among 50 companies through the first round of document reviews and the second round of visits by ARM and Seoul National University.

The selected companies included Deeper-I, the first Korean company to supply deep learning-based image rec-ognition technology based on its own artificial intelligence chip, and intel-ligent semiconductor design company "Mobilint," which consists of members with excellent thesis records.

Also included were Fadu, an SSD semiconductor production company founded by graduate students at Seoul National University, and DeepX, an arti-ficial intelligence (AI) semiconductor solution company which won major priz-es at the 2019 Korea Technology Innova-tion Awards.

ARM will provide comprehensive support to 13 Korean semiconductor startups under the "Inclusive Company" agreement signed in April with the Korean Ministry of SMEs and Startups.

Under an 'Inclusive Company' Agreement Signed in April

ARM to Provide Support to 13 Korean Semiconductor StartupsBy Kim Eun-jin

43

ICT

South Korea’s semiconductor equipment imports from Japan increased by approximately 80

percent from a year ago in spite of efforts to reduce its reliance after Japan’s export restrictions implemented in July last year.

The Korea International Trade Asso-ciation announced on Sept. 6 that South Korea imported US$1.7 billion, up 77.2 percent from a year earlier, of semicon-ductor equipment and electronic integrat-ed circuit manufacturing machinery from Japan for the first seven months of this year. In addition, processor and control-ler imports and photosensitive semicon-ductor device imports rose 8.6 percent and 3.7 percent, respectively. For refer-ence, South Korea's total imports from Japan fell about 10 percent year on year during the same period.

The increase in semiconductor equip-ment imports has to do with Samsung Electronics’ large-scale investment. The company announced in May this year that it would set up NAND flash pro-duction lines in Pyeongtaek and is plan-ning to expand its facilities in the city next month. Although it was pointed out after the restrictions that new equip-ment and machinery suppliers were nec-essary, Samsung Electronics’ and many other South Korean companies’ reliance on Japanese semiconductor equipment is still as high as 25.7 percent, not that dif-ferent from last year’s 27.4 percent.

The South Korean government and enterprises have made efforts to become more competitive in the material, compo-nent and equipment industries and coun-ter the restrictions. However, changes at industrial sites are still slow. This is because it is hard for companies in the

industries to meet the technical demands of Samsung Electronics, SK Hynix and the like in spite of the government's sup-port and any change in supplier cannot but be somewhat burdensome for those clients. Also, it is far from easy to main-tain the same level of efficiency while replacing Japanese equipment with that from another country.

In the Trade, Industry and Energy Ministry's semiconductor and display performance evaluation support project launched after the export restrictions, only 19 out of 130 participating compa-nies succeeded in obtaining a quality cer-tificate from a client such as Samsung Electronics and SK Hynix until June this year. Besides, just three out of the 19 succeeded in signing a supply contract

with a client.This dependence on Japanese equip-

ment has led to South Korea’s depen-dence on Japanese engineers. In many cases, new Japanese equipment in South Korea is installed by Japanese engineers sent from the manufacturers as the buy-ers lack expertise. This led to self-quar-antine exemption for Japanese engineers in July this year against the principle of reciprocity. Although the principle was broken and there was a very high risk of COVID-19 inflow, the government could not ignore companies’ concerns over production setbacks. In short, the South Korean semiconductor industry is still heavily dependent on Japan despite its restrictions that have targeted the indus-try for more than one year.

Imports from Japan Increase by 80% from a Year Ago

South Korea Still Heavily Dependent on Semiconductor Equipment from JapanBy Michael Herh

South Korea still relies heavily on Japan for semiconductor equipment.

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ICT

South Korean semiconductor material, component and equipment suppliers are opposed to the introduction of the "discovery procedure."

South Korean semiconductor material, component and equipment suppliers are objecting to the "discovery procedure" the South Korean government is planning

to introduce for the purpose of patent right protection. Accord-ing to them, foreign semiconductor companies, which are over-whelming in terms of the number of applied patents, will file a large number of patent infringement lawsuits by abusing the discovery system, which is advantageous to patentees.

The Korean Intellectual Property Office (KIPO) tabled an amendment to the Patent Act last month so that the discovery system can be introduced and an expert designated by the court or chosen by a plaintiff can gather evidence at a defendant’s manufacturing facility before their patent suit. According to the KIPO, victims no longer have to prove patent infringement, key evidence can be quickly gathered, and the time and cost of liti-

gation can be reduced once the discovery system is introduced.On the other hand, the suppliers, most of which are not

large, are expressing concerns that the discovery will lead to a series of lawsuits to the point of significantly hindering their business activities. “Foreign companies with more patents will frequently mention infringement and most South Korean com-panies in the industry are incapable of responding to it,” one of them explained.

At present, the average number of patent applications in South Korea amounts to 578 in the case of foreign semiconduc-tor material and component suppliers but stands at 29 in the case of their domestic counterparts. Especially, Japanese companies are likely to take advantage of the discovery along with their government’s export curbs in continuing to put pressure on South Korea.

A System Advantageous to Patent Owners

South Korean Semiconductor Companies Opposed to Introduction of DiscoveryBy Kim Eun-jin

45

ICT

Samsung Display has sold off its LCD production line in Suzhou,

China to TCL Technology, a Chinese dis-play company. The move is in line with the company’s plan to wrap up produc-tion of LCDs by end of 2020 and accel-erate development of QD displays, a next-generation display.

Samsung Display signed a contract to sell its entire stake in Suzhou produc-tion line to TCL Huaxing, a subsidiary of TCL Technology, for US$1.08 billion, the company said on Aug. 28. Samsung Display acquired a 12.33 percent stake in TCL Huaxing for US$739 million fol-lowing the sale of the production line.

Samsung Display handed over a 60 percent stake in a fab in charge of front-end processes and a 100 percent stake in a back-end module production line at the Suzhou plant to TCL Huaxing.

Samsung Display held a 60 percent stake in the fab with the remaining 40 percent held by Suzhou Industrial Park (30 percent) and CSOT (10 percent), a subsidiary of TCL Technology and Chi-na's second-largest display company. For this reason, TCL was regarded as a strong candidate for acquiring Samsung Display's Suzhou LCD plant.

Samsung Display's Suzhou LCD production line is the company’s only 8.5th-generation panel production line in China. Although the plant is currently capable of processing 120,000 sheets of glass per month, it is designed to han-

dle up to 160,000 sheets per month. As it has been producing 32-inch, 55-inch and 65-inch products that are mainstream products in the market, its market value is also high. With the acquisition of Sam-sung Display’s plant, TCL Technology will have three 8.5th-generation lines and two 11th-generation lines. Amid the trend toward larger displays, TCL Technology can now seek to expand its share of the large display market with-out spending much time and money. The Samsung Display plant runs a module factory with a monthly production capac-ity of 3.5 million sheets.

Samsung Display wanted to wrap up its LCD business as it has been accumu-lating losses. As Chinese display compa-nies have caught up with Korean com-panies not only in price but in quality, Samsung Electronics, a major customer of Samsung Display, is now using more panels from Chinese companies. Due to the accumulated deficits, Samsung Dis-play had no choice but to put an end to the LCD business division.

However, Samsung Display also showed its intention to continue coop-eration with Chinese companies in the LCD business by acquiring a stake in TCL Huaxing. While large panel mar-kets are shifting towards OLEDs, LCD-based products still account for a high percentage of the display market. The sales gap between the LCD-based QLED TV group led by Samsung Electronics and the OLED TV group tripled in the second quarter of this year. One year ago, the gap was double.

Samsung Display will cut a chain of poor business performance stemming from the LCD panel business and step up its efforts to mass-produce QD displays. By the end of this year, the company will finish developing prototypes of QD dis-plays and secure major customers.

Accelerates Shift to QD displays

Samsung Display Sells Off Suzhou LCD Plant to Chinese CompanyBy Michael Herh

Samsung Display’s 8.5th-generation LCD produc-tion plant in Suzhou, China, which was sold off to TCL Technology of China

LG Display is expected to ship 1.43 million OLED TV pan-

els in the third quarter of this year, opening the era of rolling out 1 mil-lion OLED panels per quarter.

The company’s 8.5th-generation (2,200 mm×2,500 mm) production lines in Guangzhou, China, have finally started to operate normally after a long period of efforts to raise its yields.

The Guangzhou fab started to mass-produce OLED panels in July, creating synergies with LG Display’s Paju fab, said an industry insider. "This third quarter will be a water-shed for LG Display's large OLED business."

Market research company Omdia predicted that LG Display's OLED TV panel shipment in the third quar-ter of 2020 will exceed 1.43 million. The figure is more than double the 652,500 recorded in the second quar-ter.

LG Display is planning to start to operate the Guangzhou plant at full throttle as early as September. The plant produces 48-, 55-, 65- and 77-inch panels. It can process up to 60,000 sheets of mother glass per month. Currently, the Paju fab pro-cesses about 70,000 sheets per month. LG Display is planning to ramp up Guangzhou plant’s production capac-ity to 90,000 sheets per month, boost-ing its total production capacity to 160,000 sheets per month.

The yield of the Guangzhou fab

Expected to Roll out 2 Mil. OLED TV Panels in Q4

LG Display’s Guangzhou Plant to Enter Full-fledged Operation This MonthBy Michael Herh

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South Korean display manufacturers’ business condi-tions are deteriorating due to cheap LCD and OLED

products from China and the Huawei risk. At present, the South Korean display market is shrinking, the Chinese market is expanding at a rapid pace, and Huawei’s next-generation fold-able phones are unlikely to be released within this year due to U.S. restrictions, which is likely to adversely affect the South Korean suppliers.

Market research firm DSCC reported on Sept. 16 that the Mate X2 would not be able to debut within this year. The fold-able OLED phone is expected to use an 8.03-inch Samsung Display panel. Huawei topped the global smartphone market in the second quarter of this year. In other words, Samsung Display’s losses are inevitable with the release postponed. The U.S. restrictions on Huawei are a negative factor for LG Dis-play as well in that the latter has supplied panels to the former.

Both Samsung Display and LG Display recently asked the U.S. Department of Commerce to grant a special permit so that they can continue to export their panels to Huawei.

Even before the Huawei risk, the South Korean suppliers had to struggle due to the massive supply of the cheap LCD panels. They are currently withdrawing from the market and the same is about to occur in the global OLED panel market.

According to DSCC, South Korea and China are currently accounting for 67 percent and 31 percent of the global mobile OLED panel market, respectively. However, the production volume-based figures are likely to change to 49 percent and 50 percent in 2024. In fact, China already surpassed South Korea this year in terms of purchase volume.

Until last year, South Korean companies were the larg-est mobile OLED panel buyers in the world. They have been replaced with Chinese companies this year. Market research firm UBI Research recently reported that Huawei and Oppo represented 53.4 percent and 8.9 percent of the global mobile OLED panel purchase in the second quarter, respectively. Besides, Chinese companies’ share in the global flexible OLED panel market is estimated to rise from 29 percent to 50 percent from 2019 to 2023.

Chinese display panel suppliers such as BOE, CSOT and Tianma are boosting their investment in the market with their government backing. BOE’s annual flexible OLED panel ship-ments are likely to more than double to over 40 million units this year. Even Samsung Electronics and LG Electronics opted for Chinese LCD panels for some of their non-high-end prod-ucts with the prices of the panels more than 30 percent lower than those of the same products from Samsung Display and LG Display.

China's Display Market Expanding Rapidly

South Korean Display Panel Manufacturers Facing Increasing DifficultiesBy Kim Eun-jin

Samsung Display’s latest foldable OLED panel expected to be used in foldable smartphones such as the Huawei Mate X2

LG Display's 8.5th-generation OLED plant in Guangzhou, China

has rapidly stabilized and is maintaining a level similar to that of the Paju fab, which stands at around 80 percent.

Experts forecast that LG Display's shipments of OLED TV panels will increase even more in the fourth quarter. Omdia predicted that shipments will top 2.01 million in the fourth quarter, which represents more than 60 percent of the total 3.29 million units shipped in 2019. Shipments for the whole of 2020 are expected to reach 4.93 million units. Omdia expected the figure to rise to 8 million units in 2021.

LG Display expects that it will be able to produce more than 10 million units (55-inch OLED panels) per year if it maximizes its production capacity of the fabs in Guangzhou and Paju.

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Samsung Electronics has won a US$6.64 billion deal to supply 5G wireless communication solutions to Verizon,

the largest mobile carrier in the United States. It is the largest single contract in the history of Korea's telecommunication equipment industry.

In a regulatory filing on Sept. 7, Samsung Electronics said its US subsidiary Samsung Electronics America will provide 5G network equipment and maintenance and repair services to the top American mobile carrier until Dec. 31, 2025.

Samsung has been pushing hard to expand its presence in the 5G equipment market. As of the end of 2019, it ranked fourth in the global 5G equipment market with a 16.6 percent share, preceded by China’s Huawei with 32.6 percent, Ericsson with 24.5 percent and Nokia with 18.3 percent. The mega deal with Verizon is expected to boost Samsung’s market share.

Telecom equipment is one of the business areas that Sam-sung Electronics vice chairman Lee Jae-yong has sought to fos-ter with a long-term perspective. In 2011 when mobile services were based on 3G technology, Lee ordered the establishment of a next-generation telecommunication research organization

dedicated to 5G technology and brought in Jeon Kyung-hoon, a professor at POSTECH specializing in wireless communica-tions, to speed up research. Professor Jeon is currently heading up Samsung Electronics' network business division, orchestrat-ing Samsung’s 5G network business.

Small and medium-sized Korean businesses will benefit from Samsung’s deal with Verizon as 40 to 60 percent of the parts used for Samsung equipment are produced by Korean companies. The Korean tech giant is working with 86 small and medium-sized equipment parts suppliers.

The deal with Verizon is expected to cement Samsung’s sta-tus as a major equipment supplier in the US market and help the company land additional orders not only from the North Ameri-can market but from the European market. Some experts say that Samsung Electronics has benefited from U.S. sanctions on Huawei. The U.S. government has put Huawei's network equip-ment on its sanction list due to security concerns.

Huawei continued to dominate the global telecommuni-cation equipment market in the first half of 2020.

Huawei came in first with a 31 percent share, up 3 percent-age points from 28 percent in the same period of 2019, market research company Dell’Oro Group said on Sept. 10. Huawei benefited from China's large-scale 5G investments.

Finland's equipment maker Nokia took second place with 14 percent, down 2 percentage points from a year before. It was fol-lowed by Ericsson (14 percent), ZTE (11 percent) and Cisco (6 percent). Ciena ranked sixth, and Samsung Electronics seventh.

The size of the global telecom equipment market grew 4

percent on year in the first half of 2020. Global supply chain disruptions caused by the new coronavirus pandemic have grad-ually subsided, and the second-quarter growth rate exceeded market expectations due to China's large-scale investment in telecom infrastructure, Dell’Oro Group explained. It predicted that the market size will increase 5 percent this year from 2019 as growth will continue in the second half.

Samsung Electronics Ranked 7th

Huawei Leads Global Telecom Equipment Market in First Half of 2020By Michael Herh

Samsung Electronics will supply US$6.64 billion worth of 5G equipment to Verizon of the United States.

Huawei remains the No. 1 player in the global telecom equipment market.

Korea's Biggest Single Telecom Equipment Sales Deal

Samsung Electronics Strikes US$6.6 Bil. Deal to Supply 5G Equipment to VerizonBy Michael Herh

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ICT

Video codec company DivX filed patent infringement lawsuits on Sept. 9 against Samsung Electronics, Sam-

sung Electronics America and Samsung Electronics Ho Chi Minh City CE Complex with the United States District Court for the Eastern District of Texas and against LG Electronics and LG Electronics U.S.A. with the United States District Court for the District of Delaware.

According to the California-based company, Samsung Elec-tronics and LG Electronics stole its patented technology for their high-end smart TVs and the technology is related to video streaming and system control. DivX is also in litigation with TCL, the largest TV manufacturer in China, and Taiwanese fab-less semiconductor company MediaTek.

Established in 2000, DivX is well known as a high-defini-tion video codec developer. At present, more than 1.5 billion electronic devices, including game consoles and smartphones as well as PCs, are using its technology across the world. Samsung

Electronics and LG Electronics have worked with DivX for long, too.

Samsung Electro-Mechanics announced on Sept. 13 that it has developed the world’s smallest power inductor

that is 0.8 mm wide, 0.4 mm long and 0.65 mm thick.The newly developed power inductor’s area is about one-

fourth that of the previously smallest product, which measures 1.2 mm in width and 1.0 mm in length. Samsung Electro-Mechanics is planning to supply this new product to global mobile companies.

Power inductors are a core component necessary to supply stable electricity (power) coming from the battery to the semi-conductor, and they are used in smartphones, wearable devices, and electric vehicles (EVs). Their functions are similar to those of multi-layer ceramic condensers (MLCCs). An MLCC regu-lates voltages while a power inductor is responsible for current control.

As recently released IT devices use 5G mobile communica-tion chips and multi-cameras, they have not enough space for parts. "We expect demand for ultra-small power inductors to

increase fast," a Samsung Electro-Mechanics official said. "The amount of power inductors in electronic devices are expected to grow 20 percent every year."

A Core Part for Smartphones, Wearable Devices, and EVs

Samsung Electro-Mechanics Develops World's Smallest Power InductorBy Kim Eun-jin

U.S. video codec company DivX has filed patent infringement lawsuits against Samsung Electronics and LG Electronics.

The tiny power inductor developed by Samsung Electro-Mechanics measures 0.8 mm in width and 0.4 mm in length.

TCL and MediaTek Also Sued

DivX Files Patent Infringement Suits against Samsung Electronics and LG ElectronicsBy Kim Eun-jin

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ICT

The Ministry of Science and ICT announced on Sept. 8 the

enforcement decree of the Telecommuni-cations Business Act, which was recently revised to prevent global content provid-ers (CPs) such as Netflix from getting a free ride on the networks of domestic telecom companies.

The enforcement decree, however, drew strong criticism from Korean inter-net service providers, including Naver and Kakao. Industry insiders said the decree simply puts more burden on Korean internet companies.

The revised Telecom Business Act, which is called the “Netflix law,” requires value-added common carri-ers to take measures needed to stabilize their services. Companies subject to the enforcement decree are required to take such measures as securing multiple serv-ers and enough server capacity to ensure stable service provision and submit implementation data every year. In addi-tion, they are required to consult with major telecommunication service provid-ers when traffic soars.

The problem is the scope of the com-panies subject to the enforcement decree. The decree stipulates that carriers that have one million or more daily users and account for more than 1 percent of total traffic in Korea are subject to it. Accord-ingly, the decree will cover not only Net-flix, Google and Facebook but Korean companies such as Naver and Kakao. According to the National Assembly, as of August 2019, Google including You-Tube accounted for 25.8 percent of the total traffic of the nation's three major telecommunications service providers, dwarfing those of Naver (2.5 percent) and Kakao (1.8 percent).

Korean internet companies say that the enforcement decree imposes exces-sive duties on them based on unclear standards such as the amount of traffic. The Korea Internet Companies Associa-tion said, "The new decree is unprece-dented as it holds value added common carriers, who are not telecommunications service providers, responsible for net-work stability.” It argued that the decree must be revised because it has many problems such as going beyond the scope of the act and a possible violation of the basic rights set out by the Constitution."

Internet companies say that they can-not bear the burden of maintaining ser-vice stability because they are already paying unprecedentedly high network fees. Naver and Kakao each paid nearly 100 billion won a year to mobile carriers as network use fees in 2016.

Under these circumstances, ana-lysts say that it the Netflix law goes into implementation, CPs will be required to pay more, which will eventually increase burdens on consumers. "The enforcement decree passes the burden of maintaining network quality onto value

added carriers, not telecommunications service providers," an industry insider said. "The decree encroaches upon the freedom of business guaranteed by the Constitution and may violate free trade agreements (FTAs)."

Overseas CPs such as Netflix and Google have sued mobile carriers, claim-ing that they do not need to pay for net-work use. When SK Broadband told Net-flix to pay for the use of its network, Net-flix filed a lawsuit with the Seoul Central District Court in April, saying that the maintenance and management of tele-communication networks is not a respon-sibility of CP companies. The trial will begin on Oct. 30.

"A stable provision of services is a key factor that determines the competi-tiveness of CP companies,” said profes-sor Lee Kyung-won of Dongguk Univer-sity. “It is an excessive market interven-tion to make it mandatory for them to submit data on the status of implemen-tation." Lee added that while the decree targets Netflix, it actually affects Korean CPs and increases burdens on small and medium-sized companies.

Korean Internet companies say the new enforcement decree of the "Netflix law" puts more burden on them.

An Unexpected Backlash

Enforcement Decree of ‘Netflix Law’ Feared to Hurt Korean Internet CompaniesBy Kim Eun-jin

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The Seoul High Court ruled on Sept. 11 that Facebook’s access route change constituted a limitation of use but

did not significantly affect users’ interests and the Korea Com-munications Commission (KCC) used its discretionary power in a wrong way.

Back in 2017, the KCC reached a conclusion that Facebook changed its access routes for SK Broadband and LG U+ users to servers in Hong Kong during cache server operating cost nego-tiations and the change adversely affected the users in the form of an intentional decrease in connection speed. The next year, the commission issued a corrective order to Facebook and told it to pay a penalty of 396 million won.

After the Sept. 11 court ruling that the order was unreason-able, the KCC announced on Sept. 21 that it would lodge an appeal and appointed a new litigation representative.

The first trial court ruled that Facebook’s arbitrary access route change caused some delay and inconvenience but did not limit the use of Facebook. The second trial court, meanwhile, ruled that the change limited the use without significantly affecting users’ inter-ests. This can mean some advancement on the KCC’s part.

Regarding the Sept. 11 ruling, the commission said that the court reached its conclusion based on foreign standards without considering the local communications environment and charac-teristics of local users.

The Korea Internet Corporations Association held an online meeting on mandatory in-app payment on Sept.

23. Lawyer Jung Jong-chae of SN Law, a law firm in Seoul, gave a presentation at the meeting, calling for the Korea Fair Trade Commission to keep a closer watch on Google and Apple in rela-tion to market dominance abuse and unfair business practices.

“Although the local app market ONE store’s market share has risen from 10 percent to 18 percent this year, Google and Apple are still maintaining their monopolistic dominance con-sidering their OS platform market influence and irreplaceability, and the expansion of mandatory in-app payment by Google will lead to fee shifting and consumer damage,” he said.

According to the Monopoly Regulation and Fair Trade Act, the policy of Apple and Google can be regarded as forced sale such as tied-in sale and abuse of business position. In fact, the Korea Fair Trade Commission imposed a penalty of approxi-mately 33 billion won, along with a corrective order, on Micro-soft HQ and Korea in December 2005 for their abuse of market dominance.

The lawyer mentioned Apple-Epic Games disputes as a ref-erence case. Recently, Epic Games established its own payment system against the in-app payment policy of Apple and Apple removed Epic Games apps from its store, mentioning a breach of contract. Epic Games filed a suit in California, claiming that Apple violated the Sherman Antitrust Act of 1890. The court ruled in favor of both Apple and Epic Games in the injunction ruling. However, it ruled against Apple when it comes to the fee policy of Apple.

The problem is that the ongoing issue is related to online contracts with foreign corporations, that is, whether the South Korean Act on the Regulation of Terms and Conditions is appli-cable. The lawyer remarked with previous Supreme Court rul-ings that the act is applicable because the issue has an effect on domestic consumers.

Google, Apple Criticized for Abusing Power

Industry Expert Calls for Proactive Response to Mandatory In-app PaymentBy Kim Eun-jin

The Korea Communications Commission will lodge an appeal against the Seoul High Court's Sept. 11 ruling in favor of Facebook.

Huawei remains the No. 1 player in the global telecom equipment market.

KCC Decides to Lodge an Appeal

Supreme Court to Handle KCC-Facebook LitigationBy Kim Eun-jin

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Facebook has won both the first and appeal trial in an administrative lawsuit it filed

against the Korea Communications Com-mission's decision to impose fines on it. Controversy over the revision of the enforcement decree to the Telecommu-nications Business Act, which is dubbed the "NetFlix Act," is also expected to fur-ther grow.

The Seoul High Court ruled in favor of Facebook on Sept. 11 in a lawsuit filed by Facebook to cancel a corrective order from the commission. "A change in the access route made by the plaintiff con-stitutes an act of restricting network use, but it was not done in a manner that sig-nificantly undermined users’ interests," the court said. "The KCC abused its dis-cretion."

Earlier in March 2018, the KCC fined Facebook 396 million won and ordered it to take a corrective action, say-

ing that it had committed an act against users’ interests, which is banned under the Telecommunications Business Act.

As the court passed the responsibil-ity for network quality to carriers, atten-tion is being paid to what conclusion the court will arrive in another legal battle between Netflix and SK Broadband. The first hearing for Netflix vs. SK Broad-band will be held in October.

in November 2019, SK Broadband asked the KCC to arbitrate, claiming that Netflix has increased its burden to maintain the network by surging traf-fic. Although SK Broadband’s plan was aimed at making Netflix pay the cost of network expansion and usage fees, Netf-lix suddenly filed a lawsuit ahead of the KCC's arbitration decision.

The contents industry is strongly opposed to the “Netflix Act” which imposes a duty to maintain quality of services on value added carriers in the

name of protecting users. On top of that, the latest court ruling has created a pub-lic opinion that the maintenance of net-work quality is up to telecommunication companies, which has given the con-tents industry an advantageous position, industry experts say.

On the contrary, the KCC has lost a series of lawsuits that it expected to win. "Although the KCC lost in the sec-ond trial, it is meaningful that the court acknowledged damage to users," said telecommunications industry insiders. In particular, telecommunication com-panies expressed their expectations, saying, "After the passage of the ‘Net-flix Act,’ positive conditions have been created. For instance, the enforcement ordinance prevents access changes that cause a serious damage to consumers."

Meanwhile, the KCC will decide whether to appeal after analyzing the court ruling on the Facebook case.

KCC's Imposition of Fines Nullified

Court Sides with Facebook Again, Fueling Controversy over Effectiveness of ‘Netflix Act’By Choi Moon-hee

The court has ruled in favor of Facebook in a suit it filed to nullify the fines imposed by the Korea Communications Commission.

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Cho Seung-rae, a lawmaker of the ruling Democratic Party of Korea, proposed a bill to

revise the Telecommunications Business Act on Sept. 8 to prevent app market operators such as Google from abusing their power.

The bill was prompted by Google’s plan to collect 30 percent fees for appli-cations sold through its app market.

The bill prohibits all acts that have been cited as representative cases of app market operators’ abuse of power, such as forcing certain payment methods, an unfair delay of app reviews or an unwar-ranted deletion of apps, and interference with app registration in other app mar-kets. It also obliges app market operators to protect their users in payments and refunds.

The bill is likely to be the first of its kind, with other lawmakers expect-ed to put forward similar bills to revise the Telecommunications Business Act and the Fair Trade Act in order to block Google and Apple from abusing their monopoly on mobile platforms.

Google's toll controversy is emerg-ing as a key issue in a parliamentary audit scheduled for October. In fact, the National Assembly's Science, Technol-ogy, Information and Communication Committee dealing with the toll contro-versy among others has picked Google's demand for higher tolls as the biggest issue along with the quality of 5G ser-vices, and is having a discussion on sub-poenaing Google managers as witnesses.

Controversy over Google's tolls was caused by Google's recent official

letters to leading Korean Internet com-panies such as Naver and Kakao. In the letter, Google said it would allow only "in-app" payments within its mobile app market "Play Store" and completely ban payments through other companies’ own programs or bypass methods. Google is expected to implement the fee collec-tion policy within 2020. Industry insid-ers predict that Google will expand its 30 percent toll already levied on the game industry to all services provided via Play Store, including music, webtoons and subscription services.

The Korean IT industry is concerned that if Google's 30 percent toll becomes a reality, all Korean app developers will become "digital tenant farmers" work-ing to increase Google’s profits. In fact, if Google raises the fee, major IT giants will have no choice but to raise content charges to cover the fee hike. As a result, Google's toll hike will not only be passed onto consumers, but threaten the mobile value chain of consumers-development companies-platforms-network compa-nies. In particular, small and medium-sized venture companies and startups with weak business bases become more likely to vanish from the market in the process.

Not only the political community but also the Korean government has begun to speak out in unison against Google's unfair monopoly. While the National Assembly has started moves to revise the relevant laws, related government agen-cies such as the Fair Trade Commission, the Science and ICT Committee, and the Korea Communications Commission have also begun to investigate the situa-tion.

A ruling party lawmaker has proposed a bill to prevent app market operators such as Google from abusing their power.

To Correct Google’s Unfair Business Practices

Government and Political Circles Join Anti-Google MoveBy Michael Herh

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ICT

COVID-19 is a challenge that demands companies and govern-ments address multiple dimensions that go beyond the pandemic's health implications. The Korean govern-ment, says Lee Kang-shin, chairman of the Incheon Chamber of Com-merce & Industry, needs to come up with policies to help companies navi-gate through uncertain times and adapt to the new normal. For the city of Incheon, he paints a rosy picture in the post-viral era as it is home to the world’s finest social overhead capital. Yet he called on the central govern-ment to accelerate deregulation to help Incheon realize its immense growth potential. Following are excerpts of an interview with Lee. -- Ed.

How is the Incheon Chamber of Com-merce & Industry (ICCI) responding to the economic impact of COVID-19?

According to a recent survey, the busi-ness sentiment index of the manufacturing sector is 50 and that of retail and distribu-tion is 56 for the third quarter of this year. The figures show that enterprises are very pessimistic about the status quo.

The government needs to come up with more policies so that companies can find a breakthrough with the pandemic, which is fundamentally changing the global economy.

The policies have to focus on help-ing them overcome the crisis and pre-pare for the new normal, that is, the post-COVID-19 era. The policies have to come in the form of financial and tax

assistance, domestic consumption pro-motion and many other practical and realistic measures.

At the same time, various regulations that have hindered their activities have to be reconsidered. Labor flexibility and competitiveness enhancement based on bold deregulation are necessary for their sustainable growth.

What do you think is necessary to adapt to the new economic environment?

Entrepreneurs need to give a thought to the emergence of digital economy and the collapse of global value chains, which are two of the most important key-words of this COVID-19 era.

Online contact is replacing physical with the pandemic leading to more and more non-face-to-face activities. More smart factories need to be introduced and online and contactless work systems should be established without delay.

The pandemic has shown that global value chains may collapse. Stable sup-ply is emerging as a production factor as important as cost. This means stable local supply networks are now as impor-tant as global supply networks on the part of enterprises.

How should the economy overhaul itself with the pandemic going on?

We are now realizing that we have to deal with systems and fundamentals as well as pending issues to get over a crisis.

For example, regulations are hinder-ing reshoring to the capital area, which is necessary with the value chains collaps-ing. In other words, enterprises are fail-ing to do business in their favorite place. Besides, the capital area has been ruled out of the government’s deregulation

Lee Kang-shin, chairman of the Incheon Chamber of Commerce & Industry

An Interview with Chairman of Incheon Chamber of Commerce & Industry

Incheon Poised to Lead Korea's Economic Growth in Post-viral EraBy Jung Min-hee

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zone policy for the growth of innovative and strategic industries. This means regu-lations on the most competitive area are affecting the national competitiveness of South Korea.

Those regulations covering the entire business activities have to be reconsidered for economic growth after COVID-19.

What is your diagnosis of the past, pres-ent and future of the economy of Incheon?

Incheon led the modernization and industrialization of South Korea as home to the country’s first railroad, first com-munications, first expressway, and so on. Incheon is one of the fastest-growing South Korean cities. Here, Incheon Inter-national Airport opened in 2001, New Incheon Port opened in 2015 and the population topped three million in 2016. It was designated as a free economic zone in as early as 2003.

Unfortunately, though, the qualita-tive growth of the city has fallen short of its quantitative growth. The manufactur-ing sector of the city, its industrial back-bone, is losing its competitive edge and its service sector is still small in scale. The knowledge-based part of the service industry is still fragile despite its huge growth potentials and job creation capa-bilities. This has led to Incheon citizens’ income lower than the national average and large household debts.

Still, the economy of Incheon is capa-ble of growing. The ratio of young people of the city is higher than those of most South Korean cities and it has accumu-lated industrial expertise and competitive-ness for long. It is home to the world’s finest social overhead capital. The ICCI will do its utmost so that Incheon can cre-ate a better future by making the most of its resources and capabilities.

What is the ICCI’s stance on reshoring?The central government has made

efforts to facilitate reshoring by, for example, revising the Act on Assistance to Korean Off-shore Enterprises in Repa-triation. However, only 68 companies have benefited from the efforts and only two have returned to Incheon since the law became effective seven years ago.

According to our October 2013 sur-vey covering companies that relocated to China from Incheon, 34.1 percent, 32.9 percent, 10.6 percent, and 10 percent of the companies did so for lower labor costs, market creation, relocation to China of their parent companies or business partners, and strategic partnership with local companies, respectively. In addition, 83 percent of the respondents said that they would return to the capital area, that is, Seoul, Gyeonggi and Incheon, if they came back to South Korea.

At present, rapidly rising minimum wages and shorter working hours are leading to an increase in labor-related costs and hampering reshoring. More-over, the central government’s reshor-ing policy has been limited to non-large companies and failed to result in large companies’ reshoring, which will be much greater in impact.

More policies are needed for reshor-ing of South Korean companies, large ones in particular. Also, labor-related cost reduction and deregulation in the capital area are urgent as well.

What is on the ICCI’s economic legisla-tion wishlist for this year and what is its feasibility?

The Incheon office of the Citizens’ Coalition for Economic Justice and the ICCI sent a letter to both the ruling and opposition parties in March this year and the letter contains the necessity of a change in metropolitan policy, more decentraliza-

tion of governance and a blueprint for the future of the economy of Incheon.

The Seoul Metropolitan Area Read-justment Planning Act, which took effect about four decades ago, has blocked the city from making the most of its region-al capabilities. The central government needs to revoke the law, overhaul the Special Act on Balanced National Devel-opment, and abolish superfluous regula-tions related to Incheon’s infrastructure, the Ganghwa-Ongjin area, etc.

In addition, regional financial expan-sion based on an increase in local tax ratio, administrative authority transfer related to ports, small and medium-sized enterprises, and so on and more partic-ipation in the management of national public enterprises located in the city will facilitate region-specific policies based on the decentralization of power.

Incheon is home to foundations for new industries such as biotech and healthcare as well as traditional manu-facturing components and infrastruc-ture. I am convinced that the economy of Incheon will continue to flourish based on a new economic zone that sur-rounds Incheon International Airport, a new master plan for the development of Incheon Port, a manufacturing revival and a strategic concentration on biotech and healthcare.

We are anticipating that the three key agenda items will be proactively and effi-ciently handled in the current session of the National Assembly.

The main office of the Incheon Chamber of Commerce & Industry

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Industry

Korean home appliance makers are leaving the Chi-nese market as they are losing ground to local com-

panies, which are waging a price war based on improved technology.

LG Electronics is closing down its shops housed at offline stores of Suning.com, one of China's leading retailers, and will gradually shut down its stores at Gome, another major Chinese home appliance distributor.

Industry watchers say LG Electronics' withdrawal from offline stores in China results from the long slump of its TV business in China. LG Electronics' share of the Chinese TV market stands at 0.4 percent, less than 1 percent, in 2020, according to data from IDC, a market research firm.

LG Electronics has been desperately trying to increase sales of premium products such as OLED TVs in China but to little avail. The company’s share of China's OLED TV market was

People Power Party lawmaker Koo Ja-geun remarked on Sept. 20 that state-run energy companies invested US$38.88 billion for overseas resources develop-

ment and recouped only 40 percent of the investment until the end of last year. The recouped portion includes profits, divi-dends and asset disposal proceeds. On the other hand, private-sector energy companies’ figures amounted to US$39.19 billion and 84.5 percent during the same period.

As of the end of 2019, the state-run and private-sector com-panies took part in 427 overseas resources development proj-ects in 65 countries. Those consist of 119 for oil and gas and 308 for mineral resources.

Korea National Oil Corp.’s investment and recoupment were US$21.55 billion and 51.1 percent. It was participating in 26 projects, including West Fergana & Chinabad in Uzbekistan in which nothing was recouped. At the Harvest oil field in Can-ada, the corporation invested US$4.08 billion and only US$34 million came back.

Korea Gas Corp.’s were US$10.76 billion and 33.8 percent. Its 21 overseas projects included 10 with a zero return at the end of 2019. In the Gladstone LNG project in Australia, the biggest of those, the corporation invested almost US$3.97 bil-lion and the payback stood at 8.9 percent.

Korea Resources Corp. invested over US$4.78 billion in 22 projects and recouped only US$698 million. Nothing came back in seven and only US$30 million out of US$1.53 bil-lion was regained at its largest Ambatovy nickel project. At the Boleo and Cobre Panama copper mines, it recovered just

US$181 million and US$127 million from US$1.53 billion and US$746 million, respectively.

Korea Electric Power Corp. and its subsidiaries engaged in 13 projects in five countries. Their investment amounted to US$1.83 billion but recoupment stood at US$200 million.

The poor performances are because those corporations’ asset values and profits plunged in 2014 and later, when the prices of resources such as petroleum continued to fall. Also, those are because of resources sold at excessively low prices and the lack of feasibility that led to halted or delayed pro-duction. The corporations’ inefficiency, lack of capability and imprudent investment relying on borrowings are also mention-able.

Only 40% of Investment Recouped

State-run Energy Companies Extremely Inefficient in Overseas Resources DevelopmentBy Jung Min-hee

The Ankor oil field in the Mexico Bay which was acquired by Korea National Oil Corp. and Samsung C&T in 2008.

LG Electronics Closing Down Offline Stores in China

Korean Home Electronics Companies Withdrawing from ChinaBy Michael Herh

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Industry

Samsung Display and LG Display are showing different moves in the LCD market.

Samsung Display is planning to close down its LCD busi-ness by end of this year and concentrate its capabilities on the quantum dot (QD) OLED business. LG Display is employing a two-track strategy — LCD displays for IT devices such as lap-tops and OLED displays for TVs.

Samsung Display is in the process of withdrawing from the LCD business. SEMES, an affiliate of Samsung Display, has recently sold its LCD photo and wet business to Wonik IPS for 82 billion won. Industry insiders believe that SEMES made the move to focus on inkjet printing equipment business related to Samsung Display’s QD business.

Previously, Samsung Display sold a 100 percent stake in its production line in Suzhou, China to CSOT, a subsidiary of Chinese display company TCL, for US$1.08 billion on Aug. 28. Samsung Display also sold a 60 percent stake in Samsung Electronics' LCD technology fab.

Samsung Display is currently focusing on setting up QD display production lines. The company is aiming to start mass-production of QD panels after going through a step-by-step market operation early next year. Reportedly, Samsung Display provided QD panel samples to Samsung Electronics, Sony, and Panasonic. It is planning to initially process 30,000 sheets of mother glass per month and gradually ramp up production. It is going to invest more than 13 trillion won in its QD business by 2025.

LG Display's strategy is to strengthen profitability by focusing on LCDs for IT devices. This is because demand

for laptops and tablet PCs has soared due to the spread of the COVID-19 virus, which triggered an increase in shipments of LCD panels.

LG Display's shipments of LCD panels for tablet PCs with a 9-inch or larger screen reached 1.91 million units in May, up 150 percent from a year earlier, market research firm Omdia said. The company’s shipments of LCD panels for laptops also climbed 35 percent on year to 3.51 million units.

In addition, LG Display is planning to expand its large OLED panel business. The company has invested 22 trillion won in OLED facilities over the past three years. This indicates that it invested more than 7 trillion won annually on average. Its OLED plant in Guangzhou started full-scale operation in July and is set to begin mass production of OLED panels.

Withdrawal vs. Two-track Approach

Samsung and LG Go Separate Ways in LCD BusinessBy Michael Herh

Samsung Display and LG Display go separate ways in the LCD panel market.

12.0 percent in the second quarter of 2020, down from 20.3 percent a year earlier, Omdia said. Its market share was lower than that of Japan's Sony (35.7 percent), China's Skyworks (22.1 percent) and China’s HiSense (14.0 percent).

Although LG Display exclusively supplies large OLED TV panels to the world and started mass-production at an 8.5th-generation OLED fab in Guangzhou, China, it is uncertain whether it will have a positive impact on LG Electronics' sta-tus in the Chinese OLED TV market. Chinese TV companies overtook Korean and Japanese companies a few years ago with products made from low-priced LCD panels.

Samsung Electronics, which has the largest market share among non-Chinese TV producers, also recorded a market share of only 1.7 percent, far smaller than first-ranking Xiao-mi’s 20.3 percent. LG Electronics is closing down its shops housed at offline stores of China's lead-

ing retailers.

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Industry

The Ministry of Trade, Industry and Energy announced on Sept. 18 that South Korean automakers’ production,

domestic sales and exports decreased 6.4 percent, 1.2 percent and 15.8 percent from a year ago last month, respectively.

Specifically, the production volume totaled 233,357 vehi-cles amid the second wave of COVID-19. Those of Hyundai, Kia and Renault Samsung fell 12.6 percent, 5.2 percent and 21.7 percent year on year whereas GM Korea and SsangYong increased theirs by 19 percent and 16.9 percent, respectively.

The ministry explained that the production volumes of U.S., Japanese and German carmakers dropped 33.1 percent, 25.6 percent and 39 percent for the first seven months of this year and South Korean carmakers fared relatively well by showing a decrease of 17.4 percent in that period. Chinese automakers’ decline stood at 11.8 percent.

The domestic sales added up to 135,349 with the first decrease in six months. A total of 111,190 South Korean cars (down 4.9 percent) were sold along with 24,159 imported cars (up 20.7 percent).

The exports, which were 136,538 vehicles last month, fell for the 13th consecutive month. Although those to North Amer-ica increased 12.3 percent to US$1.25 billion, those to the Euro-pean Union, the Middle East, Latin America and Asia dropped

26.9 percent, 50.2 percent, 58.8 percent and 36.3 percent to US$560 million, US$358 million, US$174 million and US$168 million, respectively.

In the meantime, the domestic green car sales volume jumped 85.4 percent year on year to 15,930 to increase for the seventh consecutive month. In addition, the ratio of green car sales to domestic sales hit an all-time high of 11.8 percent and electric vehicle exports rose 22.2 percent from a year ago.

South Korean automakers’ sales volumes totaled 573,279 cars last month, down 10.5 percent from a year ago. Pre-

viously, their year-on-year decline amounted to 48.4 percent in April in the wake of COVID-19 and it decreased to 9.1 percent in July. Last month, their domestic and overseas sales volumes fell 5.6 percent year on year to 111,847 and fell 11.2 percent year on year to 461,432, respectively.

The domestic sales remained sluggish in both July and August. Renault Samsung Motors’ domestic sales volume reached 6,104 with a year-on-year decrease of 21.5 percent and that of Kia Motors fell 11.3 percent to 38,463.

On the other hand, the overseas sales volume showed some recovery in about six months. GM Korea exported 21,849 cars last month, up 20.7 percent from a year earlier. When it comes to Hyundai, Kia and SsangYong, the volumes increased 2 percent to 63 percent compared to the previous month although those

decreased compared to the same month of the previous year. The three companies’ overseas sales volumes continued to fall from the previous month in the first six months of this year.

GM Korea, SsangYong Post Output Growth

Automotive Industry Contracts in August

Auto Sales Fall 10.5% on Year in Aug.

South Korean Automakers’ Exports Show Some Recovery in August

By Jung Min-hee

By Jung Min-hee

Automakers’ production, domestic sales and exports all dropped from a year ago in August.

South Korean automakers sold a total of 573,279 cars in August, down 10.5 per-cent from a year ago.

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Industry

Hyundai Motor Co. announced on Sept. 16 that it has begun shipping its proprietary fuel

cell system to Europe for use by non-automotive companies including a Swiss hydrogen solution firm, GRZ Technolo-gies Ltd.

The move reinforces Hyundai’s lead-ership in the development and mass pro-duction of fuel cell systems for vehicles and beyond.

Hyundai Motor became an automo-bile manufacturer to export both fuel cell systems and fuel cell electric vehi-cles. Export of its fuel cell system dem-onstrates Hyundai’s high technology and production capacity in support of eco-friendly energy businesses.

Hyundai Motor introduced its first

fuel cell electric vehicle in 2000, the Santa Fe FCEV, followed by the world’s first mass-produced FCEV, the ix35, in 2013, and the second-generation fuel cell SUV, the NEXO, in 2018. Recently, the company successfully shipped the first 10 units of the XCIENT Fuel Cell, the world’s first mass-produced fuel cell heavy-duty truck, to Switzerland as well.

Hyundai Motor and GRZ Technolo-gies have been pushing for cooperation in hydrogen storage technology since late last year. GRZ has the technology to store about five to 10 times more hydro-gen than before, with a pressure lower than 30 bar, which is significantly lower than the storage pressure of a normal hydrogen storage tank, 200 to 500 bar. It is expected that this technology will be

used in various ways through cooperation between the two companies in the future.

Using Hyundai’s fuel cell system, the company plans to produce a station-ary power supply system to be used for building electricity at peak times. The fuel cell system is based on the one used in Hyundai NEXO.

In addition, Hyundai began shipping the fuel cell system to an energy solu-tions startup that manufactures electric generators. The startup will use Hyun-dai’s system to produce mobile hydro-gen generators.

“Hyundai’s fuel cell systems offer both diverse applicability and scalabil-ity well beyond zero-emissions vehi-cles,” said Kim Sae-hoon, senior vice president and head of Fuel Cell Center at Hyundai Motor Group. “By leverag-ing our system, our partners in mobil-ity, infrastructure and energy can further advance the potential for a comprehen-sive hydrogen ecosystem.”

Hyundai Motor in July announced a plan to respond to the South Korean government’s Green New Deal policy with the export of hydrogen fuel cell systems, while steadily seeking to diver-sify its hydrogen business to secure leadership in the global market.

In December 2018, Hyundai Motor Group announced its long-term road-map, ‘Fuel Cell Vision 2030,’ and reaf-firmed its commitment to accelerate the development of a hydrogen society by leveraging its global leadership in fuel cell technologies. As part of this plan, Hyundai Motor Group aims to secure a 700,000-unit-a-year production capacity of fuel cell systems for automobiles as well as for non-automotive sectors such as vessels, rail cars, drones and power generators by 2030.

For Use by Non-automotive Companies

Hyundai Motor Exports Hydrogen Fuel Cell Systems to EuropeBy Jung Min-hee

Hyundai Motor's hydrogen fuel cell system

59

Industry

Hyundai Motor Group and LG Chem are reportedly promoting

the establishment of a joint venture elec-tric vehicle (EV) battery plant in Indo-nesia. Indonesian government officials are visiting Korea to discuss investment conditions.

Erick Thohir, Indonesia's minister of state owned enterprises, and Bahlil Laha-dalia, chairman of Indonesia Investment Coordinating Board, arrived in Seoul on

Sept. 24. The Indonesian government has been working hard to attract LG Chem's battery plant following Hyundai Motor's car plant outside Jakarta. Hyundai Motor and LG Chem are considering setting up their first battery joint venture in Indonesia.

Before leaving the country, Bahlil was quoted as saying, “We are visiting Korea to solve the electric vehicle battery plant issue.” In particular, he said the bat-tery plant will be built on a 100 hectare

site in Batam, Indonesia. He also said on Sept. 14 that Indonesia has signed agree-ments on investment in battery factories with large companies from two countries. He said the agreements involve invest-ment of 70 trillion rupiah (5.5 trillion won) and 100 trillion rupiah (eight tril-lion won), respectively.

Bahlil did not mention the names of the companies, but Luhut Pandjaitan, coordinating minister for maritime affairs and investment of Indonesia, told the local press on Sept. 15 that Indonesia has signed investment agreements on devel-oping lithium batteries with LG Chem of Korea and CATL of China.

Erick also said on Sept. 16 that he will visit Korea for meetings with Kore-an companies. Accordingly, the Indone-sian officials are expected to meet with officials of Hyundai Motor Group and LG Chem during their visit to discuss investment conditions related to the planned battery plant.

But Hyundai Motor Group and LG Chem say nothing has been decided on the joint venture for electric vehicle bat-teries in Indonesia. Hyundai Motor is investing 1.8 trillion won in Indonesia to build a car factory capable of producing 250,000 units a year. Although its initial goal was to complete the project by the end of 2021, the COVID-19 pandemic may delay the completion of the plant. Not only internal combustion-powered cars but electric vehicles can be pro-duced at this plant, according to industry sources.

Toyota has recently established a joint venture for the develop-

ment of hydrogen fuel cells with five Chinese companies, the Nihon Keizai Shimbun reported on Sept. 22.

Toyota holds a 65 percent stake in the company, with five Chinese auto-mobile and technology companies each holding a 5 to 15 percent stake. A hydro-gen fuel cell system developed by the

joint venture will be used for Chinese trucks and buses starting in 2022.

The joint venture company is expect-ed to receive the subsidy that the Chi-nese government offers to hydrogen car technology developers, as the related regulations do not have a clause on the share of foreign capital.

The Chinese government introduced a subsidy system for electric vehicles in 2009 that played a great role in making China the world's largest electric vehicle market with one million units in annual

Indonesian Officials in Seoul to Discuss Investment Conditions

Hyundai Motor and LG Chem Promoting Joint Venture Battery Plant in Indonesia

Eligible for Chinese Government's Subsidy

Toyota Launches Hydrogen Fuel Cell Joint Venture with Chinese Companies

By Michael Herh

By Jung Min-hee

Koo Kwang-mo (right), chairman of LG Group, shakes hands with Chung Eui-sun, senior vice chairman of Hyundai Motor Group during their meeting at LG Chem's Ochang plant in Cheongju, North Chungcheong Province, on June 22.

60

Industry

With Tesla's Battery Day just a week away, tension is rising among Korean battery producers.

Tesla will take the wraps off its new electric vehicle (EV) battery technology on Sept. 22 (local time). The three major Korean battery makers, who account for one-third of the global EV battery market, say that they are concerned and at the same time, have some expectations about Tesla’s new technology.

The core of Tesla's Battery Day is the Roadrunner Project, a blueprint for producing batteries. Industry insiders expect the Battery Day event to present the status of this project, which is intended to reduce costs, improve energy density and enhance durability, and outline future battery production strategies. The largest strength of Tesla, the world's No. 1 EV maker, is its ver-

tical integration of semiconductors, electronic control systems and body hardware used in EVs.

However, Tesla has been relying on external vendors for bat-teries. The possibility of Tesla’s mass production and commer-cialization of all-solid batteries has been steadily raised since its acquisition of Maxwell, a secondary battery-related company. However, a prevailing view in the market is that it is still pre-mature for Tesla to produce batteries on its own in light of the technical challenges. Some experts speculate that Tesla may announce new technologies for lithium ion phosphate (LFP) batteries in cooperation with Chinese battery maker CATL.

While Korea's three major battery makers are concerned about the possibility of Tesla's full-fledged entry into the battery market, they are also expecting positive effects from it in terms of battery market expansion.

"As Tesla triggered an EV boom, we believe that an announcement of its entry into the battery market will contribute to expanding the market once again," said an industry analyst. "If Tesla makes its own batteries, it will take some market share from the Korean battery makers, but at the same time it will also promote competition for new technologies among battery companies."

"Some analysts speculate that Tesla will unveil innovative technologies that are more advanced than those of its competi-tors, it will not be easy for Tesla to catch up with technologies that battery companies have accumulated for decades at once." another industry insider said.

Tesla's Battery Day Just a Week Away

Korean Battery Companies Show Mixed Reactions to Tesla's EV BatteriesBy Jung Min-hee

Tesla will unveil its new electric vehicle (EV) battery technology on Sept. 22 (local time).

sales. However, hydrogen cars have a high level of technical difficulty, and the cumulative number of hydrogen cars sold remains at about 7,000 units. Analysts say that the Chinese government's subsidy policy and Toyota's establishment of a joint venture may catalyze hydrogen car development and sup-ply in China.

Toyota is enjoying strong sales in China despite the COVID-19 pandemic. Some even speculate that in return for sharing its hydrogen car technology with China, Toyota may have reached a tacit agreement under which the Chinese gov-ernment would indirectly support Toyota's sales growth in the big Chinese auto market.

Meanwhile, Hyundai Motor's sales in China in 2020 are on the verge of falling below 500,000 units. In the first eight months of this year, its cumulative sales reached 262,621 units, down 31.4 percent from the same period last year. The figure

is about a quarter of Toyota's sales in China during the same period. Hyundai Motor's sales in China fell to 650,000 units in 2019 after peaking at 1.14 million units in 2016.

A hydrogen fuel cell truck developed by Toyota Motor

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Industry

Ford, which is planning to launch the electric F-150 in 2023, is currently building

facilities for the purpose in Northern Michigan, which is home to its headquar-ters. By the way, the automaker is plan-ning to use batteries from SK Innovation, which is building a battery manufactur-ing plant in the southeastern U.S. state of Georgia, for the vehicle instead of those from LG Chem, which has a battery man-ufacturing plant near its headquarters.

Ford is paying much attention to their ongoing trade secret litigation in the Unit-

ed States. This is because SK Innovation cannot bring required components and materials into the United States if the U.S. International Trade Commission (USITC) maintains its ruling against SK Innovation in the final judgment scheduled for Oct. 5.

Ford is actively supporting SK Innovation. In its recent written opin-ion submitted to the USITC, Ford said that it selected SK Innovation as a part-ner before the controversy began and the selection was based on its conclusion that the company is suitable for its purpose.

The ITC made a default judgment

against SK Innovation early this year and the ruling is likely to be maintained next month. However, the possibility cannot be ruled out that the administrative order including an import ban would be kept to a minimum with the ruling maintained. It is said that the cooperation between Ford and SK Innovation in the electric vehicle industry can affect the final ruling.

SK Innovation cannot bring compo-nents and materials into the United States as the case may be. Then, the company, which is building the plant in Georgia to put it into operation in 2022, cannot pro-duce batteries to be supplied to Ford and Volkswagen and the failure is likely to lead to significant losses. Ford is focusing

Putting Public Good Before Patent Right

Ford in Support of SK Innovation in Battery Lawsuit with LG ChemBy Jung Min-hee

SK Innovation's battery manufacturing plant under construction in Georgia

SK Innovation announced on Sept. 22 that it plans to hire more than

1,000 skilled American workers by the end of 2021 as it prepares for initial production at the first of two electric vehicle (EV) battery plants in Georgia, the United States.

SK Innovation's EV battery plant is one of the largest economic projects in Geor-gia’s history. The company affirmed its long-range investment plans for the facility that would make Georgia one of the larg-est hubs of EV battery manufacturing in the world.

SK Innovation, through SK Battery America, i ts battery business subsid-iary in the U.S., recently reached a hiring milestone with the on-boarding of its first 60 employees at the plant site in the city of Commerce. These employees include pro-duction supervisors, production/process/electrical engineers and quality/logistics

specialists who will set up, work and serve as the trainers for the EV battery production workforce at the two SK Battery America plants.

SK Battery America’s EV plants will directly create more than 2,600 perma-nent jobs in the Jackson County area by 2024. The company began initial hiring and training employees at the Georgia site with plans to have more than 150 employees by the end of this year. In addition, about 900 employees are expected to be recruited next year. The new jobs will include a range of technical roles from production operators to senior engineers focused on manufactur-ing highly sophisticated lithium-ion battery cells at scale. To help begin the process of hiring and training workers, SK Battery America has signed a partnership agree-ment with Quick Start and Lanier Technical College in Georgia.

SK Innovation also recently achieved key construction milestones at the Georgia site with the completion of the exterior of its first manufacturing plant and groundbreak-ing on the second plant at the same site. The two EV battery plants at Georgia are part of SK Innovation’s $2.6 billion invest-ment in its U.S. battery business. The first plant is scheduled to begin initial operations in 2021 with mass production in 2022, and the second one is expected to begin mass production in 2023. Together, the two SK Battery America plants will have total annual capacity of 21.5 GWh, which is enough to power more than 300,000 electric vehicles. As the market for EVs continues to grow, SK Innovation is committed to making Georgia a world leader in EV battery manufacturing.

Plans to Hire over 1,000 Workers by End of 2021

SK Innovation Accelerates Hiring at Its EV Battery Site in Georgia

SK Innovation plans to hire more than 1,000 skilled American workers by the end of 2021 for its electric vehicle battery plant in Georgia.

62

Industry

Hyundai Motor Group and SK Innovation Co. have agreed to

cooperate in the development of a sus-tainable ecosystem for electric vehicle (EV) batteries that are key to the future mobility industry.

The two parties announced on Sept. 8 their plan to cooperate in diverse busi-ness areas related to the EV battery industry, including battery sales solu-tions, battery management service and battery reuse and recycling.

The collaboration stems from the companies’ shared need to create a bat-tery value chain and strengthen eco-friendliness in business operations cover-ing the entire lifecycle of EV batteries.

Unlike existing cooperation schemes between mobility companies and battery companies that tended to center on bat-tery supply, the Hyundai-SK coopera-tion aims for a virtuous cycle of battery usage known as the Battery as a Service (BaaS), which includes lease or rental service. As a result, the cooperation is expected to catalyze the spread of diverse cooperation systems between mobility and battery companies.

Through this partnership, the two parties aim to strengthen the stability of the battery supply chain and create a vir-tuous cycle of resources from recycling to production; reduce carbon emissions; encourage optimal design that connects

EVs and battery reuse, and create syner-gies by maximizing added value through the optimal design of batteries.

To enable cooperation, both sides are focusing on the initial process of collect-ing and verifying the battery pack of Kia Motors’ Niro EV model.

In particular, the two companies will seek solutions that can maximize value and eco-friendliness of EV batter-ies, including reuse of batteries that are no longer useable in vehicles in diverse applications such as the energy storage systems (ESS); and battery recycling that extracts economically valuable metals such as lithium, nickel and cobalt.

These innovations are expected to enhance the value and competitiveness of the battery recycling industry, which will buttress the future EV era.

Furthermore, Hyundai Motor Group and SK Innovation plan to synergize their respective affiliates’ business infrastructure and capabilities spanning diverse industries, thereby strengthen-ing their battery competitiveness and expanding the growth of related sectors.

“Hyundai Motor Group’s coopera-tion with SK Innovation, a first-tier bat-tery supplier for our Electric Global Modular Platform (E-GMP) that will be introduced in 2021, marks a critical first step in maximizing synergies between mobility and battery companies,” said

Chi Young-cho, president and chief inno-vation officer of Hyundai Motor Group. “We expect our cooperation to play an immensely positive role in strengthening Hyundai-Kia’s competitiveness in clean mobility as well as expanding the supply of eco-friendly EVs.”

“This collaboration between Hyundai Motor Group, which is leading the popu-larization of EVs in the global market, and SK Innovation, which possesses the advanced technology in battery develop-ment and recycling, is highly meaningful in that the two have joined forces to col-laborate across the entire EV cycle,” said Jee Dong-seob, president of SK Innova-tion’s Battery Business. “Both companies will create a seamless collaboration sys-tem to explore new business opportuni-ties across the whole battery value chain.”

Apart from collaborating with SK Innovation, Hyundai Motor Group is striving to secure and open up new mar-kets by collaborating with global players specializing in EV battery reuse, includ-ing Korea Hydro & Nuclear Power Co., Wärtsilä, OCI, and Hanwha Solutions. The group, via the collaboration with SK Innovation Co., plans to fundamen-tally reinforce its technological com-petitiveness by securing technology and infrastructure, and expand its business areas.

Cooperation Aims for Battery as a Service

Hyundai Motor Group, SK Innovation to Collaborate on EV Battery Ecosystem Development By Jung Min-hee

SK Innovation's battery manufacturing plant under construction in Georgia

on this point, that is, the possibility of a failed battery supply leading to automo-bile production setbacks and a decrease in employment as a public interest.

Ford also pointed out that non-SK Innovation batteries are not suitable for its vehicles. “Different electric vehicles

use different batteries and, as such, sup-plier selection has to be carried out at least four years before the initial produc-tion,” it said, adding, “The argument that LG Chem can take the place of SK Inno-vation is unacceptable in this regard, and LG Chem’s plants under expansion in

Ohio and Michigan are facilities focus-ing on supply to GM, Nissan and Tesla and have no room for us.” Experts point out that U.S. President Donald Trump, whose top priorities include job creation, may exercise his veto if the public inter-est comes into play.

63

Industry

The planned merger between Hyundai Heavy Industries and Daewoo Shipbuilding

& Marine Engineering (DSME) with-in 2020 has become uncertain due to delayed reviews at home and abroad due to the COVID-19 pandemic.

The European Commission has sus-pended its review of the business com-bination between Hyundai Heavy Indus-tries and DSME three times this year, saying it is difficult to collect data due to the pandemic.

The commission postponed i ts review twice in March in the aftermath of the pandemic, but resumed it two months later, setting Sept. 3 as the dead-line. However, it suspended the screening process in July for the third time and as a result passed the deadline, making it dif-

ficult to predict when the review results will come out.

Hyundai Heavy Industr ies and DSME are required to undergo a corpo-rate combination review in six countries — Korea, Europe, Japan, China, Kazakh-stan and Singapore. Only Kazakhstan and Singapore have thus far approved the merger between the two companies.

Of the remaining four, the biggest hurdle is the EU. Its competition laws are more complicated than other countries. In Europe, Greece, Norway, Denmark and Switzerland have global shipping companies. The EU is reportedly exam-ining the possibility of the HHI-DSME merger restricting competition in the gas carrier business.

If the two companies merge, the uni-fied company will account for 60 per-

cent of the LNG carrier market, which is much higher than their combined market share of 21 percent for all types of ships.

If the EU approves the merger, other countries are likely to follow suit because there are few reasons not to allow it. The Korean Fair Trade Commission plans to complete its review by the end of 2020. It will be difficult for China and Japan to oppose the merger due to mergers of their own companies.

China's two top shipbuilders, SSSC and CSIC merged in November 2019, while Japan's No. 1 shipbuilder Imabari Shipbuilding and No. 2 JMU will marry.

Against this backdrop, the two Kore-an shipbuilders see Singapore's "uncon-ditional approval" in late August as good news because Singapore's judgment can affect the EU's decision.

EU Holds the Key

Merger between Korea's Two Top Shipbuilders Delayed by COVID-19By Jung Min-hee

An LNG carrier built by Hyundai Heavy Industries in test operation

64

Industry

Shipbuilders in Korea, China, and Japan are having fierce competition in order to take

a bigger share of the global LNG-pow-ered vessel market. As the global energy demand is shifting to eco-friendly sourc-es, the shipbuilding market is shifting its focus to LNG-powered ships from those powered by coal and oil.

For now, Korean shipbuilders have taken the lead in terms of LNG-powered ship order intake. However, Chinese ship-builders, who are enjoying full support from the Chinese government, are mount-ing a serious challenge. On top of that, Japanese shipbuilders are trailing their Korean rivals through strategic alliances with China.

A total of 13 companies are participat-ing in the global market. Among them, only eight companies have received LNG-pow-ered ship orders — three Korea shipbuild-ers (Daewoo Shipbuilding & Marine Engi-neering (DSME), Hyundai Heavy Indus-tries (HHI), and Samsung Heavy Indus-tries), one Chinese shipbuilder (Hudong-Zhonghua Shipbuilding), and four Japanese shipbuilders (Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Japan Marine United, and Imabari Shipbuilding).

Among them, Korean shipbuilders are superior to their Japanese and Chinese rivals. Korean shipbuilders built 66 (91.7 percent) of the 72 LNG-powered ships awarded in 2018 and 48 (80 percent) of the 60 ships ordered in 2019, according to Clarkson Research, a shipbuilding and shipping analysis agency. In the world's largest-ever tender for LNG carriers held by Qatar in 2020, three Korean ship-builders signed a deal to build 100 units for 23.6 trillion won, while Chinese ship-

builders signed a 3.5 trillion won deal for 16 ships and Japanese shipbuilders went home empty-handed.

The competitiveness of the three Kore-an shipbuilders comes from their design of fuel tanks and fuel supply systems that require state-of-the-art technology. Only in the 1990s, shipbuilders favored the "MOSS" type with an independently designed hull and LNG fuel tank in order to enhance the stability of LNG storage. However, the “Membrane” type which inte-grates a hull and a fuel tank to increase load capacity by 40 percent compared to the MOSS type, has become the main stream.

DSME and Samsung Heavy Industries have built ships through membrane design only and even Hyundai Heavy Industries which was the only company in Korea that secured MOSS design technology, quickly switched to the Membrane sys-tem. However, as Japanese shipbuilders insisted on the MOSS type, LNG-powered ship orders to Japanese shipbuilders have plummeted since 2015.

In fuel supply systems, a key technol-ogy for LNG-powered ships, the three Korean shipbuilders have all secured their own fuel supply systems — the HI-Gas of Hyundai Heavy Industries (HI-Gas), the HiVar of DSME and the FuGas of Samsung Heavy Industries.

Hyundai Heavy Industries won a total of six LNG-fired ships from Singapore's EPS in April 2018 and recently succeeded in the world's first test drive. On the other hand, a Chinese shipbuilder won an LNG-fired ship from CMA CGM of France in September 2017, seven months ahead of Hyundai Heavy Industries. But the Chi-nese shipbuilder has not even met the delivery date due to a lack of technology.

China and Japan are also busy. In the case of China where the shipbuilding

industry directly linked to national secu-rity, the Chinese government is devoting itself to helping Chinese shipbuilders build LNG-fired ships.

"China is concerned that if foreign shipowners or shipbuilders stop shipping for political and economic purposes, China will be seriously hurt as the nation depends on the outside for 60 percent of LNG it needs," said an official of the shipbuild-ing industry. "China is securing its com-petitiveness through mergers and acquisi-tions of large shipbuilders and increased investment under the leadership of the Chinese government." Following China's first self-designed LNG carrier export in January 2015, China's Hudong-Zhonghua Shipbuilding agreed with DNV GL, a Nor-wegian ship classification association to develop a 270,000-cubic-meter LNG car-rier, the world's largest. The 270,000-cubic-meter LNG carrier is capable of transfer-ring 155 million-cubic-meter LNG once, the amount which can be used by 4.7 mil-lion households for one month.

Japanese shipbuilders are trying to find a way out of their slump by setting up joint ventures with Chinese shipbuilders. They aim to combine their technology with Chinese shipbuilders low production cost. In August 2019, Mitsui E&S Shipbuild-ing of Japan and Yangzijiang Shipbuilding, a Chinese shipbuilder, jointly launched a shipyard in China. The two sides plan to invest a total of US$300 million in building a medium-sized LNG carrier to move LNG to China and Southeast Asia in 2022 and a large 180,000-cubic-meter LNG carrier by 2026. Kawasaki Heavy Industries of Japan also established a joint shipyard in China with China's China Cosco Shipping Group and is expanding its operations.

Korean Shipbuilders in the Lead

Korea, China and Japan Competing for LNG-powered Vessel Orders

By Jung Min-hee

An LNG-powered ship built by Hyundai Heavy Industries

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Industry

Recently, competition is heat-ing up among domest ic shipbuilders to develop eco-

friendly and fuel-saving smart vessels.The market for autonomous ships

and related equipment and materials is expected to grow 12.8 percent annually to reach US$155 billion in 2025, said Acute Market Sports, a shipbuilding and global market research firm on Sept. 9. Against this backdrop, major domestic shipbuilders are focusing on the develop-ment of smart ships to lead the market.

Hyundai Heavy Industries (HHI) introduced the world's first smart ship in March 2011. Its autonomous naviga-tion system allows a shipping company to monitor, remotely diagnose and con-trol the operation of a vessel on land via a satellite. The number of smart ship orders amounts to 400 units a year, and the company is speeding up research and development on smart ships. In 2017, HHI developed the Integrated Smart Ship Solution (ISS) based on IoT tech-nology.

In the first half of this year, the com-pany installed “HiNAS” (Hyundai Intel-ligent Navigation Assistant System) on SK Shipping’s 250,000-ton bulk carrier, becoming the world’s first shipbuilder to apply a core technology for autonomous sailing to a large ship already in service.

HiNAS automatically recognizes sur-rounding vessels through camera analy-sis via artificial intelligence (AI) to deter-mine and alert the risk of collision based on augmented reality (AR). Particularly noteworthy about this advanced naviga-tion support system is that even when visibility is limited at night or by sea fog,

it can analyze and provide comprehen-sive information, such as the location and speed of obstacles, using infrared cam-eras.

This year, HHI developed HiMSEN Engine on its own. The engine is loaded with cutting-edge technologies such as artificial intelligence (AI), big data, and the IoT and is expected to save billions of won in fuel costs or cut 10 percent of cost per year.

Daewoo Shipbuilding & Marine Engineering (DSME) also plans to develop high-efficiency ships by using carbon-free and smart technology. It has delivered to HMM a smart ship based on its own platform Smart Ship 4.0. Further-more, DSME continues to upgrade tech-nologies for navigational environment measurement, maintenance and repair and safe navigation to ultimately realize autonomous navigation.

DSME plans to develop digital twin ships that can virtually detect risks in advance, an axial power generation motor system that produces electricity by rotating the axis of a ship's engine while sailing, and an air lubrication sys-tem that uses air to reduce resistance. It expects these technologies to cut fuel costs.

Samsung Heavy Industries is busy developing eco-friendly technology to save fuel. The case in point is an air lubrication system, one of energy saving devices (ESDs). In particular, the compa-ny applied its own air lubrication system, SAVER Air, to LNG carriers, reducing their energy use 5 percent. In addition, it improved fuel efficiency by about 3 percent by applying SAVER Stator-D, a fuel-saving device that increases pro-pellers' power by equalizing the flow of seawater into the propellers.

Self-sailing Vessels

Korean Shipbuilders in Competition to Develop Eco-friendly and Fuel-saving Smart ShipsBy Jung Min-hee

Hyundai Heavy Industries' Autonomous Navigation System HiNAS

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Industry

Until recently, the chemical and oil refining industries moved

in close connection to the international oil price, that is, product prices and cor-porate profits rose or fell along with the oil price. However, COVID-19 has completely changed this. The chemical industry is recovering fast whereas the oil refining sector is showing no signs of recovery after massive losses in the first half of this year.

Major South Korean oi l ref in-ing companies are barely meeting their break-even points this quarter after hav-ing imported oil at very low prices in the second quarter. Specifically, the import and current prices are US$30 or so and US$40 or so, respectively. The oil will constitute their inventory valuation prof-its for this quarter. In other words, the companies are resorting to accounting profits while failing in their business.

The prices of their products are falling, too. For example, in the latest week, the gasoline and diesel prices fell

approximately 2 percent and 3.6 percent, respectively. For the past one month, ker-osene fell more than 3 percent, diesel fell more than 3 percent, and only gasoline edged up slightly.

This has to do with COVID-19. Diesel, aviation fuel and gasoline con-stitute the three largest parts of the sales of South Korean oil refining compa-nies. In other words, their sales increase or decrease in proportion to how many people travel. At present, travel restric-tions, social distancing and the like are still going on worldwide and the compa-nies’ conditions are likely to continue to deteriorate for a while.

Things are totally different in the chemical sector. This quarter, the prices of chemical products are rising without exception and much more than expected. The examples include acrylonitrile buta-diene styrene (ABS). Its price jumped 16.4 percent in one month and more than 20 percent in one year. ABS, which is a plastic raw material, is mainly used

in consumer electronics. Global home appliances sales increased a lot after the outbreak of COVID-19, leading to the higher ABS price. The same applies to polyvinyl chloride (PVC), which is mainly used for interior design. The PVC price rose 8.5 percent in the latest month.

In addition, the demands for acetone, polypropylene, and so on have skyrock-eted since the outbreak of the pandemic. The price of acetone, which is used in hand soaps, has soared 68 percent from a year ago. Polypropylene is a material used in mask filters.

Under the circumstances, securities companies are becoming increasingly optimistic about local chemical compa-nies while refraining from mentioning oil refining companies. For instance, they adjusted their average Q3 operating prof-it estimate for LG Chem from 500 billion won or so to more than 600 billion won in August.

SeAH Steel, POSCO and DKC will participate in the Kitimat

Project as thick wall steel pipe suppliers.The project is to build a natural gas

liquefaction plant in Kitimat, Canada, procure natural gas from local gas fields and export it to Asia in the form of LNG. The size of the largest LNG development project in Canada amounts to US$14 billion and the three South Korean com-panies are scheduled to supply approxi-

mately 8,000 tons of thick wall steel pipes early next year.

The plant will be built in two stages. The first phase is for two LNG produc-tion facilities, each with a capacity of 6.5 million tons. The production capacity will be increased to 26 million tons in the second phase.

When it comes to the steel pipes, POSCO supplies thick stainless steel plates to DKC, DKC turns the plates into

finished goods, and SeAH Steel produces the pipes from the finished goods and supplies the products to LNG Canada. The three companies already started the production in the first quarter.

The Korea Gas Corp. also partici-pates in the project with a stake of 15 percent. The corporation is planning to import 700,000 tons of LNG from the plant in each of 2024 and 2025.

No signs of Recovery in Oil Refining Sector

Oil Refining and Chemical Sectors Decoupling from Each Other

To Supply 8,000 Tons of Steel Pipes Next Year

South Korean Steelmakers Participate in LNG Development Project in Canada

By Jung Min-hee

By Jung Min-hee

No signs of recovery are in sight in the oil refining sector.

Kitimat LNG facility in Canada

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Industry

Korean Air announced on Aug. 25 that it has signed a business transfer agreement with private equity fund

Hahn & Co. to sell its in-flight meal and duty-free businesses. The agreement is expected to result in a liquidity of approxi-mately 800 billion won on the airline’s part.

The total value of the agreement is 990.6 billion won and the business will be sold to a corporation to be established by Hahn & Company. Korean Air will acquire 20 percent of the shares of the corporation.

The agreement is likely to be completed in two or three months. Korean Air is planning to sign an in-flight meal supply and duty-free sales contract with the corporation before the final date of the agreement.

The annual sales of Korean Air’s in-flight meal and duty-free business have been over 200 billion won. It is one of the

most lucrative parts of the airline and it was expected that the business unit would lead the airline’s business performance recovery after a rebound in global aviation demand from COVID-19.

The total assets under management of the 10-year-old PEF are 8.1 trillion won. Last year, it raised a blind fund of 3.8 tril-lion won.

LG Group chairman Koo Kwang-mo has donated 1 bil-lion won out of his own purse to the International Vac-

cine Institute (IVI) to support the institute's development of a COVID-19 vaccine.

Koo reportedly expressed his strong wish to help overcome the COVID-19 crisis together by speeding up the development of a vaccine at a time when human health is being threatened by the pandemic. The IVI is conducting research on a COVID-19 vaccine.

"We express our deep gratitude for chairman Koo’s warm and timely support to help develop a COVID-19 vaccine," said Jerome Kim, secretary-general of the IVI. "The IVI will work with partner agencies to develop a vaccine as soon as possible and ensure that Koo's precious donation generates maximum effects for people around the world."

In addition, the donation was delivered through the Korea Support Committee for the IVI. The institute plans to use it for studies to understand the principles of COVID-19 preven-

tion in the human immune system and improve human immune responses to a COVID-19 vaccine, as well as to strengthen the IVI’s capacity to measure important immune responses induced by a COVID-19 vaccine and prepare for COVID-19 clinical tri-als around the world.

LG Group chairman Koo Kwang-mo

Korean Air will sell off its lucrative in-flight meal and duty-free businesses to a private equity fund.

Secures 800 Bil. Won in Liquidity

Korean Air Sells In-flight Meal and Duty-free BusinessesBy Choi Moon-hee

Precious Donation

LG Chairman Koo Donates 1 Bil. Won for Development of COVID-19 VaccineBy Jung Min-hee

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iR & ManagEMEnt

The Hoam Foundation announced on Aug. 4 that it will upgrade

the current Hoam Science Awards into a Korean version of the Nobel Prize. It will award a total of 1.8 billion won in prize money to outstanding Korean researchers in basic science including physics, mathematics, chemistry and life science.

The foundation plans to divide and expand the current Hoam Science Awards into the physics and mathemat-ics category and the chemistry and life science category starting next year.

Accordingly, starting 2021, the Hoam Awards will consist of the Science Prizes (a Science Prize for Physics and Mathematics, and a Science Prize for Chemistry and Life Science), the Engi-neering Prize, the Medical Prize, the Art

Prize, and the Social Service Prize. Each winner will be awarded with a prize, a medal and prize money of 300 million won. Total prize money has increased from 1.5 billion won to 1.8 billion won.

The change was made based on Sam-sung Electronics vice chairman Lee Jae-yong's determination to raise the status of the Hoam Awards to the level of the Nobel Prize. The move is also aimed at increasing support for the nation’s basic science sector, whose standard is consid-ered to be lower than that of the nation’s engineering or medicine field. The Hoam Awards was created in 1990 by Samsung Group chairman Lee Kun-hee to honor the late group founder and his father Lee Byung-chul, whose penname is Hoam. The founder put the highest value on nur-turing talented people and contributing to

society. This year marks the 30th anni-versary of the Hoam Awards.

In the meantime, Samsung Group has already been providing hefty sup-port to the nation's basic science sector based on the win-win growth philoso-phy championed by Lee Jae-yong. Since 2013, Samsung has contributed 771.3 billion won to 601 innovative research projects in basic science including phys-ics and mathematics through the Future Technology Development Project. Moreover, the group will invest more than 100 billion won this year in indus-try-academy cooperation to help Korean universities develop future technology and foster talents.

Prize Money to Be Increased to 1.8 Bil. Won

Samsung to Upgrade Hoam Awards into Korean Version of Nobel PrizeBy Jung Min-hee

Socia l Va lue Connec t 2020 (SOVAC 2020) k icked o ff

on Sept. 1 to seek solutions to vari-ous social problems. Organized by SK Group, SOVAC is Korea's largest pri-vate festival related to social enterprises, companies that operate to solve social problems and promote social values.

SOVAC 2020 will offer various pro-grams such as lectures, talk shows, real-time contests, and college student chal-lenges online from 10 a.m. every Tues-day to Friday from Sept. 1 to 24.

SK Innovation announced on Sept.

10 that it has formed the "SOVAC Avengers" with 11 social enterprises and social ventures to share insights obtained through SOVAC 2020. The SOVAC Avengers will serve as an online communication platform. It is an exten-sion of SK Innovation's SV Commu-nity, which was launched in early 2020 to support social enterprises and social ventures.

SOVAC began with SK Group Chairman Chey Tae-won's proposal at the end of 2018. "Let's create a venue for cooperation and exchanges so that

everyone can participate in solving social problems and create social val-ues," Chey said. The first event was held last year, attracting 5,000 visitors.

Even though this year’s event is held online, its scale has been expand-ed. Major ICT companies including Naver, Kakao, and Google, as well as SK Group's affiliates are participating in it along with public institutions and influencers.

Samsung Electronics vice chairman Lee Jae-yong visits a multilayer ceramic capacitor (MLCC) pro-duction line at Samsung Electro-Mechanics' fac-tory in Busan in July.

A Platform for Insight Sharing

SK Innovation Forms 'SOVAC Avengers' with 11 Social VenturesBy Jung Min-hee

A talk show of Social Value Connect 2020

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IR & MANAGEMENTiR & ManagEMEnt

Prize Money to Be Increased to 1.8 Bil. Won

Samsung to Upgrade Hoam Awards into Korean Version of Nobel PrizeBy Jung Min-hee

The Hoam Foundation announced on Aug. 4 that it will upgrade

the current Hoam Science Awards into a Korean version of the Nobel Prize. It will award a total of 1.8 billion won in prize money to outstanding Korean researchers in basic science including physics, math-ematics, chemistry and life science.

The foundation plans to divide and expand the current Hoam Science Awards into the physics and mathematics category and the chemistry and life sci-ence category starting next year.

Accordingly, starting 2021, the Hoam Awards will consist of the Science Prizes (a Science Prize for Physics and Math-ematics, and a Science Prize for Chem-istry and Life Science), the Engineering Prize, the Medical Prize, the Art Prize, and the Social Service Prize. Each win-

ner will be awarded with a prize, a medal and prize money of 300 million won. Total prize money has increased from 1.5 billion won to 1.8 billion won.

The change was made based on Sam-sung Electronics vice chairman Lee Jae-yong's determination to raise the status of the Hoam Awards to the level of the Nobel Prize. The move is also aimed at increasing support for the nation’s basic science sector, whose standard is consid-ered to be lower than that of the nation’s engineering or medicine field. The Hoam Awards was created in 1990 by Samsung Group chairman Lee Kun-hee to honor the late group founder and his father Lee Byung-chul, whose penname is Hoam. The founder put the highest value on nur-turing talented people and contributing to society. This year marks the 30th anni-

versary of the Hoam Awards.In the meantime, Samsung Group

has already been providing hefty sup-port to the nation's basic science sector based on the win-win growth philoso-phy championed by Lee Jae-yong. Since 2013, Samsung has contributed 771.3 billion won to 601 innovative research projects in basic science including phys-ics and mathematics through the Future Technology Development Project. Moreover, the group will invest more than 100 billion won this year in indus-try-academy cooperation to help Korean universities develop future technology and foster talents.

Korea Fair Trade Commission released data on the sharehold-

ing status of 64 business groups on Aug. 31. The 64 groups, which has 2,292 affil-iated companies, were subject to manda-tory public disclosure as of May 1 this year and both their internal shareholding ratio and their founder families’ share-holding ratio edged down last year.

Specifically, the 64 groups include 55 run by owners and the 55 groups’ inter-nal shareholding ratio fell to 57 percent from 57.5 percent recorded by 51 such groups in the previous year. The fami-lies’ shareholding ratio fell 0.3 percent-age point to 3.6 percent, which is divided

into 1.7 percent of owners and 1.9 per-cent of their relatives. The shareholding ratio of subsidiaries fell 0.2 percentage point to 50.7 percent.

The 55 groups had a total of 2,114 subsidiaries, consisting of 419 where the owner families had stakes and 1,695 without owner family stakes. Those fam-ilies’ average subsidiary ownership was 10.4 percent.

Owners had stakes in 235 subsidiaries and the average ownership was 10 per-cent. Their sons and daughters posted an average of 4.9 percent in 184 subsidiaries and their relatives recorded an average of 4.9 percent in 251 subsidiaries.

A total of 210 out of the 2,114 sub-sidiaries of the 55 groups were subject to regulations on private benefit taking. The regulations, which were applied to 47 groups’ 219 subsidiaries in the previ-ous year, target every listed company in which an owner family’s stake is 30 per-cent or more and every unlisted company in which the ratio is 20 percent or more. Last year, the regulatory blind spot was found in 388 companies of 51 groups. The numbers rose from 376 and 48, respectively.

Founder Families’ Stakes in Conglomerates Slightly Fall

Founder Families Control Business Groups with a Mere 3.6% StakeBy Jung Min-hee

The founder families of Korea's major business groups have a 3.6 percent stake in group affiliates on average.

Samsung Electronics vice chairman Lee Jae-yong visits a multilayer ceramic capacitor (MLCC) pro-duction line at Samsung Electro-Mechanics' factory in Busan in July.

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Hotel Lotte is increasing its financing at a rapid pace. For

example, it raised 50 billion won by issu-ing private corporate bonds on Sept. 4. The maturity is 3.5 years and the annual interest is 2.3 percent. Mandatory amor-tization would follow if the company's credit rating fell two notches or more.

In the first half, its public and private corporate bond issuances totaled 700 bil-lion won and 860 billion won, respec-tively. In addition, it issued 600 billion won of long-term commercial paper for the first time in three years. Hotel Lotte's financing already topped 2.2 trillion won this year whereas it was 1.79 trillion won in 2019 as a whole.

This is because of its recent aggressive business expansion. The company opened

Signiel Busan in June and Lotte Hotel Seattle is scheduled to open this month. Unfortunately for it, though, the losses of the hotel business unit of the company are snowballing due to COVID-19. In the sec-ond quarter, its sales and operating profit stood at 241.4 billion won, down 37.86 percent from a year ago, and amounted to 192.8 billion won, respectively. The busi-ness unit requires approximately 270 bil-lion won to run its hotels this year and its losses are currently increasing along with the number of business days.

Hotel Lotte’s duty-free business unit is going through a hard time, too. Its operat-ing profit dropped from 177.8 billion won to negative 73.5 billion won from the first half of 2019 to the first half of this year. During the same period, the world busi-

ness unit’ losses soared from 11.8 billion won to 68.5 billion won. As a result, Hotel Lotte's red ink amounted to 342 billion won in the first half of this year.

Its cash flow is deteriorating and bor-rowings are skyrocketing. Its net debt was 3.73 trillion won in 2015 but jumped to 6.5 trillion won in 2019 and to 8.26 trillion won in the second quarter of this year.

It is also pointed out that Hotel Lotte is still financially solid in view of its shares (worth 3.8 trillion won or so), land (worth 4.7 trillion won or so), invested real estate assets (worth 1.2 trillion won or so), etc. The company is also planning to strength-en its financial stability by reducing the ratio of short-term borrowings.

2.2 Tril. Won Raised This Year

Hotel Lotte Increasing Financing VolumeBy Choi Moon-hee

To Secure Footing in EV Parts Business

Lotte Group to Invest 290 Bil. Won in Doosan Solus Acquisition FundBy Jung Min-hee

Lotte Group will invest 290 bil-lion won in a private equity fund

(PEF) to be established to acquire Doosan Solus Co., a battery copper foil and OLED materials affiliate of Doosan Group.

Earlier this month, Doosan Group agreed to sell a 53 percent stake in Doo-san Solus, which is valued at around 698.6 billion won ($600 million), to SkyLake Investment Co., a PEF led by former Information and Communication Minister Chin Dae-je.

SkyLake is taking steps to launch Skyscraper Long-term Strategic PEF Co. to raise funds needed to finance the acquisition of Doosan Solus.

Lotte Group’s investment in Sky-scraper will be made through Lotte Fine Chemical. In a regulatory filing on Sept.

23, the company said it will invest 290 billion won, which amounts to 19.42 per-cent of its equity capital, in Skyscraper to earn investment gains.

Lotte Group’s investment in Sky-scraper appears to be intended to take an advantageous position when Doosan Solus is put up for sale some day.

Lotte Group has been seeking to enter the electric vehicle (EV) core mate-rial business. Compared with other major Korean business groups, Lotte is late in entering the promising industry.

The group’s affiliate Lotte Aluminum Co. has invested about 110 billion won to set up a plant in Hungary for production of aluminum anode foil used in second-ary EV batteries.

Lotte Fine Chemical’s electronic

materials division is expected to cre-ate synergy with Doosan Solus’ OLED display business, which has the largest OLED market share in Korea.

Doosan Solus has a plant in Hunga-ry that produces 10,000 tons of battery copper foil a year. The company plans to increase its output to 25,000 tons by 2022 and 50,000 tons by 2025.

To finance the expansion, Sky-Lake plans to carry out a paid-in capi-tal increase worth 450 billion. SkyLake plans to nurture Doosan Solus as a lead-ing provider of core materials.

Lotte World Tower located in Songpa, Seoul

Lotte World Tower which houses Lotte Group's major affiliates

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IR & MANAGEMENTiR & ManagEMEnt

Rumors about LG Chem spinning off its secondary battery busi-

ness have been going around steadily since the global electric vehicle (EV) market began to take shape in earnest. Every time such rumors surfaced, the company said that it has not decided on the matter yet.

The spin-off has been continuously discussed within LG Group. Its decision to implement it in coming December has to do with the recent global market situ-ations. The global car market has begun to shift towards eco-friendly vehicles, fueling the growth of the rechargeable battery market.

The European Union’s tougher regulations on emissions have pushed global carmakers towards increasing the proportion of eco-friendly car produc-tion and sales. U.S. Tesla, a worldwide leader in the EV industry, has begun to cooperate with China's CATL in addi-tion to its long-time partner Panasonic, sparking off new partnerships between carmakers and battery makers. Recently, General Motors (GM) announced that it will invest US$2 billion in Nikola, a hydrogen truck company called a "sec-ond Tesla."

Above all, the rapid growth of the EV market has intensified competition among Korean, Chinese and Japanese battery makers, who are virtually domi-nating the global battery market. Market

research firm IHS Markit predicts that the market for EV batteries will grow by 25 percent annually over the next seven years. Chinese companies including CATL are rapidly growing on the back of subsidies from their government.

Analysts say that the time has come for EV technologies to make a quantum jump such as the development of full-solid batteries that have twice as much capacity as existing products. Large-scale R&D investment is essential to securing advanced technologies.

"The current global EV battery mar-ket is reminiscent of the early 2000s when semiconductor technology signifi-cantly advanced and competition for tak-ing orders was hot," an industry analyst said. "As the EV market has begun to expand in earnest, EV battery producers need to make large-scale R&D invest-ments to stay ahead their competitors." At the same time, they need to make large-scale facility investments to keep up with rapidly expanding EV demand. As of the end of 2019, LG Chem's order backlog amounted to 150 trillion won.

The fact that LG Chem’s battery business division has become profitable also encouraged the company to spin it off. LG Chem surprised analysts by posting 6.953.2 billion won in sales and 571.6 billion won in operating profit in the second quarter. Although the busi-ness results of the battery division were not disclosed separately, it is believed to have posted a meaningful surplus for the first time.

LG Chem will spin off the battery business into a wholly owned subsid-iary, which makes it easier for the com-pany to attract investment. The spin-off is expected to allow LG Chem to raise funds needed to finance its massive investment in R&D and facility expan-sion.

To Finance Massive Investment in R&D and Facility Expansion

LG Chem to Spin off Battery Business into Wholly Owned Subsidiary

To Be Split into 3 Companies in 2021

Daelim Industrial Adopts a Holding Company Structure

By Michael Herh

By Jung Min-hee

LG Chem will spin off its secondary battery busi-ness to raise funds needed to for investment in R&D and facility expansion.

Daelim Industrial’s main office in central Seoul

Daelim Industrial will adopt a holding company structure next

year. The company announced on Sept. 10 said that it will split into three com-panies -- DL Corp. (tentative name), a holding company; DL E&C (tentative name) a construction company; and DL Chemical (tentative name), a petrochem-ical company. The holding company will be launched on Jan. 1, 2021.

Daelim Industrial will be first divided into DL Corp. and DL E&C, with the stock split ratio being 44:56. DL Corp. will spin off DL Chemical as a wholly-owned subsidiary.

DL Corp. will focus on supporting independent growth of the two affili-ates and coordinating their strategies. Based on stable profit growth, DL E&C will boost its productivity and grow into a total solution provider centered on development. DL Chemical will aim to become a global top 20 petrochemi-cal player by expanding its low-cost raw material-based business and enter-ing new businesses such as lubricating oil and new medical materials.

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POSCO labor union and its management have agreed to freeze wages for 2020.

POSCO Labor Union, the represen-tative union for collective bargaining, put the company’s 2020 wage proposal to a vote on Aug. 31 and 93.44% of the unionized workers were in favor of the offer.

In exchange, the approved proposal includes the following as well: 1) job security, 2) traditional market gift certifi-cates worth of 500,000 won, 3) improve-ments in the company rules regarding childbirth & parenting, and 4) suspension of the temporary workplace closures.

POSCO Labor Union held a repre-sentative meeting on Aug. 11 and decid-ed to entrust this year’s wage negotiation

to the company so that employees help overcome the current sluggish econo-my caused by the COVID-19 pandem-ic. Accordingly, POSCO prepared and delivered the 2020 wage agreement pro-posal on Aug. 13.

POSCO decided to freeze the basic wage, taking into account its unfavorable business performance this year. On the other hand, the company is to guarantee its employment to relieve job insecurity triggered by the COVID-19 issue.

In addition, POSCO plans to provide all employees with traditional market gift certificates worth 500,000 won to boost employee morale and revitalize the local economy.

As to resolve the social issue of low birth rate, POSCO will increase the

maternity benefit for firstborns from 1 million won to 2 million won. Further-more, to improve the social awareness of adoption and celebrate a new family, the company will establish an adoption support fund of 2 million KRW. POSCO will also expand the targets of scholar-ships for employees’ children from kin-dergarten to daycare centers.

Meanwhile, POSCO had temporar-ily shut down certain sites since June, paying 70% of the average wage, but due to recent recovery of orders and the efforts of employees, the company decided to cease its temporary closure. POSCO labor union and management held the signing ceremony for the 2020 wage agreement at its HQ in Pohang on Sept. 1.

To Ease Job Insecurity

POSCO’s Labor Union and Management Agree to Freeze Wage in 2020By Jung Min-hee

POSCO president Chang In-hwa (left) and POSCO Labor Union leader Kim In-cheol take a commemorative photo at the signing ceremony for the 2020 wage agreement at POSCO head office in Pohang on Sept. 1.

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An Unusual Business Trip

Ssangyong E&C Chairman Flies to Dubai to Visit Construction SiteBy Jung Min-hee

Ssangyong Engineering & Construction announced on Sept. 24 that its chairman Kim Seok-joon went on a busi-

ness trip to Dubai on Sept. 22 despite the COVID-19 pandemic.Kim flew to Dubai to visit the construction site of Royal

Atlantis Hotel, which is scheduled to be completed in June 2021. The project is the largest among Ssangyong E&C’s over-seas projects currently underway. Kim's business trip is unusual as businesspeople are refraining from overseas business trips these days due to the spread of the novel coronavirus.

The hotel has 46 floors above ground and 795 rooms. The construction work alone costs US$1 billion. Seem from the sky, the hotel is an S-shaped structure, with the front looking like a complex stack of Lego blocks. It is expected to be introduced to the world as a landmark symbolizing Dubai through the Dubai

Expo, which will be held in October next year.Ssangyong E&C has been carrying out a total of nine proj-

ects worth about US$2.1 billion in Dubai since 2015. The Investment Corporation of Dubai (ICD) with 310 trillion won in assets is the largest shareholder of the builder.

POSCO will receive 50 billion won in dividend from Roy Hill Holdings.

Roy Hill Holdings' board of directors resolved on Sept. 14 to pay dividends based on the company's enhanced financial soundness and solid earnings. This is the first dividend payment since Roy Hill Holdings was founded. The total dividend payout will be 4.75 million Australian dollars. POSCO will receive about 50 billion won in October as it holds a 12.5 percent stake in the mine.

Roy Hill Holdings is a corporation established to devel-op Roy Hill Mine in the northwestern Australian province of Pilbara. Its major shareholders include Hancock (70 percent), POSCO (12.5 percent), Marubeni Corp.n (15 percent), and China Steel (2.5 percent).

Roy Hill Mine is Australia's largest single mine, with iron ore reserves amounting to 2.3 billion tons. Roy Hill Holdings exports 55 million tons of iron ore annually, ranking fifth in the world.

POSCO signed a partnership agreement with Roy Hill Hold-ings in 2010 to develop the mine. Starting with the procurement

of six million tons of iron ore in 2016 two years after the start of mining, POSCO currently receives 15 million tons of iron ore, or 26 percent of its annual demand.

Roy Hill Holdings' business performance has improved rap-idly since it began commercial production in 2017 with its oper-ating profit reaching 3.2 billion Australian dollars. POSCO's profits based on the percentage of its ownership interest also grew from 12 billion won in 2016 to 150 billion won in 2019. In August this year, Roy Hill Holdings paid back the entire US$6.2 billion loans earlier than originally scheduled.

Meanwhile, POSCO has been developing overseas raw mate-rials since 1971 before the start of the operation of its iron mill in Pohang in 1973. Now the company owns 23 iron and steel mate-rial development projects around the world, It made its first equity investment in Mount Soli Mine in Australia in 1981.

A Dividend Income of 50 Bil. Won

POSCO Reaps First Dividend on Investment in Roy Hill Mine in AustraliaBy Jung Min-hee

Iron ore from Roy Hill is piled up at a local yard.

Ssangyong E&C CEO Kim Seok-joon (left)

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IR & MANAGEMENT

With labor-management disputes intensifying at GM Korea despite the

COVID-19 situation, the management recently reiterated that no new car would be assigned to the company’s plant in Bupyeong, implying that the plant might be closed in 2022 or later.

“The union is convinced that GM will continue with its business in South Korea, but that will be possible only when the labor-management relations are normal, and the current situation is more than worrisome from the perspective of the GM headquarters,” GM Korea presi-dent Kaher Kazem recently said, adding,

“The management promised to invest 830 billion won in Changwon until 2028 and not to dispose of GM Korea assets or shares until that year, and the union is taking advantage of the promises in mak-ing unreasonable demands.”

The demands include an increase in base pay of 120,304 won and an annual bonus of more than 20 million won. “The union is ignoring the fact that the com-pany’s operating loss has continued since 2014 and this year will be the same,” said a GM Korea executive, continuing, “With even Hyundai having frozen its base pay, the union is going too far.”

At present, more than 80 percent

of the union members are in favor of a strike. Recently, the union stopped the production lines in Bupyeong for two days after the management decided to increase the hourly output of the Chevy Trax from 28 to 32 with its popularity rising in the United States.

The president also mentioned that the head office of GM is worried about South Korea’s rules and systems hindering busi-ness activities. The president was indicted by the prosecution in July this year in relation to worker dispatch and forbidden from leaving South Korea. It is said that South Korea has been GM executives’ least favorite destination since then.

Warns Bupyeong Plant Might Be Closed in 2022

GM Korea President Expresses Complaints about Unreasonable Union DemandsBy Jung Min-hee

GM Korea president Kaher Kazem

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IR & MANAGEMENT

About four out of 10 startups that have entered foreign markets targeted the global

market from the beginning, a KOTRA survey has found.

KOTRA conducted a survey on 135 Korean startups with CEOs under 39 years old that entered overseas markets with innovative technology.

Startups that started a business over-seas without a parent company based in Korea accounted for 37.0 percent of the total, the survey says.

Of the 135 companies, 91.1 percent moved into overseas markets by estab-lishing local corporations, and only 6.6 percent set up liaison offices or branch offices.

North America was the most popular region for Korean startups with 48.1 per-cent of the total operating there. Of them, 80 percent were located in Silicon Valley.

North America was followed by Asia (34.1 percent), Europe (11.1 percent), the

Middle East (3.0 percent), Oceania (2.2 percent), and Latin America (1.5 percent).

Their business sectors varied –- the mobile sector (11.1 percent), artificial intelligence (9.6 percent), big data (9.6 percent), games (8.9 percent), lifestyle (7.4 percent), and edu-tech (7.4 percent).

Intangible services or applications (72.6 percent) accounted for an over-whelming majority of their business items. Items that combine tangible prod-ucts and services took up 18.5 percent and tangible products 8.9 percent.

In terms of preparation periods, one to two years were the most common with 40 percent, while less than one year and more than three years were 7.4 percent, respectively.

In terms of the amount of attracted investments, companies in the series A (about 1 billion won) stage accounted for the largest portion, or 26.7 percent of the total. This was followed by those in the Seed (less than 100 million won)

stage with 17 percent, those in the Free A (about 500 million won) stage with 10.4 percent, those in the Series B (about 5 billion won) stage with 9.6 percent and those in the Series C and above (about 10 billion won) stage with 5.9 percent.

As for the numbers of employees, 37.8 percent of them ranked first with five or fewer employees. Those with six to 10 employees and 11 to 30 employees accounted for 18.5 percent and 17.8 per-cent, respectively. Those with more than 30 employees were 17.8 percent.

Observing sales figures, two out of 10 companies (17.8 percent) exceeded US$1 million in annual sales. Those with annu-al sales of more than US$500,000 and less than US$1 million dollars accounted for 4.4 percent. Those with annual sales between US$100,000 and US$500,000, 6.7 percent, those with annual sales between US$10,000 and US$100,000, 8.9 percent and those with annual sales of less than US$10,000, 7.4 percent.

North America Most Popular Region for Korean Startups

About 40% of Korean Startups Doing Business Abroad Begin with World Market in MindBy Jung Min-hee

About four out of 10 startups that have entered foreign markets started their business targeting the global market from the beginning.

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The Ulsan National Institute of Science and Technology (UNIST) announced on Sept. 23 that its research team

led by biomedical engineering professor Kang Joo-hun devel-oped a micro fluid chip for rapid detection of viral and bacterial infections.

According to the team, the thumb-size chip has a tube as thin as hair and the leukocyte in infected blood adheres to the wall of the fluid tube when the blood is put into the chip. The number of those adhering leukocytes is significantly larger in an infected person than in a healthy person and, as such, infection can be easily detected even with a low-power optical micro-scope by tracing an infected white blood cell.

With this chip, even pathogenic infection that occurred an hour ago can be detected, in just 10 minutes and even before symptoms such as fever develop, although it is not COVID-19-specific yet. “The chip can be used ahead of PCR testing and blood culture and the optical microscope required for the diagnosis is smartphone-compatible in terms of magnifying power,” the professor explained, adding, “Our ultimate goal is an inexpensive and mobile primary diagnostic system capable of detecting infection within five to 10 minutes.”

Details of the research were posted on Aug. 29 on the online edition of the Biosensors and Bioelectronics journal, which will be published soon.

Looking to Develop Mobile Primary Diagnostic System

UNIST Develops Chip for Faster and Easier Virus DetectionBy Choi Moon-hee

A UNIST researcher conducts an experiment with a micro fluid chip.

The Ulsan National Institute of Science and Technology (UNIST) announced on Sept. 16 that its research team

led by professor Choi Kyung-jin has developed a technique for improving the performance of the back surface membrane or back surface field layer of a silicon solar cell and simplifying related manufacturing processes.

The back surface membrane of a silicon solar cell plays an important role in preventing re-bonding between a photo-gen-erated electron and a hole. The quantities of electrons and holes determine how much electric power a battery can produce and, as such, a membrane that is capable of effectively preventing their re-bonding is necessary for battery efficiency improvement.

The research team improved the efficiency of a membrane by adding a very small amount of water to an organic ferroelec-tric thin film. When water is added to a hydrophobic organic thin film, organic particles with a length of several micrometers are aligned to form a dense and regular structure. As a result, elec-trons are pulled and holes are pushed with greater energy, lead-ing to membrane performance improvement. This method does not require membrane hole formation, which is expensive. Exist-ing membranes are not conductive, and thus passages need to be made by hole formation for electrons and holes. The membrane developed by the team is characterized by facilitating the forma-tion at the site where the added water is removed by evaporation.

Details of the research are available in the online edition of the Advanced Functional Materials journal.

Enhances Performance of Solar Cell Membrane

UNIST Reduces Solar Cell Production Cost with WaterBy Choi Moon-hee

Kim Kwang-soo, professor of psychiatry and neuroscience at Harvard Medical School

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Science & Technology

A team of Korean researchers has developed technol-ogy that can reduce fire hazards of lithium-ion bat-teries while increasing charging speeds.

The National Research Foundations of Korea announced on Sept. 10 that a research team led by Song Seung-wan, a profes-sor of applied chemical engineering at Chungnam National Uni-versity, has developed high-safety interface control technology that can elevate the charging speeds of lithium-ion secondary batteries by more than four times.

Amid the expansion of the electric vehicle and energy stor-age system (ESS) markets, efforts are being made to improve the energy density and charging speeds of lithium-ion batteries.

In particular, researchers focus on increasing the stability of an electrode surface protection layer, which determines the life and safety of lithium-ion batteries. They seek to stabilize an elec-

trode surface protection layer by adjusting electrolyte materials.However, in the case of graphite cathodes mainly used for

lithium-ion batteries, surface protection layers can be formed unevenly or thickly, and the surface protection layers them-selves act as a resistance that lowers charging speeds and capac-ity. In the end, a battery needs to be charged for more than 20 hours to reach the theoretical capacity (372mAhg-1) of a graph-ite cathode.

Using a new organic non-flammable electrolyte, the research team put a thin and stable surface protection layer on the surface of a graphite cathode, and succeeded in charging the graphite cathode more than four times faster than before. The research team realized 370 mAhg-1, the theoretical capacity level of graphite cathodes, and secured stable charge-discharge cycle performance.

Previously, flame-resistant electrolyte additives were used, but their poor surfactant compatibility with a graphite cathode boosted safety but weakened performance. In order to address the problem, the research team enhanced both the safety and performance of lithium-ion secondary batteries by developing a nonflammable electrolyte highly compatible with graphite cath-odes and putting a thin and stable surface protection layer with low surface resistance on the surface of a graphite cathode. The findings of the research were published on the Aug. 2 online edition of "ChemSusChem," an international journal on energy and chemistry.

The Korea Basic Science Institute (KBSI) announced on Sep. 15 that its research team led by Dr. Kim Hae-jin

developed a biopolymer-based photocatalyst for highly efficient hydrogen production by means of the sun's rays.

These days, hydrogen is being regarded as an eco-friendly fuel of the future. However, chemical fuels such as natural gas have been required and water has had to be split by massive electric energy for hydrogen production. Photocatalyst-based hydrogen production has been limited in terms of industrial uti-lization due to its low production efficiency and photostability.

The photocatalyst developed by the team can be defined as a biopolymer-semiconductor compound in which a zinc sulfide semiconductor nanorod is uniformly coated on a nanometer scale with polydopamine as a biopolymer substance. According

to the research team, 48.5 ml of hydrogen gas can be produced per hour from 1 gram of the photocatalyst, this is equivalent to a 220 percent improvement in hydrogen production efficiency compared to existing semiconductor catalysts, and it is photo-stable enough to maintain a hydrogen production efficiency of 78 percent even after 24-hour exposure to light.

The research was conducted in cooperation with Incheon National University professor Kim Yeon-ho, the Adam Mickie-wicz University and the University of Barcelona. Details of the research are available in Applied Catalysis B: Environmental.

A New Method to Produce Hydrogen

Biopolymer-based Photocatalyst Developed for More Efficient Hydrogen ProductionBy Choi Moon-hee

Photocatalyst for sunlight-based hydrogen production

Enhancing Safety of Electric Vehicles

New Technology Lowers Fire Hazards of Li-ion Batteries, Increasing Charging Speeds 4 TimesBy Yu Kun-ha

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The Korea Institute of Science and Technology (KIST) announced

that its research team led by Dr. Yoon Kyung-joong has developed an innovative single-atom catalyst in cooperation with Hanyang University professor Lee Yoon-jeong.

According to the institute, the cata-lyst uses a very small amount of plati-num and yet is stable even at a high tem-perature of over 700 degrees Celsius, and thus it is capable of significantly enhanc-ing the performance of a solid oxide fuel cell. “Each platinum atom in the catalyst reacts as a single atom, without agglom-erating, even at a high temperature,” the research team explained, adding, “This means the platinum catalyst can be applied to solid oxide fuel cells as well as low-temperature fuel cells such as those in hydrogen electric vehicles.”

A solid oxide fuel cell, which is oper-able even at over 700 degrees Celsius, is the most efficient type of fuel cell. In addition, it enables combined cycle power generation in which hydrogen is reproduced by steam cracking during power generation. However, the fuel cell can be commercialized only when there is a catalyst that is stable at a high tem-perature.

Platinum-based catalysts, which are in wide use in the fuel cell industry, are incomparable in performance. How-ever, the atoms of the catalysts tend to agglomerate and are structurally unstable at a high temperature and, as such, plat-inum-based single-atom catalysts have never been applied to solid oxide fuel cells for high-temperature operation.

The research team caused a strong bond between platinum atoms and ceri-

um oxide nanoparticles and succeeded in fixing the atoms at a uniform distance of approximately one nanometer on the surface of the cerium oxide particles in a solid oxide fuel cell electrode. The cata-lyst boosted the reaction rate of the elec-trode by at least 1,000 percent and stably operated for more than 500 hours at over 700 degrees Celsius to quadruple power generation and hydrogen production.

The title of the team’s research paper is Highly Active and Thermally Stable Single-atom Catalysts for High Temper-ature Electrochemical Devices. Details of the research are available in the latest edition of the Energy & Environmental Science journal.

Stable at a High Temperature

KIST Develops Atomic Catalyst for Solid Oxide Fuel Cells

Overrunning Conventional Wisdom

Korean Research Team Identifies Energy Sources of Cancer CellsBy Choi Moon-hee

By Choi Moon-hee

A conceptual diagram of single-atom catalyst devel-oped by KIST

A team of Korean researchers has confirmed for the first time in

the world that the energy source of can-cer cells is fatty acid. The result overruns a study by German physiologist Otto Warburg who nabbed the Nobel Prize in physiology and medicine in 1931.

T h e N a t i o n a l C a n c e r C e n t e r announced on Sept. 14 that a team led by professor Kim Soo-yeol of the Depart-ment of Cancer Biology Research con-firmed that the energy source of cancer cells is fatty acid. The results of the study were published in the latest issue of Can-cers, an international, peer-reviewed Open Access journal.

Until now, cancer cells have been known to metabolize through a process of decomposing glucose into lactic acid. Based on this research, Otto Warburg took home the Nobel Prize in physiology and medicine in 1931.

Professor Kim's team produced dif-ferent results from Warburg’s findings through cell and animal tests. When War-burg conducted tests, they used a culture fluid containing only glucose, which led to erroneous results. Kim's team conduct-ed cell tests under conditions similar to those of the human body to confirm that cancer cells use more oxygen and grow faster than normal cells. In this process,

the team found out that while the energy source of normal cells is glucose, cancer cells entirely rely on fatty acid oxidation.

In an actual test of mice with pan-creatic cancer, cancer incidence dropped fourfold when fatty acids were replaced with carbohydrates.

"The four-fold decrease in cancer inci-dence just by replacing fatty acids with car-bohydrates as the energy source is an effect comparable to cancer treatment," Kim said. "Our research results suggest that new treatments can be introduced based on blocking cancer energy metabolism."

A team of Korean researchers has confirmed that the energy source of cancer cells is fatty acid

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Science & Technology

The Korea Employers Federation has recently conducted a survey with the top 100 companies in terms of sales

and announced on Sept. 13 that office workers of 88.4 per-cent of the respondents are telecommuting and it is about to be applied to those of 2.9 percent of the respondents.

According to the result of the survey, none of the respon-dents are applying telecommuting to their manufacturing work-ers. Instead, those companies are minimizing their contact by means of an additional paid leave of absence, schedule adjust-ment and similar measures for the purpose of COVID-19 infec-tion prevention.

When it comes to the work productivity of office employees working from home, 46.8 percent of the respondents answered that the productivity is 90 percent or more of that of working from office. In addition, 25.5 percent evaluated it as 80 per-cent to 89 percent and 17 percent evaluated it as 70 percent

to 79 percent. The federation explained that those high levels of receptiveness have to do with the fact that the survey cov-ers large corporations capable of managing the productivity of telecommuting by utilizing IT programs, job and performance management tools, and the like.

Slightly more than 53 percent of the respondents mentioned that telecommuting would be expanded in the post-COVID-19 era whereas the opposite answer was given by 33.9 percent. The federation said that systems for performance-oriented person-nel management and better in-house communication are very important for successful telecommuting and flextime in the era of Industry 4.0.

Deep Knowledge Group (DKG) recently classified South Korea as the third-safest country in the world in rela-

tion to COVID-19, behind Germany and New Zealand. The Hong Kong-based think tank released the first version of the list in June this year and South Korea came in 10th at that time.

On the latest list, South Korea took the third place in the efficiency of anti-pandemic measures and fourth in governance. South Korean Deputy Prime Minister Hong Nam-ki remarked that the list showed close correlations between such measures and economic recovery in that the IMF’s downward growth forecast adjustments in June were relatively milder in the case of countries relatively higher on the latest list.

Specifically, the IMF lowered its economic growth forecasts for Germany, South Korea and China, which ranked seventh, by 0.8 percentage point, 0.9 percentage point and 0.2 percentage point, respectively. On the other hand, the downward adjust-

ments amounted to 3.7 percentage points, 3.7 percentage points and 2.1 percentage points for the United Kingdom, Italy and the United States, which came in 31st, 43rd and 55th.

90% of Top 100 Companies Introduce Work from Home

Many Companies Positive about Telecommuting as Anti-COVID-19 Measure

Korea Ranked 3rd behind Germany, New Zealand

Germany, New Zealand and South Korea Classified as Countries Safest from COVID-19

By Choi Moon-hee

By Choi Moon-hee

About 90 percent of Korea's top 100 companies in terms of sales have intro-duced telecommuting after the government implemented Level 2.5 social dis-tancing measures.

DKG’s COVID-19 regional safety assessment

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When the BTS’s digital single "Dynamite" topped Billboard's Hot 100 Chart, 46 million tweets came out in three days.

A large number of tweets using keywords related to the BTS were posted on Twitter for three days from Aug. 31 to Sept. 2 when Billboard rankings were released, Twitter said on Sept. 9. The keywords included the BTS and Dynamite in Korean and English. In addition, a total of 257 million tweets mentioned related keywords from Aug. 3 to Sept. 3 in the Korean time, when the name of the single "Dynamite" was first disclosed.

Twitter, in particular, effectively garnered much attention from BTS Army fans around the world by launching a special emoji campaign at a time when BTS first unveiled its new single "Dynamite." The emoji, which automatically applies to tweets using hashtags #BTS and #Dynamite and #방탄소년단 and

KT announced on Sept. 17 that it has signed a memorandum of under-standing (MOU) with Stage Five, Nuwa Robotics, and Ashoka Korea

to promote the artificial intelligence (AI)-powered companion robot business.Under this agreement, the four companies will develop and commercialize

next-generation AI companion robots for kids and senior citizens by combin-ing their expertise in AI, telecommunications, robots and content.

Stage Five is an affiliate of Kakao that specializes in telecommunication and the Internet of Things (IoT). It will be in charge of developing specialized content for AI companion robots by age group.

Nuwa Robotics is a global social robot company that specializes in hard-ware such as robotic joints and robot software of its own development.

Stage Five and Nuwa Robotics established a partnership in April to tap into the global robot market. The agreement is expected to create greater syn-ergies.

Ashoka Korea is the Korean branch of Ashoka, a global non-profit organi-zation based in the United States engaged in discovering and supporting social innovation entrepreneurs to solve social problems. Ashoka Korea's participa-tion is expected to add social value to contents to be used in AI companion robots.

Twitter's Emoji Campaign Garners Attention from Fans

46 Million Tweets Generated about BTS’s Number One Song on Billboard Chart

In Cooperation with 3 Partners

KT to Introduce AI-powered Companion Robots for Kids and Senior Citizens

By Yoon Young-sil

By Choi Moon-hee

An AI companion robot from Nuwa Robotics

#방탄소년단 was initially provided as a flame-like image and replaced with a disco ball image in line with a music video schedule without a prior notice.

Currently, a Twitter account run by the BTS members has 28.64 million followers while the official BTS Twitter account has 23.25 million.

Through this business agreement, the four companies will release AI companion robots in the first half of 2021. The AI companion robots will provide customized services for kids and senior citizens using their moving arms and heads and Giga Genie AI-based interactive contents.

Contents for kids will consist of services that can increase children's physical activities by utiliz-ing AI robots' dynamic moves, not general learn-ing and play-oriented contents.

Senior contents will include providing care to people with dementia, becoming companions to chat with, giving medication guides, and other contents for active senior citizens. Senior citizens will be able to use the service through a simple voice command.

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