Focus National ICT Expected Result Against 'Shareholder Dictatorship' Google’s Unfair Business Practices HDC’s Takeover of Bills for Tighter Corporate Government and Political Circles Join Asiana Airlines Falls Through Regulations Raising Concerns Anti-Google Move

september 2020 / VOL.37 NO.397 www.businesskorea.co.kr

12,000 won 09

ISSN 1016-5304 Contents 2020 / Vol.37 No.397

Korean Society Is Aging Rapidly Cut Business Relations with Huawei 18 Bills for Tighter Corporate Regulations 40  Electronics in Hot Pursuit of Raising Concerns TSMC in Foundry Market 19 Shareholder Derivative Litigation to Produce Poised to Cause More Enterprise Risks Qualcomm’s Snapdragon 875 APs 20 Government Twist Banks' Arm to 41 TSMC's Super-gap Approach Puts Invest in New Deal Fund Samsung Electronics on Alert 21 Government Criticized for Excessive 42 Why Was Samsung Not Interested in Financial Assistance for Asiana Airlines Taking over ARM? 43 ARM to Provide Support to 13 Korean Cover Story Semiconductor Startups 44  Still Heavily Dependent 22 Samsung Group Facing Multiple on Semiconductor Equipment from Threats Japan 45 South Korean Semiconductor MONEY Companies Opposed to Introduction of Discovery 28 South Korea’s Foreign Exchange 46 Samsung Display Sells Off Suzhou LCD Reserves Hit an All-time High Plant to Chinese Company Enterprises Hoarding U.S. Dollar for LG Display’s Guangzhou Plant to Enter Uncertainties Triggered by COVID-19 Fullfledged Operation This Month 29 Banks in Dilemma for New Deal Funds FOCUS 47 South Korean Display Panel Bond Market Fluctuating Due to 08 HDC’s Takeover of AsianaAirlines Falls Government Bonds Manufacturers Facing Increasing Through 30 BIS Capital Adequacy Ratio of South Difficulties Korean Banks Falls 48 Samsung Electronics Strikes US$6.6 NATIONAL South Korean Banks Revamping Bil. Deal to Supply 5G Equipment to Global Business Strategies Verizon 10 South Korea 17th-best to Live In Huawei Leads Global Telecom South Korea Surpasses Japan and 31 Global PEFs Purchase Shinhan Financial Common Stocks in Quantity Equipment Market in First Half of 2020 China in Global Innovation Index 49 DivX Files Patent Infringement Suits 11 South Korean Government Advised 32 Aggregate Value of South Korean Stock Market Tops 2,000 Trillion Won against Samsung Electronics and LG to Clarify Its Stance on China-related Electronics Issues South Korean Stock Market Recovering Relatively Faster from COVID-19 Samsung Electro-Mechanics Develops South Korean Companies Stuck World's Smallest Power Inductor between the United States and China 33 KOSPI Standing Out in the Global 12 Turkey and India Raising Trade Barriers Stock Market against South Korea KOSPI Turnover Increasing Rapidly 13 Korea and Cambodia Jointly Reduce Due to Frequent Day Trading Greenhouse Gas Emissions by 650,000 34 Fines Imposed on Foreign Investors Tons Engaged in Naked Short Selling to Host World Forestry Congress Bill Tabled for Naked Short Selling in May 2021 Prevention 14 Fitch Lowers South Korean Economic 35 Individual Investors Dumping LG Growth Forecast Chem Shares for Split-off Plan S&P Raises S. Korea’s Economic Growth Individual Investors Now Own More of 38 Estimate Samsung Electronics 15 South Korean Companies’ Overseas 36 JP Morgan Report Sends Celltrion Sales Drop 20% in Q2 Stock Plunging South Korea’s Exports and GDP Growth 37 Survival of Insurance Industry Hinges Rate Drop in Q2 on Insuretech 16 Household and Corporate Debts Hit All-time High ict South Korean Government’s Spending Increasing Too Fast 38 Hard Time Awaits Samsung Electronics 17 Unemployment Benefit Payment Tops and SK Hynix One Trillion Won Again in August 39 South Korean Display Panel Suppliers 54

04 50 Enforcement Decree of ‘Netflix Law’ Toyota Launches Hydrogen Fuel Cell Samsung to Upgrade Hoam Awards Feared to Hurt Korean Internet Joint Venture with Chinese Companies into Korean Version of Nobel Prize Companies 61 Korean Battery Companies Show 71 Hotel Lotte Increasing Financing Volume 51 Industry Expert Calls for Proactive Mixed Reactions to Tesla's EV Batteries Lotte Group to Invest 290 Bil. Won in Response to Mandatory In-app 62 Ford in Support of SK Innovation in Doosan Solus Acquisition Fund Payment Battery Lawsuit with LG Chem 72 LG Chem to Spin off Battery Business Supreme Court to Handle KCC- 63 , SK Innovation into Wholly Owned Subsidiary Facebook Litigation to Collaborate on EV Battery Daelim Industrial Adopts a Holding 52 Court Sides with Facebook Again, Ecosystem Development Company Structure Fueling Controversy over Effectiveness 64 Merger between Korea's Two Top 73 POSCO’s Labor Union and Management of ‘Netflix Act’ Shipbuilders Delayed by COVID-19 Agree to Freeze Wage in 2020 53 Government and Political Circles Join 65 Korea, China and Japan Competing for 74 POSCO Reaps First Dividend on Anti-Google Move LNG-powered Vessel Orders Investment in Roy Hill Mine in 66 Korean Shipbuilders in Competition to Australia INDUSTRY Develop Eco-friendly and Fuel-saving Ssangyong E&C Chairman Flies to Smart Ships Dubai to Visit Construction Site 54 Incheon Poised to Lead Korea's 67 Oil Refining and Chemical Sectors 75 GM Korea President Expresses Economic Growth in Post-viral Era Decoupling from Each Other Complaints about Unreasonable 56 State-run Energy Companies South Korean Steelmakers Participate Union Demands Extremely Inefficient in Overseas in LNG Development Project in Canada Resources Development SME & STARTUP Korean Home Electronics Companies IR & MANAGEMENT Withdrawing from China 76 About 40% of Korean Startups Doing 57 Samsung and LG Go Separate Ways in 68 LG Chairman Koo Donates 1 Bil. Won Business Abroad Begin with World LCD Business for Development of COVID-19 Vaccine Market in Mind 58 Automotive Industry Contracts in August Korean Air Sells In-flight Meal and South Korean Automakers’ Exports Duty-free Businesses SCIENCE & Show Some Recovery in August 69 Samsung to Upgrade Hoam Awards TECHNOLOGY 59 Hyundai Motor Exports Hydrogen Fuel into Korean Version of Nobel Prize 78 UNIST Develops Chip for Faster and Cell Systems to Europe SK Innovation Forms 'SOVAC Avengers' Easier Virus Detection 60 Hyundai Motor and LG Chem with 11 Social Ventures UNIST Reduces Solar Cell Production Promoting Joint Venture Battery Plant 70 Founder Families Control Business Cost with Water in Indonesia Groups with a Mere 3.6% Stake 79 Biopolymer-based Photocatalyst Developed for More Efficient Hydrogen Production New Technology Lowers Fire Hazards Looking for a house, apartment or office? of Li-ion Batteries, Increasing Charging Speeds 4 Times Real Estate & Relocation Co, LTD. 80 Korean Research Team Identifies Energy Sources of Cancer Cells We look forward to helping you to find your next dream property anywhere in Seoul. KIST Develops Atomic Catalyst for 1. Residential or Commercial Property Searching 3. After Service Solid Oxide Fuel Cells - Ability to explore and reserve a variety of properties - Moving arrangements and furniture set-up - Recommendations of suitable properties - Interior decoration and design - Enrollment in fire, theft and other types of insurance Lifestyle

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‘Korea New Deal’ Publisher: Park Jung-hwan Chief-in-Editor: Yu Kun-ha with Both Hands General Editor: Lee Kwang-soo Supplementary Editor: Lee Song-hoon Managing Editor: Youn Won-chang of Leading Culture/Tourism Editor: Choi Mun-hee Reporter: Cho Jin-young, Marie Kim, Jung Suk-yee, Jung Min-hee, Michael Hurh, Sara Rai Contributing Writers: Seok Joon, Suh Bo-yun, Gho Chang-soo Enterprises Tied Up? Designer: Jang Seung-eun International Liaison: Sara Rai Advertising Manager: Jung eui-jung Administration Manager: Jung Min-hee The Moon Jae-in administration defined Circulation Manager: Lim Moon-joo conglomerates, which represent a very large Published By : BusinessKorea Co., Ltd. : 301 Samdo Building, 12-1 Yeoido-dong, Yeongdeungpo-gu, Seoul, Korea 150-010 portion of the South Korean economy, as deep-rooted evils and has put Mailing Add.: 301 Samdo Building, 12-1 Yeoido-dong, Yeongdeungpo-gu, Seoul, Korea 150-010 pressure on them with a variety of regulations. 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They Publicitas b.v., Maassluisstraat 414, 1062 GS Amsterdam, Netherlands Tel: 020-178795, Tlx: 11656 PUBAM NL, Fax: 020-174414 may have to increase their shareholdings by investing tens of trillions Philippines Mr. Paul Ligones, ASPAC of won and prepare for many more lawsuits, and yet their voice is not P.O.Box 7226, Domestic Airport Post Office Tel: 827-3950, 827-4477, Tlx: 64838 LTA BCPN, Fax: (632) 817-5802 reflected at all in the ongoing discussions. Singapore Hoo Siew Sai Under the circumstances, Korea Chamber of Commerce and Industry Major Media Singapore Pte Ltd., 6th Floor, 52 Chin Swee Road Singapore 0316 Chairman Park Yong-man held a press conference and criticized the bills Tel: 7380122, Fax: 7382108 Sweden, Norway and Denmark on Sep. 21. “The bills are nothing but populism forcing the sacrifice of the Sten Janson, Business Books in Saro AB Gihlsrovagen 19, S-43040 Saro, Sweden Tel: 46-31936220, Fax: 46-31151333 economy,” he remarked. 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06 focus

Expected Result ing restructuring plan, which will include adjustment of the routes the airline serves, cost-cutting and downsizing. HDC’s Takeover of Asiana They will also consider separate sales of Asiana Airlines’ affiliates, including Air Busan and Air Seoul. Airlines Falls Through "The creditors are expected to resume efforts to sell Asiana Airlines By Michael Herh 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. HDC Hyundai Development Co.’s planned acquisition of Asiana Airlines has collapsed. The creditors will assume control of the airline through a debt/equity swap. DC Hyundai Development appeared to be to invent excuses for KDB and the Export-Import Bank of Co.’s planned acquisition of declaring the collapse of the deal. Korea hold 800 billion won worth of per- HAsiana Airlines has fallen HDC cited the deterioration of petual bonds issued by Asiana Airlines. through as the preferred bidder refused Asiana Airlines’ financial conditions and When these bonds are converted into to accept creditors’ latest offer to cut the financial support for insolvent affiliates shares, the two creditors will become sale price. and negative audit opinions from outside Asiana’s largest shareholder with a 37 Creditors of Asiana Airlines declared auditors as reasons for a second round of percent stake, higher than Kumho Indus- on Sept. 11 that Kumho Industrial’s con- due diligence. It felt that it would need trial’s 31 percent. They are expected to tract with HDC Hyundai Development to more funds after acquisition to normalize resume sale efforts after restructuring the sell the struggling airline has been can- the struggling airline. deficit-ridden airline. celed. Korea Development Bank (KDB), HDC appears to be prepared for the The decision to inject 2.4 trillion won the carrier’s main creditor, said the deal possibility of a legal battle following the into Asiana was made at a meeting of has collapsed. “We believe HDC has no collapse of the takeover talks. In 2008, a government officials, which was attend- intention of acquiring Asiana Airlines,” a lawsuit was filed by to ed by Minister of Land, Infrastructure KDB official said. The bank is expected get back the performance deposit after its and Transport Kim Hyun-mi and KDB to inform HDC early next week of its bid to take over Shipbuilding & Chairman Lee Dong-gull. decision to end talks. Marine Engineering fell through due to a The creditors also decided to provide The collapse of the deal has been delay in contract signing. At the time, the 120 billion won to Kumho Buslines, an expected. The difference of opinions Supreme Court accepted Hanwha's claim affiliate of Kumho Asiana Group which between HDC Hyundai Development that it did not have a chance to conduct is in financial difficulties due to the and Kumho Industrial, which owns the due diligence and ruled that some of the COVID-19 pandemic. beleaguered airline, has not narrowed deposit and delayed interest should be With the deal's breakdown, creditors for months. HDC has consistently called returned to Hanwha. are expected to activate a plan B. Asiana for another round of due diligence. On The creditors have prepared a Plan Airlines is likely to enter into a voluntary the surface, it said that it could not trust B to normalize the operation of Asiana agreement with creditors again as it did Kumho Industrial, but its true intention Airlines. They will implement a sweep- 10 years ago. In this case, creditors will

08 focus

become the largest shareholder of Asiana ly, 2.1 trillion won will be spent for the sale of Asiana Airlines while covering Airlines through a debt-for-equity swap purpose of corporate stabilization and the resultant losses with the govern- and revamp it. the rest will be added to its liquidity. An ment fund. “The deal failed and Kumho The creditors have also begun dis- operating loan will account for 80 per- Buslines cannot receive the proceeds, cussing a capital reduction on Kumho cent of the money and the rest will be in and yet the government is planning Industrial’s stake. They are also discuss- the form of convertible bond purchase. to continue to financially support the ing a plan to normalize Asiana Airlines' Those in the financial and aviation express bus company under creditor con- management by providing new funding industries are criticizing the govern- trol,” they said. at the same time. ment in that the financial assistance In the meantime, Asiana Airlines Asiana Airlines have more than 2 exceeds the airline’s losses attributable announced on Sept. 24 that it would con- trillion won in short-term loans that fall to COVID-19. “The money is something vert its A350 and B777 passenger jets due over the next one year. In particu- with which two airlines of the size of into cargo planes in order to cope with lar, it could face redemption asset-backed Korean Air can be bought and this is an COVID-19 by increasing its cargo trans- securities (ABS) worth 700 billion won, extreme waste of taxpayers’ money,” one port volume. if its credit rating is downgraded due of them pointed out. In the second quarter of this year, the to the collapse of the sale deal. This is The Korea Development Bank and airline posted an operating profit of 115.1 why the creditors decided to immediately the Export-Import Bank of Korea already billion won and most of the profit was inject 2.4 trillion won into the airline. provided 3.3 trillion won for Asiana from cargo transportation. The upcoming Airlines last year and this year. In other conversion of its A350-900 will increase Government Criticized for Extreme words, no less than 5.7 trillion won is to its cargo transport volume by five tons. Waste of Taxpayers’ Money be provided for the airline. For reference, Then, 23 tons of cargo will be transport- the current market caps of Korean Air ed per flight. Critics say the government's finan- and Asiana Airlines are approximately Its repurposed aircraft departed cial support for Asiana Airlines is "an 3.3 trillion won and 900 billion won, from Incheon to Los Angeles on Sep. 24 extreme waste of taxpayers' money." respectively. with 20 tons of electronic components, The South Korean government Those in the industries are also criti- clothes, e-commerce products, and so on. recently decided to invest 2.4 trillion cizing the Korea Development Bank Next month, the aircraft will be used for won in Asiana Airlines from its key and Kumho Group, saying that they are high-demand routes such as Incheon-Ho industry stabilization fund. Specifical- shirking their responsibility for the failed 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.

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The Highest Record since 2014 South Korea 17th-best to Live In

By Jung Suk-yee

he U.S.-based non-profit organi- Tzation 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, South Korea has been ranked 17 in the Social Progress Index for this year. it scored 90.12 and rose from 25th to 17th. In Opportunity, it scored 80.13 Higher Education. is followed by Denmark, Finland, New and climbed four notches to 22nd. In The list of 163 countries is topped Zealand, Sweden, Switzerland, Canada, the Well-being category, South Korea by Norway, which retained its place Australia, Iceland and the Netherlands. boosted its score from 61.02 to 79.78 for three years in a row. Norway came The United States, Japan and China and ranking from 92nd to 80th in Qual- in eighth with 96.85 in Basic Human ranked 28th, 13th and 100th, respective- ity of Environment. In Opportunity, it Needs, first with 93.39 in Well-being ly. Japan fell three notches and China jumped from 15th to third in to and third with 87.95 in Opportunity. It fell 11 notches in one year.

Retains Top Place in Human Capital and Research South Korea Surpasses Japan and China in Global Innovation Index

By Kim Eun-jin

South Korea is ranked 10th in the World Intellectual tatistics Korea announced on index, which began to be drawn up in Property Organization’s global innovation index. SSept. 2 that South Korea came in 2007, is to provide information and data 10th in the World Intellectual Property required for public policy and business and institutions. Organization’s global innovation index strategy establishment for each WIPO South Korea took the 21st place in released that day. The list is topped member countries based on its measured 2012, 16th in 2014, 11th in 2016, and by Switzerland, which is followed by innovation capabilities. This year, it cov- 11th in 2019. This year, it rose from 13th Sweden and the United States. When ered 131 countries in total in the seven to 10th in knowledge and technology it comes to Asian countries, Singapore, fields of human capital and research, outputs and creative outputs, came in China and Japan came in eighth, 14th knowledge and technology outputs, seventh in business sophistication, and and 16th, respectively. infrastructure, market sophistication, retained its top place in human capital The organization’s global innovation business sophistication, creative outputs, and research.

10 national

A Recommendation from State-run Think Tank South Korean Government Advised to Clarify Its Stance on China-related Issues By Jung Suk-yee

he Korea Institute for International Economic Policy Tadvised the South Korean government to clarify its stance on the Xinjiang Uighur, South China Sea and Hong Kong South Korea has been ranked 17 in the Social Progress Index for this year. national security law issues with U.S.-China disputes escalating in non-economic sectors as well as trade. tion to the national security law. It is said that the People’s Lib- At present, the conflicts are being witnessed in a variety of eration Army and the Ministry of State Security of China will fields, ranging from COVID-19 and Hong Kong national secu- get access to highly sensitive technologies once the Chinese rity law to Huawei 5G equipment and cybersecurity. According Communist Party applies the law. to the institute, the frequency of non-economic clashes between In addition, the six countries urged China via the United the two superpowers is likely to increase with time and China Nations Human Rights Council to respect human rights and is being increasingly isolated after the enactment of the Hong individual freedom after news came out about one million Kong national security law. Uighurs detained without trial. Russia, Serbia, Bangladesh and “Their economic and financial sanctions are likely to tar- Algeria, which supported China’s policy in the region until July get a small number of individuals and certain enterprises for last year, withdrew their support in June this year. the time being with the global economy slowing down due to China’s isolation also has to do with the July 2016 ruling of the COVID-19,” it explained, adding, “Meanwhile, their disputes Permanent Court of Arbitration that rejected China’s nine-dash line are likely to increase with regard to human rights issues, mili- claims in the South China Sea. The United Kingdom is planning to tary issues, political issues, and the like. ” station an aircraft carrier in the South China Sea for military coop- Canada, the United Kingdom, France, Germany, Italy and eration with Australia. Japan and the United States have conducted Japan have controlled their exports to China since July in rela- annual joint military exercises in the region since 2017.

China Releases Regulations on Blacklist Entities South Korean Companies Stuck between the United States and China By Jung Suk-yee

he Ministry of Commerce of China released regulations Ton blacklist entities on Sept. 19 in response to the U.S. government’s restrictions on Tencent. Image captured from Nikkei Asian Review The regulations are applicable to every foreign enterprise, organization or individual blocking a Chinese company for a Tesla are being mentioned as the first group to be put on the non-commercial purpose or seriously infringing upon its legiti- blacklist. mate rights. The Chinese government is yet to disclose specific South Korean companies are likely to take a hit in that targets. case. Samsung Display and LG Innotek are currently supply- Every entity on the blacklist is subject to prohibition or limi- ing iPhone display panels and camera components to Apple, tation with regard to export, import and investment in relation respectively. LG Display has supplied iPhone display panels to China. In addition, its executives and staff members cannot since last year and its supply for the iPhone 12 Max, which will enter or live in China and fines may be imposed in some cases. be unveiled next month, amounts to 20 million units. LG Chem U.S. companies such as Apple, Cisco, Qualcomm, Boeing and is supplying batteries to Tesla.

11 national

To Block Outflow of Foreign Exchanges Turkey and India Raising Trade Barriers against South Korea

By Jung Suk-yee

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 Hyundai Motor plant in Izmit, Turkey is mentioning the trade deficit, most of it merging countries are raising compared with 2008 to 2012 after their is because South Korean companies such their trade barriers with the FTA took effect in 2013. Although both as Hyundai Motor Group entered the Espread of COVID-19 reduc- Turkey and India are making an issue of Indian market at the request of the Indi- ing their foreign exchange reserves. For chronic trade deficits, this is somewhat an government,” the institute explained, example, Turkey is trying to block the excessive given that the FTAs have led adding, “If South Korea increases its outflow of funds based on its free trade to more local investments and intermedi- investment in India to soothe it, more agreements with its manufacturing and ate goods exports based on more South intermediate goods will be shipped to tourism sectors paralyzed. Korean companies in those countries. South Korean companies’ manufactur- The South Korean government is South Korea’s direct investment in Tur- ing facilities in the country, which means closely watching the moves of Turkey key more than doubled from US$130 even more trade deficits.” 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 Hyundai Motor's plant in Chennai of India

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KFS Secures Emission Rights Worth US$3 Mil. Korea and Cambodia Jointly Reduce Greenhouse Gas Emissions by 650,000 Tons

By Jung Suk-yee

ince 2015, the Korea Forest Ser- house gas reduction activities until 2019 Svice (KFS) has reduced 650,000 were officially certified by the Veri- Choi Byeong-am, deputy minister of Korea Forest Service, announces the results of a pilot project to tons of greenhouse gas (GHG) emis- fied Carbon Standard (VCS) on Sept. 3, reduce greenhouse gas emissions by preventing sions in Cambodia through the Reducing enabling it to make profits by selling its deforestation in developing countries. Emissions from Deforestation and Forest emission rights in voluntary carbon mar- Degradation plus (REDD+) Project car- kets in the future. The KFS pushed forward with the ried out in Kampong Thom Province of The value of the KFS’s emission Korea-Cambodia Pilot REDD+ Project the Southeast Asian country. rights is estimated at US$3 million, based on a business agreement signed The reduction amount is equivalent far exceeding the total project cost of with the Forest Administration of Cam- to annual GHG emissions from about US$1.6 million. The calculation is based bodia in December 2014. It launched a 340,000 passenger cars (energy efficien- on the price of carbon credits (US$5/ project group in 2015. The project aims cy level 3), which produce 1.92 tons of ton) applied by the Green Climate Fund to jointly respond to climate change emissions per unit. (GCF) to REDD+ projects in developing boost the income of local residents Moreover, the KFS’s five-year green- countries such as Brazil. through forest conservation.

About 10,000 Experts from 160 Countries to Attend Seoul to Host World Forestry Congress in May 2021

By Jung Suk-yee

he Kore a Forest Service will "Building a Green, Healthy and Resil- Officials unveil an electronic bulletin to start the host the 2021 World Forest Con- ient Future with Forests." The sub- countdown to the World Forest Congress (WFC) in a T ceremony held on May 25, 2020. gress (WFC) at COEX in Seoul for five themes are (1) Turning the tide: revers- days from May 24 to 28, 2021. ing deforestation and forest degradation; attended by forest stakeholders from The KFS organizes the conference in (2) Nature-based solutions for climate- the public and private sectors, non-gov- cooperation with the Seoul Metropoli- change adaptation and mitigation and ernmental organizations, civic groups, tan Government and the U.N. Food and biodiversity conservation; (3) The green scientific or professional organizations, Agriculture Organization (FAO). About pathway to growth and sustainability; academic societies, as well as ordinary 10,000 experts from governments, inter- (4) Forests and human health: revisit- people interested in forests and the envi- national organizations, academia and ing the connections; (5) Managing and ronment. NGOs in 160 countries are expected to communicating forest information and Its key agendas will include the attend the event. They will discuss for- knowledge; and (6) Forests without U.N. Sustainable Development Goals, est issues such as responses to climate boundaries: enhancing management and U.N. Forest Strategy, the U.N. Decade change, biodiversity, forest restoration cooperation. on Ecosystem Restoration (UN DER), and forest welfare (resting and healing The WFC is the most influential the Paris Agreement, and a biodiversity gardens). international conference in the forest framework after 2020. The event will consist of the Plenary sector. During the congress, recommen- Participants will also introduce and Meeting, the High-level Segment, the dations and declarations on important discuss Korea's excellent forest policies Subthemes Session, Side Event and Vis- forest-related issues are made. The event and technology such as responses to for- its to Forests. is held every six years by the FAO. The est disasters, in-forest recreation, forest Hyundai Motor's plant in Chennai of India The main theme of the 2021 WFC is WFC is a "Forest Olympic Games" welfare, forest IT, timber and biomass.

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BOK Forecast to Cut Key Rate by 0.25% Point This Year Fitch Lowers South Korean Economic Growth Forecast

By Jung Suk-yee

nternational credit rating agency Fitch Rat- Iings 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. Fitch Ratings has lowered South Korea's economic growth estimate for this year from negative 0.9 “South Korea has been successful in quaran- percent to negative 1.1 percent. tine even without strict restrictions on economic activities, its consumption spending rebounded in tancing enters the third stage.” the second quarter, and investment showed only The agency also explained that its sluggish domestic demand is likely a limited decrease in construction and facility to result in an inflation rate lower than the central bank’s target. “Then, the investments,” it went on to say, continuing, “Still, bank will have to conduct monetary easing in the form of rate cut and limited its growth rate may be affected if its social dis- asset purchase,” it said.

Korea to Benefit from China's Economic Recovery S&P Raises S. Korea’s Economic Growth Estimate

By Jung Suk-yee

nternational credit rating agency S&P Ichanged 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. S&P has adjusted its South Korean economic growth estimate for this year from negative 1.5 per- The agency raised its 2020 estimates for cent to negative 0.9 percent. China, South Korea, Taiwan and Vietnam in view of improving trade conditions and increasing con- that it would take time until most Southeast Asian economies and the Indian, sumption expenditures. On the other hand, it said Japanese and Australian economies return to normal.

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Weighed upon by COVID-19 Pandemic South Korean Companies’ Overseas Sales Drop 20% in Q2

By Jung Suk-yee

he Federation of Korean Industries announced on Sept. T7 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. This file photo taken in May shows Motors’ almost empty product parking lot Those of automobile and auto parts dropped 36.5 percent, those located in Gwangju. of energy and chemical dropped 30.9 percent, and those of steelmakers plunged 80.1 percent. and 19.6 percent from the previous quarter. According to the Those enterprises’ sales in Asia, the Americas and Europe federation, this has to do with a fast recovery of the Chinese decreased 24 percent, 12.6 percent and 11.2 percent, respec- economy, in which a real growth rate of 3.2 percent was posted tively. Still, the combined sales in China of Samsung Elec- in the second quarter and large-scale infrastructure investments tronics, , LG Electronics, SK Hynix are scheduled in relation to 5G communications, artificial intel- and increased 5.9 percent from a year earlier ligence, the Internet of Things, etc.

Exports Plunge 16.1% South Korea’s Exports and GDP Growth Rate Drop in Q2

By Jung Suk-yee

he Bank of Korea announced on Sept. 1 that South TKorea’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 South Korea’s exports hit a 56.5-year low in the second quarter of 2020. GDP growth fell to negative 4.1 percentage points, which means the sluggish exports dragged down the GDP growth rate by 4.1 government and its individual consumption tax cut. percent. South Korea’s imports fell 6.7 percent in the second In the second quarter, manufacturing production and primary quarter, too. Facility and construction investments fell 0.5 per- industry output fell 8.9 percent and 9.5 percent from the previ- cent and 1.5 percent, respectively. On the other hand, private ous quarter, respectively. The former figure is the worst since the consumption rose 1.5 percent, led by disaster subsidies from the second quarter of 1963, when it dropped 10.4 percent.

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Private Sector Credit Reaches 3,700 Tril. Won Household and Corporate Debts Hit All-time High

By Jung Suk-yee

he Bank of Korea announced on Sept. 24 that the pri- Tvate-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- Korea's private-sector credit is more than double the country's nominal GDP. ic continues to hinder economic recovery.

Fiscal Rules Urgently Needed South Korean Government’s Spending Increasing Too Fast

By Jung Suk-yee

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 South Korea’s government spending-to-GDP ratio reached 18.4 percent in the first half of this year. to 5.6 percent of the GDP. In other words, the country’s fiscal soundness is already deteriorating. he Korea Economic Research Institute said in its report The OECD announced on Sep. 16 that the South Korean Ton Sept. 16 that South Korea’s government spending- economy would show a negative growth of 1 percent this year. to-GDP ratio increased by 1.4 percentage points in the period The figure is 0.2 percentage point higher than its June esti- of 2010 to 2018, the second-highest in the OECD behind mate, the highest in the OECD, and the second-highest in G20. Colombia’s 1.8 percentage points. The institute also said that However, the upward adjustment has been halved compared to only seven countries showed that trend in the entire group and August due to the second wave of COVID-19 that started in the some fiscal rules to function as a brake are urgently needed for middle of last month.

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For 4 Months in a Row Unemployment Benefit Payment Tops One Trillion Won Again in August By Jung Suk-yee

he unemployment benefits paid last month totaled T1,097.4 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 Jobseekers waiting for a briefing on unemployment benefits month, the figure for this month is likely to rebound in that it will reflect the second wave of COVID-19. 30s are still facing dire conditions. The number of those aged 60 A total of 90,000 persons applied for unemployment bene- and older and covered by the employment insurance increased fits last month whereas the number amounted to 114,000 in July, 208,000 last month, the largest increase since the outbreak of 106,000 in June and 111,000 in May. Last month, 750,000 persons COVID-19. received the benefits, close to the figures of the previous months. The same trend was witnessed for those in their 40s and In August this year, employment conditions for those in their 50s. On the contrary, the number of those aged 29 and younger 40s and older somewhat improved based on the government’s and covered by the same insurance decreased 59,000 and the projects in the public sector. However, those in their 20s and amount of decrease was 52,000 for those in their 30s.

Senior Citizens Account for 15.5% of Population Korean Society Is Aging Rapidly

By Jung Suk-yee

ast year, the number of those aged 65 and over Laccounted 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 The number of senior citizens totaled 7.75 million in 2019, accounting for 15.5 senior citizens totaled 7.75 million last year to represent 15.5 percent of the entire population. percent of the entire population. South Korea became an aged society in 2017 as the ratio These demographic changes are poised to adversely affect reached 14.2 percent. The rate of increase in the number of the South Korean economy. “South Korea’s potential eco- senior citizens was 0.6 percentage point in each of 2017 and nomic growth rate has fallen since 2010 and this is because 2018 and rose to 0.7 percentage point last year. The ratio stood the increase in the input of production elements such as labor at 7.3 percent in 2000 but more than doubled in 19 years. and capital has slowed down,” the Bank of Korea explained On the other hand, in 2019, those aged 14 and under last year, estimating the potential growth rate at 2.5 percent to decreased from 6.48 million (13 percent) to 6.31 million (12.6 2.6 percent. More recently, the OECD estimated the rate at 1.2 percent) and the other age group decreased from 36.1 million percent for the period of 2020 to 2060, mentioning the demo- (72.2 percent) to 35.94 million (71.9 percent). As a result, the graphic changes as a key factor. ratio of the number of senior citizens to 100 working-age per- Statistics Korea also announced that 25.89 million people sons soared from 10.2 to 21.5 in just one year. Besides, the ratio were living in the capital area, that is, Seoul, Gyeonggi and of the number of senior citizens to 100 persons in the young Incheon last year. The ratio, approximately 50 percent, is an all- population group jumped 8.6 percent from 114.1 to 122.7. time high.

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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.

Bills Likely to Result in 'Shareholder Dictatorship' Bills for Tighter Corporate Regulations Raising Concerns

By Jung Suk-yee

hree bills for corporate regulation will be submitted expenditures fell 2.4 percent in 2014 and dropped 23.8 percent to the National Assembly late this month. in 2015, R&D investment was maintained in 2014 and plum- T The South Korean government is planning to meted 20.8 percent in 2015, and net profit plunged 46.2 percent submit amendments to the Monopoly Regulation and Fair Trade and 83.6 percent, respectively. Act, the Commercial Act and the Financial Group Supervision Meanwhile, the enterprises substantially increased their Act to the National Assembly late this month. share buyback and dividend payment. To be specific, the trea- Experts point out that the bills are likely to result in so- sury shares increased 7 percent to 8 percent year on year before called shareholder dictatorship through strengthening of the interference but 20.3 percent in 2014. The payment jumped shareholder democracy, reduced rights of major shareholders, 63.8 percent during the interference, too. Although the payment disappearance of minority shareholders and financial invest- decreased after the attack, the net profit plummeted more than ment capital filling the vacuum. “The original purpose of the that to cause a payout ratio of up to 397 percent. bills is minority shareholder protection, but what is likely to "South Korea carried out the most intensive occur is weakened management rights and more influence reform in the world during the 1997 Asian financial crisis, and from foreign and institutional investors,” one of them men- yet the society has been polarized more and more,” said profes- tioned. sor Shin Jang-seop at the National University of Singapore, add- The side effects of shareholder dictatorship have already ing, “This is because the reform was a shareholder-oriented one been witnessed in some countries that adopted a higher level focusing on short-term corporate profits.” of shareholder democracy. According to the Korea Economic KAIST professor Lee Byung-tae expressed concerns over Research Institute, 10 activist funds attacked 48 global enter- inefficiency in the use of resources. “Entrepreneurs now have to prises back in 2014 and the enterprises’ growth, profitability and concentrate their resources and efforts on retaining control and many other indices deteriorated in 2015. resort to expedients instead of studying how to survive in the Specifically, their employment fell 4.8 percent and 18.1 global market, which has nothing to do with entrepreneurs in percent in 2014 and 2015, respectively. Likewise, their capital other countries,” he said.

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Opposition Party Backs Ruling Party's Amendments Shareholder Derivative Litigation Poised to Cause More Enterprise Risks

By Jung Suk-yee

he People Power Party is planning to advocate the Tgovernment’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 Korea Chamber of Commerce and Industry Chairman Park Yong-man visits the National Assembly on Sept. 22 and subsidiary companies is not easy,” for a meeting with People Power Party leader Kim Jong-in. said Choi Joon-seon, honorary professor at the Sungkyunkwan University Law School, adding, “In Japan, it has been file suits with malicious intentions can be brought against the five Samsung applied only to fully-owned subsidiaries, against South Korean companies,” Group subsidiaries including Samsung that is, the bill advocating shareholder Seoul National University Professor Lee Card and Samsung Asset Management derivative litigation is almost unprec- Gyung-mook pointed out. The honor- in this manner.” edented worldwide.” ary professor also mentioned that spec- In addition, it takes just 5.12 bil- The commercial law revision for ulative foreign capitalists would take lion won to get 0.01 percent of Hyundai the litigation, which will allow a par- advantage of the new bill with South Motor Group, the second-largest con- ent company shareholder to file a suit Korean companies having no means for glomerate in South Korea. SK Group, against a subsidiary board member, is protecting themselves. the third-largest, is particularly vulner- likely to mean continuous litigation risks “As for Samsung Electronics, which able to the risk as its key subsidiar- on the part of enterprises. The Federa- has the largest market cap in South ies’ shareholdings in their subsidiaries tion of Korean Industries recently said Korea, the suit can be filed with no more are relatively larger. For example, SK that the introduction of shareholder than 40 billion won or so,” said a busi- Telecom has a shareholding of over 50 derivative litigation would increase list- ness community source, adding, “Only percent in no less than 18 subsidiaries, ed companies’ litigation risks by up to 1.25 billion won or so is required to including SK Broadband and SK Com- 390 percent. acquire 0.01 percent of Samsung Life munications. Approximately 1.94 billion “Once it is introduced, an increas- Insurance, the largest financial subsid- won is enough to acquire 0.01 percent of ing number of foreign competitors will iary of Samsung Group, and lawsuits SK Telecom shares.

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Financial Holding Companies to Invest 70 Tril. Won government implies in that the financial sector is typically subject to various reg- ulations. Government Twist Banks' Arm Those companies’ feelings are mixed although they welcomed the launching of the fund on the face of it. First of all, to Invest in New Deal Fund their financial burden is likely to increase By Jung Suk-yee 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

The Korean government has twisted the arm of major financial holding companies to invest at least 70 trillion fizzled out. The examples include more won for five years to come in the New Deal Fund. than 40 green industry funds launched during the Lee Myung-bak administra- ajor financial holding Under the circumstances, concerns tion and those launched during the Park companies are planning to are mounting over political pressure on Geun-hye administration in relation to Minvest at least 70 trillion the financial sector. Although the gov- inter-Korean unification. The funds won for five years to come in the South ernment is stressing that there will be no attracted a lot of money in their early Korean government’s New Deal Fund, forced participation in the fund for its stages with the government backing which was announced on Sep. 3 and is New Deal projects, financial companies but lost their attractiveness after regime scheduled to reach 20 trillion won in size. cannot be completely free from what the changes.

Principal Protection with Taxpayers’ Money Principal of New Deal Fund to Be Protected in Part

he principal of the South Korean to prepare the fund and support financing Tgovernment’s New Deal Fund is via the fund. Specifically, the fund will be likely to be protected to some extent. The divided into the New Deal Policy Fund as preparation of the 20 trillion won fund is a master-feeder fund based on fiscal input scheduled to be completed in 2025 while and the New Deal Infrastructure Fund to President Moon Jae-in presides over the govern- ment’s first New Deal Strategy Meeting on Sept. 3. the current presidential term ends in May come with tax incentives. The government 2022. It is pointed out by some that the is planning to boost the private sector’s par- ones such as investment. principal protection based on taxpayers’ ticipation in the funds by improving relevant The partial principal protection, howev- money is far from desirable and the conti- systems and rules. According to the gov- er, is already causing controversy. The gov- nuity of the fund cannot be guaranteed in ernment, the fund is expected to play an ernment will make an average subordinated view of the presidential term. important role in shifting the abundant liquid- investment of 35 percent in the fund, which On Sep. 3, Deputy Prime Minister Hong ity in the market from less productive parts means investment losses of up to 35 per- Nam-ki made an announcement on how such as real estate toward more productive cent will be absorbed by the government.

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

'An Extreme Waste of Taxpayers’ Money' Government Criticized for Excessive Financial Assistance for Asiana Airlines By Jung Suk-yee

he South Korean government exceeds the airline’s losses attributable 3.3 trillion won and 900 billion won, recently decided to invest 2.4 to COVID-19. “The money is something respectively. Ttrillion won in Asiana Air- with which two airlines of the size of Those in the industries are also criti- lines from its key industry stabilization Korean Air can be bought and this is an cizing the Korea Development Bank fund. Specifically, 2.1 trillion won will extreme waste of taxpayers’ money,” one and Kumho Group, saying that they are be spent for the purpose of corporate sta- of them pointed out. shirking their responsibility for the failed bilization and the rest will be added to its The Korea Development Bank and sale of Asiana Airlines while covering liquidity. An operating loan will account the Export-Import Bank of Korea already the resultant losses with the govern- for 80 percent of the money and the rest provided 3.3 trillion won for Asiana ment fund. “The deal failed and Kumho will be in the form of convertible bond Airlines last year and this year. In other Buslines cannot receive the proceeds, purchase. words, no less than 5.7 trillion won is to and yet the government is planning Those in the financial and aviation be provided for the airline. For reference, to continue to financially support the industries are criticizing the govern- the current market caps of Korean Air express bus company under creditor con- ment in that the financial assistance and Asiana Airlines are approximately trol,” they said.

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amsung Group is facing mul- con clusion,” said a group in the commu- tiple threats and challenges at nity, adding, “This shows that the pros- Sthe same time. ecution can shake any enterprise to its Amid a growing sense of a crisis foundation once it decides to do so, which among Korean companies due to the is extremely fearful, and its decision not resurgence of COVID-19, concern is reflecting the current dire economic con- growing over the multiple threats facing ditions will affect the entire South Korean Samsung Group. In particular, Samsung economy as well as Samsung Group.” Electronics is caught in the middle by In June this year, the deliberation the prosecution’s indictment against vice committee advised the prosecution to stop chairman Lee Jae-yong, anti-Samsung its investigation and not to indict the vice laws, U.S.-China trade disputes and diplo- chairman and the others involved in the matic disputes between South Korea and accounting scandal Japan, which are compounding the mat- and so on. Specifically, a total of 10 out of ter with the role of the Samsung Group’s 13 committee members gave the advice. apparent heir. “The committee was organized by none Chief prosecutor Lee Bok-hyun of other than the prosecution itself for prose- the Seoul Central District Prosecutors’ cutorial reform and its defiance is nothing Office announces on Sep.1 the result of but abuse of power and resistance to the its investigation on Samsung Electron- rule of law,” said professor Lee Byung- ics vice chairman Lee Jae-yong’s alleged tae at the KAIST College of Business. involvement in illegal activities commit- Samsung Group’s business uncertain- ted by group officials to ensure a transfer ties are increasing after the prosecution’s of managerial control to him. announcement. Especially, Samsung Ignoring the recommendation of the Electronics’ global M&A activities and Investigation Review Committee not large-scale investments are likely to be to indict him and stop all investigations put on hold for years with competition for against vice chairman Lee, the prosecu- survival intensifying in the global semi- tion put Samsung Electronics vice chair- conductor industry. It is said that the vice man Lee Jae-yong on trial after 21 months chairman and the management will have of investigation. The business community to stand trial for up to five years and their expressed concerns with the investigation court appearance and trial preparation deliberation committee and expert opinion will hinder the group’s M&A and invest- collection, which were regarded as mini- ment decisions for that period of time. mum safeguards, having failed to block A legislative threat coming from the the indictment. government and ruling party’s move to “The prosecution pushed ahead with revise the Insurance Business Act and its investigation to reach an already made Commercial Act is also weighing on

Crisis of Samsung Group Samsung Group Facing Multiple Threats

By Michael Herh

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Samsung Group. In particular, if the Insurance Business Act is Prosecution's Indictment against Vice Chairman Lee Jae-yong revised as promoted by the government, Samsung Life Insur- ance will have to dispose of its stake in Samsung Electronics. Despite the Prosecution Investigation Deliberation Commit- has to sell more than 20 trillion won tee’s advice not to do so, the prosecution indicted the vice chair- worth of Samsung Electronics shares. Samsung Life Insurance man on Sept. 1 regarding his management succession, influ- will have to pay 5 trillion won in corporate tax alone after sell- enced by the ruling party and the civic organizations that have ing off the stake. In this case, Samsung's corporate governance increased their power under the current administration. The structure could be greatly shaken. 21-month investigation on the vice chairman started from civic Samsung Electronics is also facing challenges from foreign groups’ accusation in 2016, too. competitors. Taiwan's TSMC, which is the world's No. 1 found- The business community expressed concerns with the inves- ry company, has decided to build a 2-nanometer semiconductor tigation deliberation committee and expert opinion collection, plant ahead of Samsung Electronics by spending 22 trillion won. which were regarded as minimum safeguards, having failed to In the meantime, U.S. chipmaker acquired ARM, the block the indictment. world's largest semiconductor design company. “The prosecution pushed ahead with its investigation to

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“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- Samsung Electronics vice chairman Lee Jae-yong appears at the Seoul Central cial resources to do so. As of the end of the first quarter of this District Court on June 8 for questioning. The court rejected the prosecution's request for an arrest warrant for him. year, its cash and net cash in hand amounted to over 113 trillion won and 98 trillion won, respectively. Especially, system-on- reach an already made conclusion,” said a group in the com- chip companies are likely to be its targets in that it is aiming to munity, adding, “This shows that the prosecution can shake dominate the market within 10 years. any enterprise to its foundation once it decides to do so, which Meanwhile, multiple lawmakers are moving ahead with is extremely fearful, and its decision not reflecting the current anti-Samsung Group bills in the current session of the National dire economic conditions will affect the entire South Korean Assembly. The examples include an amendment to the Insurance economy as well as Samsung Group.” Business Act tabled by Democratic Party of Korea lawmakers In June this year, the deliberation committee advised the Park Yong-jin and Lee Yong-woo. Once the bill is passed, Sam- prosecution to stop its investigation and not to indict the vice sung Life Insurance must sell a lot of its Samsung Electronics chairman and the others involved in the Samsung Biologics shares, which may affect the group’s governance structure. accounting scandal and so on. Specifically, a total of 10 out of 13 committee members gave the advice. “The committee was Anti-Samsung Law: Insurance Business Act to Be Amended organized by none other than the prosecution itself for prosecu- torial reform and its defiance is nothing but abuse of power and The amendment to the Insurance Business Act tabled in June resistance to the rule of law,” said professor Lee Byung-tae at by Democratic Party of Korea lawmakers Park Yong-jin and the KAIST College of Business. Lee Yong-woo is scheduled to be discussed in the regular ses- The vice chairman was imprisoned on a charge of bribery in sion of the National Assembly in September. February 2017 and released on probation in February 2018. On Aug. 24, Democratic Party of Korea lawmaker Park According to the prosecution, Samsung Group conduct- Yong-jin asked the Financial Services Commission to simulate ed fraudulent accounting and the merger in an organized way the amount of dividends to go to Samsung Electronics share- so that the vice chairman can inherit the group and have more holders when the Insurance Business Act amendment he tabled control. On the other hand, Samsung Group is claiming that is passed. Earlier, the Financial Services Commission (FSC) Samsung Biologics’ change in accounting reflected the growth already made an official announcement in favor of the amend- potential of the biotech sector and the merger has nothing to do ment on July 30, causing a stir. 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 An amendment to the Insurance Business Act is expected to be passed by the legal purposes. National Assembly soon.

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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. Samsung Life Insurance is under pressure to sell approximately 23 trillion won At present, Samsung Life Insurance’s and Samsung Fire & worth of Samsung Electronics shares. Marine Insurance’s shareholdings in Samsung Electronics are estimated at 500 billion won and 100 billion won on an acquisi- Electronics. Samsung C&T currently has 5 percent of Samsung tion cost basis, respectively. Those are equivalent to approxi- Electronics along with financial resources not enough to raise mately 0.1 percent of the respective total assets of the com- the figure by 15 percentage points. panies. On a market value basis, however, the figures jump to Division of Samsung Electronics into operating and holding 29,436.8 billion won (9.5 percent) and 5,239.3 billion won (6.2 companies and merger between the holding company and Sam- percent), respectively. Once the law is revised, they must sell sung C&T has been mentioned for a while. However, this is just 23 trillion won of Samsung Electronics shares within a grace an idea related to a long-term change in governance structure. period of five years. “This method will allow the utilization of treasury shares and Once the amendment is passed, Samsung Life Insurance greater control can result from in-kind investment of owners’ must sell approximately 23 trillion won of Samsung Electronics shares in the merged company,” Yuanta Securities explained, shares and the sale will entail a corporate tax of about five tril- adding, “However, this depends on whether market participants lion won. Those in the business community are saying that the will agree and how financial subsidiaries will be handled.” amendment is to impose excessive taxes and legislation activi- According to many in the business community, any change ties for the same purpose are likely to follow once the calcula- in Samsung Group’s governance structure is likely to take con- tion method is changed. crete shape after the vice chairman’s judicial risks are elimi- Samsung Life Insurance is also paying much attention to nated. In May this year, he declared that his children would not the amendment. “It is still inappropriate for us to make any inherit the company and he would come up with New Samsung. prediction or response with the change in calculation method “After the elimination of the risks, the capital separation pres- being discussed in the National Assembly,” CFO Yoo Ho-seok sure on Samsung is likely to be relaxed at the same time as gov- remarked on Aug. 13. ernance structure improvement,” one of them mentioned. Securities companies are predicting that the sale will be The bill is likely to be passed within this year with both the completed within Samsung Group. In the group, Samsung C&T majority ruling party and the government in favor of it. “Regu- governs Samsung Life Insurance and Samsung Life Insurance lations regarding an insurer’s investment in a subsidiary in the governs Samsung Electronics. Samsung Life Insurance is cur- same business group are in effect only in South Korea and Japan rently the second-large shareholder in Samsung Electronics, and the regulations in Japan are based on acquisition costs,” said beyond the National Pension Service, with a shareholding of an industry source, adding, “The amendment is likely to cause 8.51 percent. It is an amount with which the governance struc- many side effects with few positive effects.” ture of Samsung Group as a whole can be shaken. Another possibility is that Samsung C&T will step in for Chinese Companies Challenging, Undaunted by U.S. Sanctions a swap between the shares and Samsung Biologics shares. If Samsung C&T obtains the Samsung Electronics shares, it can Risks surrounding Samsung Electronics vice chairman Lee tighten its control over Samsung Electronics and dividends can Jae-yong are another crisis factor, affecting the company’s posi- be paid. Earlier, Samsung Life Insurance received 719.6 billion tion in the global semiconductor industry. The vice chairman won in dividends from Samsung Electronics. Samsung Elec- has undergone prosecutorial investigations for years. Under the tronics vice chairman Lee Jae-yong, who owns 17.48 percent of circumstances, Samsung Electronics has failed to come up with a Samsung C&T, can get dividend income and solidify his control new corporate vision to replace that released in 2008 and Chinese in Samsung Electronics by using his Samsung C&T shares. competitors are increasingly imitating its business strategies. This, however, is unlikely to actually occur in that Samsung Another challenge is the ongoing trade disputes between the C&T becomes a holding company in this case. Samsung C&T United States and China. The United States is about to imple- as a holding company must own at least 20 percent of Samsung ment regulations so that semiconductor products manufactured

25 cover story

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. Chinese companies are rapidly chasing Korean companies in the semiconductor and display sectors. China has not given up its will to strengthen its semicon- ductor industry, although its plan to foster the industry through based on U.S. facilities cannot be supplied to Huawei, which is Huawei has been thwarted by the U.S. sanctions. In the field one of the biggest clients for Samsung Electronics. The United of system semiconductors such as mobile application proces- States is home to the world’s top semiconductor equipment sors (APs), it is fostering UniSOC, a subsidiary of Tsinghua suppliers such as Applied Materials and Lam Research, which Unigroup under the Chinese government. On top of that, ARM means Samsung Electronics cannot be free from U.S. pres- China recently announced that it would operate as an inde- sure. Besides, TSMC announced last month that it would invest pendent company, revving up the fabless ecosystem in China. US$12 billion to build a foundry in the United States. Industry watchers say that some intellectual property (IP) of China’s rise in the global IT sector is another threat to Sam- ARM could be used without permission in China, as China's sung Electronics. It already lost the global LCD display market sovereign wealth fund owns 51 percent of ARM China. Sam- to BOE and CSOT and Chinese companies are about to over- sung Electronics, which is closely trailing front-running Qual- take Samsung Electronics in the OLED display market. comm based on its own Exynos AP, could face difficulties if Chairman Li Dongsheng of TCL, China's leading TV maker, UniSOC and ARM China forge a technology partnership. officially announced on Aug. 31 that TCL will enter the OLED China is also coming strong in the foundry market where panel market. OLED displays are a key business area that Samsung Electronics aims to rise to the top in 2030. China is Samsung Display and LG Display are focusing on to chase off virtually putting its utmost efforts into nurturing SMIC as U.S. China, which aims to rise as a powerhouse in the display indus- sanctions have made it impossible to collaborate with Taiwan's try. In the market for small and medium-sized OLED panels, TSMC. Last month, the Chinese government decided to exempt which are used for smartphones and other devices, Samsung semiconductor manufacturing companies that have been doing Display enjoys a nearly 90 percent share. In the market for large business in China for more than 15 years from corporate tax for OLED panels for TVs, LG Display is the only manufacturer in up to 10 years if they use under-28-nm micro-fabrication pro- the world. Yet TCL's move is expected to pose a threat to Kore- cesses. The move is intended to provide a tax break for SMIC. an companies, especially Samsung Electronics which controls SMIC raised nearly US$8 billion in the Chinese capital market about 30 percent of the global TV market. in July and plans to invest US$4.3 billion in facilities, about In the LCD sector, Korea has already lost ground to China. twice its sales in 2019. SMIC is also planning to procure 20 BOE, China's No. 1 display company, quickly upgraded its tech- billion yuan by going public in Shanghai. A fund led by the Chi- nology after acquiring Hydis (the LCD division of Hynix) in nese government is scheduled to invest US$2.25 billion in the 2003. It gained an 18.6 percent share in the LCD market in largest foundry in China. 2018, surpassing LG Display (17.4 percent) and Samsung Dis- In the DRAM market, CXMT is planning to start manu- play (13.8 percent). facturing 17-nm chips within this year and YMTC’s 128-layer Although Samsung Display tried to make a quick transition NAND flash manufacturing is scheduled to start within this from LCD panels to OLED displays based on profits earned year as well. Foundry company SMIC’s capital expenditures for from the LCD business, it does not have much room to invest in this year are estimated to reach US$4.3 billion so that its main OLED technology compared to Chinese companies that receive process technology is shifted from 14-nm to 7-nm. If these com- subsidies and tax support from the Chinese government. In panies succeed in mass-producing these products as announced, 2017, Samsung Display invested 13.55 trillion won in facilities. their technology gap with Samsung Electronics will narrow But its investment stood at only 1.63 trillion won in the first half to less than two years. These products are likely to be sold in of this year. Although Samsung is seeking to keep its leadership China at least. Unisoc, a subsidiary of Tsinghua Unigroup, is in the display market through quantum nano emitting diode ready to take the place of Huawei in China’s system-on-chip (QNED) and Micro LED panels, its technological prowess alone industry growth roadmap. is not enough to roll back Chinese makers in a price war. The fast moves of Taiwanese and U.S. companies are also

26 cover story

shaking Samsung Electronics' position. TSMC is planning to However, as sales recovered in August, some experts expand its foundry market share gap with Samsung by starting a said that the U.S. sanctions on Huawei actually did not affect 2-nm process in 2024. Nvidia, the leader of the global artificial TSMC’s sales as much as initially expected. In the first eight intelligence market acquired ARM, which would change Sam- months of this year, TSMC's cumulative sales hit 850 billion sung’s fabless expansion strategy. Taiwanese dollars (about 34.51 trillion won), up 30.7 percent TSMC, the largest foundry in the world, recently decided to from the same period of 2019. invest US$10 billion to build new facilities in Taiwan. Earlier, Therefore, the drop in TSMC’s sales in July is believed to TSMC announced that it would build a 5-nm foundry in Arizona have been caused by concerns about a downturn of the semicon- by investing US$12 billion. ductor market in the second half of 2020, which were fueled by TSMC’s aggressive investment is intended to keep Sam- a decline in semiconductor prices. sung Electronics in check. Samsung Electronics announced on The smaller-than-expected impact of U.S. sanctions on Huawei May 21 that it would build EUV foundry production lines in may be explained in part by the fact that Huawei places chip manu- Pyeongtaek by investing 10 trillion won. At present, TSMC and facturing contracts on TSMC through its subsidiary, HiSilicon. Samsung Electronics are the only two companies in the industry A rebound in TSMC's sales in August means that while that are capable of manufacturing 7-nm and more advanced its supply to Huawei had stopped since May, the company products. Samsung Electronics is aiming to dominate the global received orders from global customers that offset the Hua- system-on-chip market from 2030 and it needs to catch up with wei impact. Therefore, TSMC’s sales are highly unlikely to TSMC in order to do so. plunge. Some experts speculate that TSMC’s customers such as Apple, Google, Qualcomm, Nvidia, and AMD have increased Foundry Sales Gap between Samsung and TSMC Widens their orders to TSMC to establish more solid relationships with TSMC. In fact, TSMC is expanding its business with large U.S. Taiwan's TSMC has widened its gap with Samsung Elec- customers such as AMD and Apple. Apple receives ARM-based tronics in terms of foundry sales, even after the U.S. sanctions CPUs for its new Mac models and the A14 mobile AP for the against Huawei. This development raises the question wheth- iPhone 12 from TSMC. AMD is planning to introduce the Zen er Samsung Electronics will be able to overtake TSMC in the 3 CPU for PCs and the Radeon RX6000 GPU series in October. foundry field. Samsung Electronics vice chairman Lee Jae- It is expected to rely on TSMC for production of these products. yong declared the “Semiconductor Vision 2030" to become the Meanwhile, some experts speculate that Huawei’s orders world’s No. 1 player in the system semiconductor market. were placed on TSMC through other semiconductor design TSMC said on its official homepage on Sep. 10 that its sales companies. MediaTek of Taiwan announced that it posted reached 122.9 billion Taiwanese dollars (about 5 trillion won) US$32.7 billion in sales in August. The figure is up 41.9 percent in August. The figure is a 15.8 percent increase from a year ago from the same period of 2019 and 22.5 percent from July. Medi- and a 16 percent increase from July. In July, it suffered a 12.3 aTek is designing mobile APs and 5G communication modems percent drop in sales in from June. and outsources production to TSMC. Earlier, TSMC said in a briefing on its second-quarter earn- Huawei accounts for 6 percent of Samsung Electronics’ ings that it has not received any new orders from Huawei since annual sales. On the other hand, TSMC relied on Huawei for 14 May, and that it will not be able to deliver semiconductors to percent of its annual sales. It cut off its business ties with Hua- Huawei beginning Sept. 15. As sales plunged in July, industry wei but still remains strong. sources said that the U.S. sanctions against Huawei began to As TSMC continues to grow despite severed transactions weigh upon TSMC’s sales. Huawei accounted for 14 percent of with Huawei, the challenges facing Samsung Electronics are TSMC's annual sales. 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 Samsung Electronics vice chairman Lee Jae-yong (second from left) visits the company’s semiconductor manufacturing plant located in Shanxi, China on May 18. to overtake TSMC appears to be not quite bright.

27 Money

Ranked 9th in World in Terms of Forex Reserves South Korea’s Foreign Exchange Reserves Hit an All-time High

By Yoon Young-sil

he Bank of Korea announced on Sept. 3 that South TKorea’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 U.S. dollars stored in Hana Bank agency bonds and asset-backed securities increased by US$3.41 billion to US$382.79 billion last month. Deposits in foreign chase, remained at US$4.79 billion. central banks and major global banks fell US$1.04 billion to As of the end of July this year, South Korea (US$416.5 bil- US$23.82 billion. The IMF special drawing rights edged up lion) ranked ninth in the world in terms of the size of foreign by US$30 million to US$3.15 billion and the IMF position exchange reserves. China (US$3.1544 trillion) topped the list, also edged up by US$40 million to US$4.4 billion. The gold followed by Japan (approximately US$1.4 trillion) and Switzer- reserves, which are denominated by the price at the time of pur- land (approximately US$1 trillion).

Dollar Deposits Hit a New High in August Enterprises Hoarding U.S. Dollar for Uncertainties Triggered by COVID-19

By Yoon Young-sil

he Bank of Korea announced on Sept. 17 that residents’ TU.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- Residents’ U.S. dollar deposits increased by US$370 million in August, hitting a new high. ments for imports and the economic impact of COVID-19,” the central bank explained. Their U.S. dollar deposits increased reached a new high of US$88.54 billion with a monthly increase US$5.7 billion to US$50.41 billion in March and then continued of US$1.14 billion. The euro deposits increased US$540 million to increase until August. to US$4.15 billion whereas the yen deposits dropped US$1.49 Last month, the overall foreign currency deposits also billion to US$4.76 billion.

28 MONEY

President-promoted Funds Banks in Dilemma for New Deal Funds By Yoon Young-sil

ong Kong-based brokerage CLSA released a report Htitled 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, A CLSA report on the South Korean government’s New Deal Funds 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 protected fund and, as such, banks need to be more careful in come with the risk of principal loss, and they cannot be passive handling it. “Our investment product marketing cannot but with the funds being promoted by none other than the president become more conservative with the recent suspension of redemp- himself. The sale of the funds is scheduled to start next year. tion of some private and public funds leading to more responsi- Of those funds, the New Deal Policy Fund will reach 20 tril- bilities on our part than on the part of investors and investment lion won by the target year of 2025. The government and state- product suppliers,” a bank said, adding, “Still, the government is run financial institutions will raise the master fund by investing telling us to sell the risky fund as much as possible.” seven trillion won, operators will raise feeder funds based on it, The government’s official stance is that it is up to each bank and then financial companies, pension funds and the public can whether to sell it or not. However, banks cannot rely on it in invest 13 trillion won in the feeder funds. According to the gov- that the fund is a government-led one. “The boards of many ernment, public funds will constitute subordinated investments banks are likely to give priority to the fund with the public fund so that an investment loss of up to 10 percent can be fiscally market stagnant,” it went on to say, continuing, “Nonetheless, it covered and principal protection is almost possible. cannot be ruled out that we will be held accountable if any prob- In other words, the New Deal Policy Fund is no principal- lem arises regarding the fund.”

Financing Costs of Enterprises Likely to Go up Bond Market Fluctuating Due to Government Bonds By Yoon Young-sil

he South Korean government is preparing this year’s Tfourth supplementary budget after drawing up a record budget plan for next year and this is significantly affecting the bond market. Increased government bond issuance is likely to increase financing costs of enterprises. On Sept. 7, the three-year government bond yield jumped 0.044 percentage point to 0.973 percent. It is 0.178 percentage bonds. Besides, the figure for next year is estimated at 89.7 tril- point higher than this year’s low recorded on Aug. 5. Likewise, lion won, approximately 2.5 times that of 2019. the 10-year government bond yield rose from 1.527 percent to This increase in government bond issuance is likely to lead 1.572 percent that day and from 1.281 percent to 1.572 percent to a rise in market interest rates and an increase in financing from July 30 to Sept. 7. costs on the part of enterprises. The Bank of Korea, in the mean- The decline in government bond price is because the gov- time, is showing no signs of intervention after its purchase of ernment has issued a lot of bonds in coping with COVID-19 and 1.5 trillion won of government bonds on Aug. 31. The central the issuance will reach a new high next year. bank is planning to purchase more government bonds in the The government issued 97.1 trillion won of deficit bonds event of market instability such as a spike in market interest until this year’s third supplementary budget. The amount will rates. According to the bank, the current situation is far from top 100 trillion won for the first time if the fourth supplemen- being unstable in view of domestic financial institutions’ and tary budget, seven trillion won or so, is fully covered by deficit foreigners’ demand.

29 MONEY

Risk-weighted Assets Increase BIS Capital Adequacy Ratio of South Korean Banks Falls

By Yoon Young-sil

outh Korean banks’ BIS capital adequacy ratio fell due to San 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. South Korean banks’ BIS capital adequacy ratio has fallen due to an increase in lending related to the COVID-19 situation. Those banks’ risk-weighted assets increased 4.1 percent in the second half, when their total capital rose 2 percent. Spe- The capital adequacy ratios of Korea Development Bank cifically, the former increased 67.8 trillion won, led by a higher and the Export-Import Bank of Korea fell substantially as a level of market volatility and a 48.6 trillion won increase in cor- result of their support against COVID-19. Specifically, that of porate loans. During the same period, the total capital increased the former decreased from 13.33 percent to 12.85 percent in the 6.4 trillion won. second quarter to dip below 13 percent for the first time in two The capital adequacy ratios of Shinhan, Hana, NH, Woori decades. The latter’s fell 0.3 percentage point to 13.45 percent. and KB Kookmin Banks fell to 15.49 percent, 15.37 percent, When it comes to the capital adequacy ratios of major finan- 14.84 percent, 14.66 percent and 14.39 percent, respectively. cial holding companies, KB, Shinhan, Hana and NH posted 14.13 Those of KB Kookmin, Hana, K and Banks dropped percent, 14.09 percent, 14.08 percent and 13.91 percent, respec- 62, 22, 94 and 26 basis points, respectively. On the other hand, tively. That of Woori rose 0.93 percentage point to 12.72 percent. those of Kwangju Bank and Jeonbuk Bank rose to 18.22 percent Bank holding companies’ average BIS capital adequacy ratio rose and 15.03 percent. 0.26 percentage point to 13.68 percent in the second quarter.

Focus Shifts to Risk Management and Digital Banking South Korean Banks Revamping Global Business Strategies By Yoon Young-sil

he COVID-19 pandemic is changing the global business Tstrategies 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 Shinhan Bank launched Shinhan SOL India on May 21. digital banking products there in cooperation with local platform service providers. The bank already launched SNS-based credit ing service is currently available in the eight countries including card and loan marketing in Vietnam in collaboration with Zalo Bangladesh, India, the United Kingdom and the United States. and e-wallet services in Cambodia with MVL. Those South Korean banks are strengthening their local Hana Bank China is working with Alibaba and Ctrip, which management systems with the pandemic having made cross- is the world’s second-largest online travel platform. The bank border travel almost impossible. For example, Shinhan Bank and Ctrip recently launched mobile loan products. Woori Bank’s recently set up a new unit to cover the Indo-China region and mobile banking platform Woori WON Banking Vietnam made the unit is currently in charge of the bank’s business and local its debut in the first half of this year and its Global WON Bank- staff training in Vietnam, Cambodia and Myanmar.

30 MONEY

A Lucrative Investment Global PEFs Purchase Shinhan Financial Common Stocks in Quantity By Yoon Young-sil

hinhan Financial Group con- out ratio is lower than those of global ducted a capital increase leading financial companies, its cash div- Sthrough third-party allocation idend yield for this year is estimated at 5 on Sept. 4. Specifically, Hong Kong- percent to 6 percent. Additional dividend based private equity firms Affinity Equi- payment is probable as well. The firms ty Partners and Baring Private Equity also demanded more dividends. Asia invested 605 billion won and 553 It appears that the firms’ goals are billion won, respectively. Their invest- trading profits, dividend profits and influ- ment is equivalent to 7.9 percent of the ence as key shareholders. The two firms Hong Kong-based private equity firms Affinity Equity Partners and Baring Private Equity Asia total issued shares. Their shares will be are now the third-largest shareholder in invested 605 billion won and 553 billion won, locked up for one year and subject to sale the group behind a Japanese shareholder respectively, to acquire 's new shares. restrictions for two years. and the Korea National Pension Service. It seems that the two firms regarded South Korean banks have been dis- side directors in the group. As of June the stock price of the company under- counted compared to global banks due to this year, the board of the company con- valued. The capital increase was car- their fragile governance structures. Their sists of one inside, two non-executive ried out with common stocks instead of decision-making has been led by the and 10 outside directors. The number of redeemable convertible preferred stocks management rather than the board and outside directors as shareholder repre- or exchangeable bonds. frequent government interventions have sentatives will increase from six to eight The discount stood at 2 percent hindered their advancement. Shinhan’s through the appointment. “The group’s whereas it is approximately 10 percent recent capital increase, that is, gover- governance structure, which has been led in most capital increases through third- nance diversification is expected to lead by minority shareholders, the National party allocation. The current stock price to synergy in terms of autonomous gov- Pension Service and asset management of the company is a 10-year low and its ernance as well as overseas investment, firms such as BlackRock, is expected to current PBR is 0.3. M&A and digital transformation. go through a significant change,” said an Although the group’s dividend pay- The two firms can appoint two out- industry source.

Strategic Partnership with Foreign Private Equity Funds years. A third party designated by Shinhan Financial Group can preferentially purchase Shinhan Financial Group to Work with Affinity the shares subsequently. Affinity Equity Equity Partners and Baring Private Equity Asia Partners and Baring Private Equity Asia have been given director nomination rights hinhan Financial Group has joined Centennial Investment is a special pur- in return for their investment. Shands with Affinity Equity Partners pose company for funds advised by Affinity It is said that the capital increase has and Baring Private Equity Asia after KB Equity Partners. SUPREME is a special pur- to do with the strategic partnership formed Financial Group formed a strategic partner- pose company for funds advised by Baring in June. At that time, KB Financial Group ship with The Carlyle Group. Private Equity Asia. Centennial Investment issued 240 billion won of exchangeable Shinhan Financial Group held an and SUPREME will own 4 percent and 3.6 bonds to Kingsman Investments Limited extraordinary shareholder meeting on Sept. percent of Shinhan Financial Group shares with regard to its five million shares. Kings- 4 and voted for a capital increase through with voting rights through the allocation, man Investments Limited is an indirect third-party allocation to allocate 39.13 mil- respectively. The combined ownership, 7.6 subsidiary of the investment funds includ- lion shares to Centennial Investment Lim- percent, is the second-largest behind that ing Carlyle Asia Partners V, L.P. run by The ited and SUPREME, L.P. The value of each of the National Pension Service (9.2 per- Carlyle Group. As a result of its investment, share to be issued is 29,600 won and the cent). The Carlyle Group acquired 1.2 percent of total issuance value is 1,158.2 billion won. The new shares cannot be sold for two KB Financial Group.

31 MONEY

The 2nd Time in History Aggregate Value of South Korean Stock Market Tops 2,000 Trillion Won

By Yoon Young-sil

he combined market cap of KOSPI and KOSDAQ Ttopped 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

On Sep. 15, KOSPI and KOSDAQ rose 0.65 percent and 0.59 percent to close at the South Korean stock market, in which the figure reached 2,443.58 and 899.46, respectively. 2,019.2 trillion won on Jan. 29, 2018.

KOSPI's Rate of Return 4th Highest in the World South Korean Stock Market Recovering Relatively Faster from COVID-19

By Yoon Young-sil

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

South Korea’s representative stock index KOSPI showed a rate of return of 5 successful response to COVID-19 and it should be reminded percent from Jan. 11 to Aug. 31. that the biggest potential risk in the markets at this moment is the second wave of COVID-19,” it said, pointing out that inves- he Korea Capital Market Institute said in its report on tors need to be cautious with the returns of some sectors in the TSept. 15 that South Korea’s representative stock index markets abnormally higher than global averages.

32 MONEY

4th Best among Global Stock Exchanges KOSPI Standing Out in the Global Stock Market By Yoon Young-sil

he Wall Street Journal has recently Treported 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. Rates of return by market for H2 2020 (source: WSJ)

Boosted by Liquidity-driven Rally KOSPI Turnover Increasing Rapidly Due to Frequent Day Trading

By Yoon Young-sil

orea Exchange announced on Sept. 3 that the KOSPI Kstock 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 The stock market turnover is on a steep upward curve on a liquidity-driven rally. to 13 trillion won in June and then topped 16 trillion won last month. month, their turnover increased 3.5-fold from the average of last This has to do with individual investors’ preference for year to an all-time high of 315 percent whereas institutional and short-term trading. In July this year, those investors’ ratio in foreign investors’ turnover ratios reached 38 percent and 42 per- KOSPI topped 70 percent for the first time in 18 years. Last cent, respectively.

33 MONEY

Shorting Stocks Without Borrowing Fines Imposed on Foreign Investors Engaged in Naked Short Selling

By Yoon Young-sil

he Securities and Futures Commission has decided Tto impose a fine of 730 million won on four foreign asset management companies and pension funds that conducted naked short selling. The 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 Four foreign investors were fined 730 million won for naked short selling. March this year.

To Minimize Adverse Effects of Shorting Bill Tabled for Naked Short Selling Prevention

By Yoon Young-sil

emocratic Party of Korea lawmaker Kim Byung-wook Dtabled 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- A ruling Democratic Party lawmaker has proposed an amendment to the Financial Investment Services and Capital Markets Act to minimize adverse man Sachs, most of the negotiation, confirmation and input effects of short selling. related to lending and borrowing in the South Korean stock market are currently based on chats, phones and emails with- penalty and criminal punishment instead of fine and the penalty out automation and this has facilitated naked short selling is up to 300 percent of the profits or avoided losses derived while doing increasing damage to individual investors,” he from the short selling. Also, penalty is applied to authorized explained. short selling when it is misused for insider trading or market The bill is to strengthen punishments, too. Specifically, manipulation. The criminal punishment is one year or more in according to the bill, unauthorized short selling is subject to prison.

34 MONEY

Market Cap Drops by about 6 Tril. Won in 2 Days Individual Investors Dumping LG Chem Shares for Split-off Plan

By Yoon Young-sil

he stock price of LG Chem dropped 6.11 percent to Tclose 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. Individual investors, who were disappointed by the news report that LG Chem According to them, LG Chem will be just one of many petro- would split off its battery business unit, dumped their shares. chemical companies once the unit is split off. The unit currently represents about 60 percent of the enterprise value of LG Chem ing on Oct. 30 to handle the issue. It must obtain the consent assessed by analysts. “If the unit becomes a fully-owned sub- of at least two-thirds of attending shareholders and at least one- sidiary, the value of the subsidiary reflected in LG Chem cannot third of the total issued shares. At present, LG Corporation is the but fall,” one of them explained, adding, “Besides, the stock largest shareholder in LG Chem, which owns 30.75 percent of price of LG Chem will go down further if the unit goes public the company. Meanwhile, individual investors’ combined share- instead of remaining fully owned by LG Chem.” holding stood at 9.82 percent as of the end of 2019. The current The company will hold an extraordinary shareholder meet- ratio is estimated at around 15 percent.

Institutional Investors' Shareholding Falls Individual Investors Now Own More of Samsung Electronics

By Yoon Young-sil

outh Korean institutional investors net-sold 73 million SSamsung 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, Individual investors' shareholding in Samsung Electronics continues to rise. 10.6 percent and 3.6 percent, respectively. Foreign investors owned 55.9 percent at that time. investors’ in predicting the direction of the stock price of Sam- This year, however, individual investors’ investment in the sung Electronics. A number of securities companies are saying company has increased based on their aggressive purchase. In that individual investors’ preference for the company is likely to other words, their move is now as important as institutional continue for a while.

35 MONEY

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

Net Profit Growth Forecast to Slow down Next Year JP Morgan also cautioned against being optimistic about Celltrion’s devel- opment of COVID-19 treatments. "The JP Morgan Report Sends market's optimism on the bio industry is too excessive," the report said. "We need to pay attention to profit funda- Celltrion Stock Plunging mentals rather than uncertainties such as the commercial success of COVID-19 By Yoon Young-sil treatments." But Korean securities firms have P Morgan has marked down treatment of autoimmune disorders, has favorable views on Celltrion. Accord- Celltrion’s target share price to shrunk in the European market and the ing to financial information provider J60 percent of the current level. sales growth of Truxima, a blood cancer FnGuide, Korean securities firms set Celltrion closed at 298,000 won on treatment, has slowed down. the target share price of Celltrion at Sept. 9, down 6.13 percent from the pre- Based on this, JP Morgan analyzed 371,769 won on average. Considering vious day. Foreign investors and institu- that the annual net profit growth rate Celltrion’s growth trend, the company’s tional investors net-sold Celltrion shares of Celltrion will peak at 54 percent in stock price has ample room for a jump, worth 44.7 billion won and 56 billion 2020 and fall to 21 percent in 2021. The they say. "Celltrion posted an operating won, respectively. Foreigners net-bought price to earnings ratio calculated by JP profit ratio of 42.4 percent in the second 23.9 billion won worth of Celltrion Morgan based on a net profit forecast for quarter, up 6.9 percentage points from a shares from Aug. 1 to Sept. 8. 2021 is 73 times, which is much higher year earlier, on the back of an improve- A report issued by JP Morgan ana- compared to the global average. JP Mor- ment in its factory operating rate," a lyst Cho Ji-hyun on the day was behind gan suggested 190,000 won as the prop- stock analyst said. "The development of the fall in Celltrion’s stock price, stock er price until the end of 2021. The figure COVID-19 treatments was also sched- analysts say. In the report, Cho pointed is 40.25 percent lower than the closing uled to receive support from the govern- out that the market share of Remsima, a price of 318,000 won on Sept. 8. ment."

36 MONEY

Insurers Advised to Collaborate with Big Tech Players Survival of Insurance Industry Hinges on Insuretech

By Yoon Young-sil

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

ith the focus of the finan- number of active app users is approxi- with external online platforms for more cial industry shifting mately 500,000 for Samsung Fire & contact with customers is a very urgent Wtowards non-contact in the Marine Insurance, 340,000 for Hyundai matter. wake of COVID-19, experts at a recent Marine & Fire Insurance, 320,000 for “A disruptive innovation in the webinar pointed out that collaboration DB Insurance, 250,000 for Meritz Fire entire insurance industry is coming up with online platforms such as digital insur- & Marine Insurance, 230,000 for KB from new digital technologies and insur- ance services is essential for the survival Insurance and 200,000 for Samsung Life ers need to focus on non-financial data of insurance companies. Insurance. to provide their customers with unique According to mobile app market On the other hand, the number products and services,” one of the research firm AppApe, the number of amounts to 4.08 million for Shinhan experts explained, adding, “The survival those actively using the top 10 apps of Bank, 3.75 million for NH Bank, 7.5 mil- and development of the industry depends life and non-life insurance companies is lion for Samsung Pay, 6.75 million for on their insuretech strategy and collabo- currently less than half of the number of Toss and 5.77 million for Kakao Bank. ration with big tech players is now a Kakao Bank app users. Specifically, the This implies that insurers’ collaboration must.”

37 ICT

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

Server DRAM Spot Price Uptrend Halted of the South Korean companies, respec- tively. Especially, DRAM products rep- Hard Time Awaits Samsung resent about 80 percent of SK Hynix’s sales. In the second quarter of this year, its consolidated operating profit was Electronics and SK Hynix 1,947.6 billion won, up 205.3 percent By Kim Eun-jin from a year earlier, with the server mem- ory demand and DRAM price boosted arket research firm DRAMeX- server ODMs’ excessively large inven- as a result of COVID-19. However, Mchange reported on Sept. 17 tory as the biggest reason. “It will take the company’s performance is likely to that the DDR4 8GB server DRAM price a couple of additional quarters for the deteriorate in the following period with posted US$2.99 without any significant ODMs to normalize their inventory,” clients consuming their stocks and the change for three days. The spot price, it said, adding, “Clients are unlikely to prices of DRAM products estimated to which was US$2.5 to US$2.6 for the increase their server DRAM orders until fall by up to 18 percent. first three weeks of last month, began to early next year.” When it comes to Samsung Electron- rise on Aug. 24, about two weeks before The DRAM price for the fourth quar- ics, semiconductor represents 34 per- the implementation of U.S. restrictions ter is predicted to be affected by the large cent of the total sales and 67 percent of on Huawei. According to the market inventory and the restrictions for block- the total operating profit. In the second research firm, the recent rise has to do ing supply to Huawei. “Although the quarter, its semiconductor business unit with Huawei’s inventory increase and Chinese company aggressively procured led the entire company with 18.23 tril- the contract price for the third quarter is server DRAMs for the past two weeks, lion won in sales and 5.43 trillion won in likely to show a 10 percent decrease. the market is still in oversupply,” Trend- operating profit. The business unit is fac- In the meantime, another market Force analyzed. ing increasing uncertainties although the research firm TrendForce adjusted its Huawei has been a major client mobile and divi- server DRAM price decline estimate for for both Samsung Electronics and SK sions of Samsung Electronics are expect- the fourth quarter from 10 to 15 percent Hynix. It has accounted for approximate- ed to come up with solid business figures to 13 to 18 percent that day, mentioning ly 3 percent and 12 percent of the sales in the second half.

38 ICT

Display Driver ICs Use U.S. Technology South Korean Display Panel Suppliers Cut Business Relations with Huawei

By Kim Eun-jin

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

he U.S. government’s new restrictions on Huawei 11.4 percent of the annual sales of Samsung Electronics and SK Tscheduled to take effect on Sept. 15 will cover display Hynix, respectively. On the other hand, Huawei has procured driver ICs as well as semiconductors and foundries. Under the most of the smartphone display panels it uses from Chinese sup- circumstances, South Korean display panel suppliers such as pliers. Samsung Display and LG Display decided to stop supplying Huawei is expanding its business with BOE, the largest their high-end smartphone panels to Huawei as their display panel manufacturer in China, and testing panels of local suppli- driver ICs cannot be manufactured without U.S. equipment and ers such as Visionox, Tianma and CSOT as potential alternatives software and Apple is a more important client for them. to Samsung Display and LG Display. In the second quarter of At present, most display driver, touch and power manage- this year, Samsung Display accounted for 72.7 percent of the ment ICs are manufactured based on ARM’s blueprints and global smartphone OLED display market, followed by BOE the restrictions will block the chips from going to Huawei. In (11.9 percent) and LG Display (4 percent). In that quarter, Hua- other words, the South Korean companies’ display panel supply wei purchased a large quantity of panels from BOE prior to the to Huawei will lead to no smartphone anyway. There are cur- restrictions and this led to BOE’s market share improvement on rently no alternatives to display chips based on ARM’s design. a shipments basis. LG Display is likely to narrow the gap in the Although Huawei recently launched a new business unit and is third quarter, when new iPhones will debut. working with SMIC to develop display driver ICs, its efforts are In the meantime, market research firm Strategy Analytics unlikely to bear fruit in the near future. said in its recent report that Huawei’s global smartphone market The impact of the restrictions on the South Korean display share might fall to 4.3 percent next year and yet other Chinese industry is expected to be smaller than that on the semiconduc- manufacturers, such as Oppo, Vivo and Xiaomi, would be able tor industry. Last year, Huawei accounted for 3.2 percent and to take its place.

39 ICT

Wins Orders from IBM, Qualcomm and Nvidia Samsung Electronics in Hot Pursuit of TSMC in Foundry Market By Kim Eun-jin

amsung Electronics is starting to expand its turf in the Sfoundry 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 Samsung Electronics will produce Qualcomm's Snapdragon 4 series APs for 5G semiconductors by 2030. mobile communications. Samsung Electronics has won an order from Qualcomm to produce the Snapdragon 4 series, APs for 5G mobile com- springboard for Samsung Electronics in chasing TSMC as the munications. The Snapdragon 4 series are low- to mid-priced three companies are big customers. 5G chips to be supplied to Xiaomi, Oppo, and Motorola and are However, as Taiwan's TSMC still takes up more than 50 per- expected to go on sale in the first quarter of 2021. cent of the global foundry market, Samsung Electronics still has In addition, Samsung Electronics has clinched a contract many hurdles to clear before finally attaining the goal. from Nvidia to manufacture its next-generation GPUs. NVIDIA "Samsung Electronics is putting its utmost efforts into unveiled its next-generation GPU “GPOS RTX 30” series on upgrading its micro-fabrication and packaging technologies to Sept. 1. At the time, it announced that its new product will be narrow its gap with TSMC," said an industry insider. In fact, produced by Samsung Electronics' 8-nm foundry process. on Aug. 13, Samsung Electronics developed and introduced the In early August, Samsung announced it would produce industry's first three-dimensional stacking technology that stacks IBM's "Power 10," a CPU for next-generation servers. chips produced through a 7-nm EUV (Extreme Ultraviolet) pro- Industry watchers say that the recent orders will provide a cess several times to make a single semiconductor.

A Contract Worth US$1 Bil. Samsung Electronics to Produce Qualcomm’s Snapdragon 875 APs By Michael Herh

amsung Electronics will produce all of Qualcomm's AP Schips for next-generation smartphones. Samsung Electronics' foundry division has won a contract to produce the Snapdragon 875 (tentative name), Qualcomm’s lat- Qualcomm’s Snapdragon 875 (tentative name) AP est application processor (AP), in a 5-nanometer process. The Snapdragon 875 is Qualcomm's 5G AP chip for pre- ment at its foundry line in Hwaseong, . mium smartphones and is scheduled to come out in December. The size of the global foundry market reached US$65.5 bil- Samsung Electronics’ Galaxy S21 (tentative name) and high- lion in 2019, said market research company TrendForce. The end phones of China's Xiaomi and Oppo will be powered by the market is growing with sales of the top 10 foundry companies new Qualcomm AP. already hitting US$57.2 billion in the first three quarters of 2020. This is the first time that Samsung Electronics has won the An increase in demand for 5G and artificial intelligence entire order volume for a flagship Qualcomm product. The size (AI) semiconductor chips is sparking off the rapid growth of the of the contract is reportedly close to US$1 billion. Samsung foundry market. As orders keeps flowing into such fables com- Electronics has recently started volume production of the Snap- panies as Qualcomm, Nvidia and AMD, the foundry market is dragon 875, using extreme ultraviolet (EUV) lithography equip- growing on contract manufacturing for them.

40 ICT

TSMS to Mass Produce 2-nano Products in 2024 TSMC's Super-gap Approach Puts Samsung Electronics on Alert

By Michael Herh TSMC's head office in Taiwan

aiwan's TSMC, the dominant US$10.5 billion in 2018 to US$14.9 billion sales related to the company’s System LSI leader in the global foundry in 2019 and is expected to reach US$17 Division which designs its mobile applica- Tmarket, has disclosed its plans billion in 2020. TSMC swept away EUV tion processor (AP) Exynos. to move into 2-nanometer technology. equipment that ASML shipped in 2019. Some point out that the transistor The foundry giant announced at an TSMC's investment was prompted concentration of TSMC semiconductors online technology symposium on Aug. 25 by Samsung Electronics' threat. Sam- is more than 10 percent higher than that that it will mass-produce semiconductors sung mass-produced 7-nm semiconduc- of Samsung Electronics' products. based on a two-nanometer process in 2024. tors based on an EUV process for the Samsung Electronics is planning to TSMC senior vice president Kevin first time in the industry in 2019. At the mass-produce 5-nm semiconductors in Zhang said the company will open a new time, TSMC responded by mass-produc- the second half of 2020. It has recently cutting-edge research and development ing 7-nm products using ArF exposure started developing a 4-nm process to nar- (R&D) center in Hsinchu next year to equipment and multi-patterning technol- row its gap with TSMC. It is also plan- develop 2-nano technology. Zhang added ogy. But its position as a leading chip- ning to have a clear edge over TSMC the company is seeking to acquire land maker was shaken as the circuit visibil- by applying the multi-bridge channel adjacent to the new R&D center to build ity of its products was lower than that of (MBC) FET process, which is Samsung's a production fab for 2-nano products. Samsung products. proprietary technology, starting from a TSMC plans to spend about 22 trillion Samsung Electronics' market share 3-nm process. Both Samsung Electron- won to build the new plant. uptrend also prompted TSMC to pursue a ics and TSMC announced that they will TSMC said in 2019 that it will be pos- super-gap strategy. In 2017, TSMC's share mass-produce 3-nm products in 2022. sible to mass-produce 2-nano products by was 50.4 percent, while that of Samsung In particular, Samsung Electronics is 2024 by investing US$6.5 billion in R&D. Electronics a mere 6.7 percent, according expected to focus most of its semicon- TSMC's aggressive investments are to Omdia. Samsung Electronics excluded ductor facility investments on foundry in a response to the rapid growth of the orders from its System LSI Division when 2020. In the first half of 2020 alone, Sam- foundry market following the global calculating its market share rate at the sung Electronics invested 14.7 trillion semiconductor industry’s division into time. But Samsung Electronics' foundry won in semiconductor facility investment the fabless (semiconductor design) and business division increased its presence and is expected to invest about 30 trillion foundry sectors. AMD of the United significantly for the past three years. won for the whole of 2020. States spun off its foundry business in Samsung Electronics is in hot pursuit Samsung Electronics’ facility invest- 2008 to establish GlobalFoundries. of TSMC, making fast moves towards ment in the DRAM sector is estimated Market research firm Omdia forecast micro-fabrication processes. Although at US$4.9 billion in 2020. When invest- that the global foundry market will sur- Samsung Electronics was ahead of ments in NAND flashes and the system pass US$81 billion next year from $60.9 TSMC in mass-producing EUV-based LSI sector are included, the company is billion in 2017. The foundry market is 7-nm semiconductors, there are still wide expected to invest about 10 trillion in expected to expand 14 percent on year in gaps between the two in other sectors. memory and system semiconductors thus the third quarter of 2020 to reach US$20.2 Samsung’s foundry market share fell year, according to IC Insights. Based billion, according to TrendForce, a mar- 1.4 percentage points to 17.4 percent in the on this analysis, if Samsung Electronics ket research firm. The foundry market is third quarter of 2020, while that of TSMC executes about 20 trillion won in facility expected to top US$80 billion in 2020. rose 2.4 percentage points to 53.9 percent, investments alone in the foundry sector Under these circumstances, TSMC is TrendForce said. While TSMC secured in 2020, it will make investments similar seeking to cement its technology leader- diverse customer groups such as Apple, to those of TSMC (US$17 billion). This ship by increasing facility investment. The AMD, and NVIDIA, Samsung Electronics' will enable Samsung Electronics to nar- company’s facility investment grew from foundry division has a high proportion of row its market share gap with TSMC.

41 ICT

Not Helpful in Attaining Semiconductor 2030 vision Why Was Samsung Not Interested in Taking over ARM?

By Kim Eun-jin

Samsung Electronics was not interested in acquiring ARM.

vidia's plan to acquire ARM takeover race. The logic was that as 2019, ARM's sales amounted to US$1.9 Nfor US$40 billion, if realized, Nvidia can be a threat to Samsung by billion, less than 5 percent of the acquisi- will become the largest deal in the M&A taking over ARM, Samsung would con- tion price offered by Nvidia. Some ana- history of the semiconductor industry. sider acquiring it. However, Samsung lysts say that Samsung Electronics is in Nvidia has agreed to buy all of ARM Electronics was not very interested in a position different from that of Nvidia, shares held by SoftBank and its subsid- acquiring ARM. Samsung was reportedly a company that specializes in GPUs and iaries and will seek approval from major concerned about conflicts between ARM desperately needs AP-related technolo- countries. and Samsung’s current businesses. gies. Samsung Electronics produces APs ARM is a fabless company that A strong opinion inside Samsung on its own and has already reached a accounts for more than 90 percent of the was that acquiring ARM would make it high technological level. basic design of global mobile application difficult for Samsung to attain the Semi- Even if Nvidia changes the neutral processors (APs). If NVIDIA acquires conductor 2030 vision, which aims to stance that ARM has maintained towards ARM, it will become a semiconductor make Samsung the top company in the its customers and raises prices of mobile giant as big as Intel. This is not good news system semiconductor sector by 2030. AP licenses, it will not have a significant to competitors such as Samsung Electron- "Samsung’s foundry customers such as impact, Samsung Electronics explains. ics, according to the Wall Street Journal; as Qualcomm still suspect that Samsung "While the cost of licensing basic design Nvidia can wield enormous power in the may look into the structure of their semi- of a mobile AP does not account for a semiconductor industry in the future. conductors," an industry watcher said. large share of the AP production cost, the When ARM was put up for sale, "If Samsung acquires ARM, it will lose price of ARM is US$40 billion, too high some experts raised the possibility of many of its foundry customers." to make both ends meet," a Samsung Samsung Electronics jumping into the ARM’s price was also a problem. In official said.

42 ICT

Under an 'Inclusive Company' Agreement Signed in April ARM to Provide Support to 13 Korean Semiconductor Startups

By Kim Eun-jin

hirteen Korean system semicon- the growth of innovative companies in from among 50 companies through the Tductor startups, including UX system semiconductors. first round of document reviews and Factory and GLS, have gained free use The agreement was the first Inclusive the second round of visits by ARM and of Flexible Access, a comprehensive Company agreement that ARM signed to Seoul National University. design package provided by ARM, the provide comprehensive support, includ- The selected companies included world's largest semiconductor design ing free use of its design package, men- Deeper-I, the first Korean company to company, through the Korean Ministry toring, and prototyping, to innovative supply deep learning-based image rec- of SMEs and Startups. startups and venture companies. ognition technology based on its own ARM is the company that Nvidia, ARM launched Flexible Access, a artificial intelligence chip, and intel- a U.S. system semiconductor company, voluntary win-win program, allowing ligent semiconductor design company has recently acquired from SoftBank of early-stage startups to use ARM’s excel- "Mobilint," which consists of members Japan for US$40 billion. lent infrastructure free of charge. The with excellent thesis records. Flexible Access is a system semi- number of companies benefiting from Also included were Fadu, an SSD conductor design package that includes ARM’s support program was expanded semiconductor production company technical support and IPs required for the from 10 to 13. founded by graduate students at Seoul design, such as CPU and GPU. The Flexible Access program pro- National University, and DeepX, an arti- The Ministry of SMEs and Startups vides support to startups with a cumula- ficial intelligence (AI) semiconductor concluded an "Inclusive Company" busi- tive investment of less than US$5 million solution company which won major priz- ness agreement with ARM and Seoul or annual sales of less than US$1 million. es at the 2019 Korea Technology Innova- National University in April to support The 13 companies were selected 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.

43 ICT

Imports from Japan Increase by 80% from a Year Ago South Korea Still Heavily Dependent on Semiconductor Equipment from Japan

By Michael Herh

outh Korea’s semiconductor equipment imports from Japan Sincreased 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- South Korea still relies heavily on Japan for semiconductor equipment. ment imports has to do with Samsung Electronics’ large-scale investment. The company announced in May this year industries to meet the technical demands with a client. that it would set up NAND flash pro- of Samsung Electronics, SK Hynix and This dependence on Japanese equip- duction lines in Pyeongtaek and is plan- the like in spite of the government's sup- ment has led to South Korea’s depen- ning to expand its facilities in the city port and any change in supplier cannot dence on Japanese engineers. In many next month. Although it was pointed but be somewhat burdensome for those cases, new Japanese equipment in South out after the restrictions that new equip- clients. Also, it is far from easy to main- Korea is installed by Japanese engineers ment and machinery suppliers were nec- tain the same level of efficiency while sent from the manufacturers as the buy- essary, Samsung Electronics’ and many replacing Japanese equipment with that ers lack expertise. This led to self-quar- other South Korean companies’ reliance from another country. antine exemption for Japanese engineers on Japanese semiconductor equipment is In the Trade, Industry and Energy in July this year against the principle of still as high as 25.7 percent, not that dif- Ministry's semiconductor and display reciprocity. Although the principle was ferent from last year’s 27.4 percent. performance evaluation support project broken and there was a very high risk of The South Korean government and launched after the export restrictions, COVID-19 inflow, the government could enterprises have made efforts to become only 19 out of 130 participating compa- not ignore companies’ concerns over more competitive in the material, compo- nies succeeded in obtaining a quality cer- production setbacks. In short, the South nent and equipment industries and coun- tificate from a client such as Samsung Korean semiconductor industry is still ter the restrictions. However, changes Electronics and SK Hynix until June this heavily dependent on Japan despite its at industrial sites are still slow. This is year. Besides, just three out of the 19 restrictions that have targeted the indus- because it is hard for companies in the succeeded in signing a supply contract try for more than one year.

44 ICT

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

A System Advantageous to Patent Owners South Korean Semiconductor Companies Opposed to Introduction of Discovery

By Kim Eun-jin

outh Korean semiconductor material, component and gation can be reduced once the discovery system is introduced. equipment suppliers are objecting to the "discovery On the other hand, the suppliers, most of which are not Sprocedure" the South Korean government is planning large, are expressing concerns that the discovery will lead to a to introduce for the purpose of patent right protection. Accord- series of lawsuits to the point of significantly hindering their ing to them, foreign semiconductor companies, which are over- business activities. “Foreign companies with more patents will whelming in terms of the number of applied patents, will file frequently mention infringement and most South Korean com- a large number of patent infringement lawsuits by abusing the panies in the industry are incapable of responding to it,” one of discovery system, which is advantageous to patentees. them explained. The Korean Intellectual Property Office (KIPO) tabled an At present, the average number of patent applications in amendment to the Patent Act last month so that the discovery South Korea amounts to 578 in the case of foreign semiconduc- system can be introduced and an expert designated by the court tor material and component suppliers but stands at 29 in the case or chosen by a plaintiff can gather evidence at a defendant’s of their domestic counterparts. Especially, Japanese companies manufacturing facility before their patent suit. According to the are likely to take advantage of the discovery along with their KIPO, victims no longer have to prove patent infringement, key government’s export curbs in continuing to put pressure on evidence can be quickly gathered, and the time and cost of liti- South Korea.

45 ICT

Accelerates Shift to QD displays Expected to Roll out 2 Mil. Samsung Display Sells Off Suzhou LCD OLED TV Panels in Q4 Plant to Chinese Company LG Display’s

By Michael Herh Guangzhou Plant to Enter Full- dle up to 160,000 sheets per month. As it has been producing 32-inch, 55-inch fledged Operation and 65-inch products that are mainstream products in the market, its market value This Month is also high. With the acquisition of Sam- sung Display’s plant, TCL Technology By Michael Herh will have three 8.5th-generation lines Samsung Display’s 8.5th-generation LCD produc- and two 11th-generation lines. Amid G Display is expected to ship tion plant in Suzhou, China, which was sold off to the trend toward larger displays, TCL 1.43 million OLED TV pan- TCL Technology of China L Technology can now seek to expand its els in the third quarter of this year, amsung Display has sold off its share of the large display market with- opening the era of rolling out 1 mil- SLCD production line in Suzhou, out spending much time and money. The lion OLED panels per quarter. China to TCL Technology, a Chinese dis- Samsung Display plant runs a module The company’s 8.5th-generation play company. The move is in line with factory with a monthly production capac- (2,200 mm×2,500 mm) production the company’s plan to wrap up produc- ity of 3.5 million sheets. lines in Guangzhou, China, have tion of LCDs by end of 2020 and accel- Samsung Display wanted to wrap up finally started to operate normally erate development of QD displays, a its LCD business as it has been accumu- after a long period of efforts to raise next-generation display. lating losses. As Chinese display compa- its yields. Samsung Display signed a contract nies have caught up with Korean com- The Guangzhou fab started to to sell its entire stake in Suzhou produc- panies not only in price but in quality, mass-produce OLED panels in July, tion line to TCL Huaxing, a subsidiary Samsung Electronics, a major customer creating synergies with LG Display’s of TCL Technology, for US$1.08 billion, of Samsung Display, is now using more Paju fab, said an industry insider. the company said on Aug. 28. Samsung panels from Chinese companies. Due to "This third quarter will be a water- Display acquired a 12.33 percent stake the accumulated deficits, Samsung Dis- shed for LG Display's large OLED in TCL Huaxing for US$739 million fol- play had no choice but to put an end to business." lowing the sale of the production line. the LCD business division. Market research company Omdia Samsung Display handed over a 60 However, Samsung Display also predicted that LG Display's OLED percent stake in a fab in charge of front- showed its intention to continue coop- TV panel shipment in the third quar- end processes and a 100 percent stake in eration with Chinese companies in the ter of 2020 will exceed 1.43 million. a back-end module production line at the LCD business by acquiring a stake in The figure is more than double the Suzhou plant to TCL Huaxing. TCL Huaxing. While large panel mar- 652,500 recorded in the second quar- Samsung Display held a 60 percent kets are shifting towards , LCD- ter. stake in the fab with the remaining 40 based products still account for a high LG Display is planning to start percent held by Suzhou Industrial Park percentage of the display market. The to operate the Guangzhou plant at (30 percent) and CSOT (10 percent), a sales gap between the LCD-based QLED full throttle as early as September. subsidiary of TCL Technology and Chi- TV group led by Samsung Electronics The plant produces 48-, 55-, 65- and na's second-largest display company. and the OLED TV group tripled in the 77-inch panels. It can process up to For this reason, TCL was regarded as a second quarter of this year. One year ago, 60,000 sheets of mother glass per strong candidate for acquiring Samsung the gap was double. month. Currently, the Paju fab pro- Display's Suzhou LCD plant. Samsung Display will cut a chain of cesses about 70,000 sheets per month. Samsung Display's Suzhou LCD poor business performance stemming LG Display is planning to ramp up production line is the company’s only from the LCD panel business and step up Guangzhou plant’s production capac- 8.5th-generation panel production line its efforts to mass-produce QD displays. ity to 90,000 sheets per month, boost- in China. Although the plant is currently By the end of this year, the company will ing its total production capacity to capable of processing 120,000 sheets of finish developing prototypes of QD dis- 160,000 sheets per month. glass per month, it is designed to han- plays and secure major customers. The yield of the Guangzhou fab

46 ICT

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 LG Display's 8.5th-generation OLED plant in Guangzhou, China its production capacity of the fabs in Guangzhou and Paju.

China's Display Market Expanding Rapidly South Korean Display Panel Manufacturers Facing Increasing Difficulties

By Kim Eun-jin

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. Samsung Display’s latest foldable OLED panel expected to be used in foldable smartphones such as the Huawei Mate X2 Until last year, South Korean companies were the larg- est mobile OLED panel buyers in the world. They have been outh Korean display manufacturers’ business condi- replaced with Chinese companies this year. Market research Stions are deteriorating due to cheap LCD and OLED firm UBI Research recently reported that Huawei and Oppo products from China and the Huawei risk. At present, the South represented 53.4 percent and 8.9 percent of the global mobile Korean display market is shrinking, the Chinese market is OLED panel purchase in the second quarter, respectively. expanding at a rapid pace, and Huawei’s next-generation fold- Besides, Chinese companies’ share in the global flexible OLED able phones are unlikely to be released within this year due to panel market is estimated to rise from 29 percent to 50 percent U.S. restrictions, which is likely to adversely affect the South from 2019 to 2023. Korean suppliers. Chinese display panel suppliers such as BOE, CSOT and Market research firm DSCC reported on Sept. 16 that the Tianma are boosting their investment in the market with their Mate X2 would not be able to debut within this year. The fold- government backing. BOE’s annual flexible OLED panel ship- able OLED phone is expected to use an 8.03-inch Samsung ments are likely to more than double to over 40 million units Display panel. Huawei topped the global smartphone market this year. Even Samsung Electronics and LG Electronics opted in the second quarter of this year. In other words, Samsung for Chinese LCD panels for some of their non-high-end prod- Display’s losses are inevitable with the release postponed. The ucts with the prices of the panels more than 30 percent lower U.S. restrictions on Huawei are a negative factor for LG Dis- than those of the same products from Samsung Display and LG play as well in that the latter has supplied panels to the former. Display.

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Korea's Biggest Single Telecom Equipment Sales Deal Samsung Electronics Strikes US$6.6 Bil. Deal to Supply 5G Equipment to Verizon

By Michael Herh

amsung Electronics has won a US$6.64 billion deal to Samsung Electronics will supply US$6.64 billion worth of 5G equipment to Ssupply 5G wireless communication solutions to Verizon, Verizon of the United States. the largest mobile carrier in the United States. It is the largest single contract in the 's dedicated to 5G technology and brought in Jeon Kyung-hoon, equipment industry. a professor at POSTECH specializing in wireless communica- In a regulatory filing on Sept. 7, Samsung Electronics said tions, to speed up research. Professor Jeon is currently heading its US subsidiary Samsung Electronics America will provide 5G up Samsung Electronics' network business division, orchestrat- network equipment and maintenance and repair services to the ing Samsung’s 5G network business. top American mobile carrier until Dec. 31, 2025. Small and medium-sized Korean businesses will benefit Samsung has been pushing hard to expand its presence from Samsung’s deal with Verizon as 40 to 60 percent of the in the 5G equipment market. As of the end of 2019, it ranked parts used for Samsung equipment are produced by Korean fourth in the global 5G equipment market with a 16.6 percent companies. The Korean tech giant is working with 86 small and share, preceded by China’s Huawei with 32.6 percent, Ericsson medium-sized equipment parts suppliers. with 24.5 percent and Nokia with 18.3 percent. The mega deal The deal with Verizon is expected to cement Samsung’s sta- with Verizon is expected to boost Samsung’s market share. tus as a major equipment supplier in the US market and help the Telecom equipment is one of the business areas that Sam- company land additional orders not only from the North Ameri- sung Electronics vice chairman Lee Jae-yong has sought to fos- can market but from the European market. Some experts say ter with a long-term perspective. In 2011 when mobile services that Samsung Electronics has benefited from U.S. sanctions on were based on 3G technology, Lee ordered the establishment Huawei. The U.S. government has put Huawei's network equip- of a next-generation telecommunication research organization ment on its sanction list due to security concerns.

Samsung Electronics Ranked 7th Huawei Leads Global Telecom Equipment Market in First Half of 2020 By Michael Herh

uawei continued to dominate the global telecommuni- Hcation equipment market in the first half of 2020. Huawei came in first with a 31 percent share, up 3 percent- Huawei remains the No. 1 player in the global telecom equipment market. age points from 28 percent in the same period of 2019, market research company Dell’Oro Group said on Sept. 10. Huawei percent on year in the first half of 2020. Global supply chain benefited from China's large-scale 5G investments. disruptions caused by the new coronavirus pandemic have grad- Finland's equipment maker Nokia took second place with 14 ually subsided, and the second-quarter growth rate exceeded percent, down 2 percentage points from a year before. It was fol- market expectations due to China's large-scale investment in lowed by Ericsson (14 percent), ZTE (11 percent) and Cisco (6 telecom infrastructure, Dell’Oro Group explained. It predicted percent). Ciena ranked sixth, and Samsung Electronics seventh. that the market size will increase 5 percent this year from 2019 The size of the global telecom equipment market grew 4 as growth will continue in the second half.

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TCL and MediaTek Also Sued DivX Files Patent Infringement Suits against Samsung Electronics and LG Electronics

By Kim Eun-jin

ideo codec company DivX filed patent infringement Vlawsuits 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. U.S. video codec company DivX has filed patent infringement lawsuits against Established in 2000, DivX is well known as a high-defini- Samsung Electronics and LG Electronics. tion video codec developer. At present, more than 1.5 billion electronic devices, including game consoles and smartphones as Electronics and LG Electronics have worked with DivX for well as PCs, are using its technology across the world. Samsung long, too.

A Core Part for Smartphones, Wearable Devices, and EVs Samsung Electro-Mechanics Develops World's Smallest Power Inductor By Kim Eun-jin

amsung Electro-Mechanics announced on Sept. 13 that Sit 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- The tiny power inductor developed by Samsung Electro-Mechanics measures lates voltages while a power inductor is responsible for current 0.8 mm in width and 0.4 mm in length. control. As recently released IT devices use 5G mobile communica- increase fast," a Samsung Electro-Mechanics official said. "The tion chips and multi-cameras, they have not enough space for amount of power inductors in electronic devices are expected to parts. "We expect demand for ultra-small power inductors to grow 20 percent every year."

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An Unexpected Backlash Enforcement Decree of ‘Netflix Law’ Feared to Hurt Korean Internet Companies

By Kim Eun-jin

he Ministry of Science and TICT 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. Korean Internet companies say the new enforcement decree of the "Netflix law" puts more burden on them. The revised Telecom Business Act, which is called the “Netflix law,” Korean internet companies say that added carriers, not requires value-added common carri- the enforcement decree imposes exces- service providers," an industry insider ers to take measures needed to stabilize sive duties on them based on unclear said. "The decree encroaches upon the their services. Companies subject to the standards such as the amount of traffic. freedom of business guaranteed by the enforcement decree are required to take The Korea Internet Companies Associa- Constitution and may violate free trade such measures as securing multiple serv- tion said, "The new decree is unprece- agreements (FTAs)." ers and enough server capacity to ensure dented as it holds value added common Overseas CPs such as Netflix and stable service provision and submit carriers, who are not telecommunications Google have sued mobile carriers, claim- implementation data every year. In addi- service providers, responsible for net- ing that they do not need to pay for net- tion, they are required to consult with work stability.” It argued that the decree work use. When SK Broadband told Net- major telecommunication service provid- must be revised because it has many flix to pay for the use of its network, Net- ers when traffic soars. problems such as going beyond the scope flix filed a lawsuit with the Seoul Central The problem is the scope of the com- of the act and a possible violation of the District Court in April, saying that the panies subject to the enforcement decree. basic rights set out by the Constitution." maintenance and management of tele- The decree stipulates that carriers that Internet companies say that they can- communication networks is not a respon- have one million or more daily users and not bear the burden of maintaining ser- sibility of CP companies. The trial will account for more than 1 percent of total vice stability because they are already begin on Oct. 30. traffic in Korea are subject to it. Accord- paying unprecedentedly high network "A stable provision of services is a ingly, the decree will cover not only Net- fees. Naver and Kakao each paid nearly key factor that determines the competi- flix, Google and Facebook but Korean 100 billion won a year to mobile carriers tiveness of CP companies,” said profes- companies such as Naver and Kakao. as network use fees in 2016. sor Lee Kyung-won of Dongguk Univer- According to the National Assembly, as Under these circumstances, ana- sity. “It is an excessive market interven- of August 2019, Google including You- lysts say that it the Netflix law goes into tion to make it mandatory for them to Tube accounted for 25.8 percent of the implementation, CPs will be required submit data on the status of implemen- total traffic of the nation's three major to pay more, which will eventually tation." Lee added that while the decree telecommunications service providers, increase burdens on consumers. "The targets Netflix, it actually affects Korean dwarfing those of Naver (2.5 percent) enforcement decree passes the burden of CPs and increases burdens on small and and Kakao (1.8 percent). maintaining network quality onto value medium-sized companies.

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Google, Apple Criticized for Abusing Power Industry Expert Calls for Proactive Response to Mandatory In-app Payment By Kim Eun-jin

he Korea Internet Corporations Association held an Tonline meeting on mandatory in-app payment on Sept. 23. Lawyer Jung Jong-chae of SN Law, a law firm in Seoul, gave Huawei remains the No. 1 player in the global telecom equipment market. a presentation at the meeting, calling for the Korea Fair Trade Commission to keep a closer watch on Google and Apple in rela- The lawyer mentioned Apple-Epic Games disputes as a ref- tion to market dominance abuse and unfair business practices. erence case. Recently, Epic Games established its own payment “Although the local app market ONE store’s market share system against the in-app payment policy of Apple and Apple has risen from 10 percent to 18 percent this year, Google and removed Epic Games apps from its store, mentioning a breach Apple are still maintaining their monopolistic dominance con- of contract. Epic Games filed a suit in California, claiming that sidering their OS platform market influence and irreplaceability, Apple violated the Sherman Antitrust Act of 1890. The court and the expansion of mandatory in-app payment by Google will ruled in favor of both Apple and Epic Games in the injunction lead to fee shifting and consumer damage,” he said. ruling. However, it ruled against Apple when it comes to the fee According to the Monopoly Regulation and Fair Trade Act, policy of Apple. the policy of Apple and Google can be regarded as forced sale The problem is that the ongoing issue is related to online such as tied-in sale and abuse of business position. In fact, the contracts with foreign corporations, that is, whether the South Korea Fair Trade Commission imposed a penalty of approxi- Korean Act on the Regulation of Terms and Conditions is appli- mately 33 billion won, along with a corrective order, on Micro- cable. The lawyer remarked with previous Supreme Court rul- soft HQ and Korea in December 2005 for their abuse of market ings that the act is applicable because the issue has an effect on dominance. domestic consumers.

KCC Decides to Lodge an Appeal Supreme Court to Handle KCC-Facebook Litigation

By Kim Eun-jin

he Seoul High Court ruled on Sept. 11 that Facebook’s Taccess 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 The Korea Communications Commission will lodge an appeal against the Seoul a wrong way. High Court's Sept. 11 ruling in favor of Facebook. Back in 2017, the KCC reached a conclusion that Facebook changed its access routes for SK Broadband and LG U+ users to The first trial court ruled that Facebook’s arbitrary access route servers in Hong Kong during cache server operating cost nego- change caused some delay and inconvenience but did not limit the tiations and the change adversely affected the users in the form use of Facebook. The second trial court, meanwhile, ruled that the of an intentional decrease in connection speed. The next year, change limited the use without significantly affecting users’ inter- the commission issued a corrective order to Facebook and told it ests. This can mean some advancement on the KCC’s part. to pay a penalty of 396 million won. Regarding the Sept. 11 ruling, the commission said that the After the Sept. 11 court ruling that the order was unreason- court reached its conclusion based on foreign standards without able, the KCC announced on Sept. 21 that it would lodge an considering the local communications environment and charac- appeal and appointed a new litigation representative. teristics of local users.

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

KCC's Imposition of Fines Nullified Court Sides with Facebook Again, Fueling Controversy over Effectiveness of ‘Netflix Act’ By Choi Moon-hee

acebook has won both the ing that it had committed an act against name of protecting users. On top of that, first and appeal trial in an users’ interests, which is banned under the latest court ruling has created a pub- Fadministrative lawsuit it filed the Telecommunications Business Act. lic opinion that the maintenance of net- against the Korea Communications Com- As the court passed the responsibil- work quality is up to telecommunication mission's decision to impose fines on ity for network quality to carriers, atten- companies, which has given the con- it. Controversy over the revision of the tion is being paid to what conclusion the tents industry an advantageous position, enforcement decree to the Telecommu- court will arrive in another legal battle industry experts say. nications Business Act, which is dubbed between Netflix and SK Broadband. The On the contrary, the KCC has lost the "NetFlix Act," is also expected to fur- first hearing for Netflix vs. SK Broad- a series of lawsuits that it expected to ther grow. band will be held in October. win. "Although the KCC lost in the sec- The Seoul High Court ruled in favor in November 2019, SK Broadband ond trial, it is meaningful that the court of Facebook on Sept. 11 in a lawsuit filed asked the KCC to arbitrate, claiming acknowledged damage to users," said by Facebook to cancel a corrective order that Netflix has increased its burden to telecommunications industry insiders. from the commission. "A change in the maintain the network by surging traf- In particular, telecommunication com- access route made by the plaintiff con- fic. Although SK Broadband’s plan was panies expressed their expectations, stitutes an act of restricting network use, aimed at making Netflix pay the cost of saying, "After the passage of the ‘Net- but it was not done in a manner that sig- network expansion and usage fees, Netf- flix Act,’ positive conditions have been nificantly undermined users’ interests," lix suddenly filed a lawsuit ahead of the created. For instance, the enforcement the court said. "The KCC abused its dis- KCC's arbitration decision. ordinance prevents access changes that cretion." The contents industry is strongly cause a serious damage to consumers." Earlier in March 2018, the KCC opposed to the “Netflix Act” which Meanwhile, the KCC will decide fined Facebook 396 million won and imposes a duty to maintain quality of whether to appeal after analyzing the ordered it to take a corrective action, say- services on value added carriers in the court ruling on the Facebook case.

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To Correct Google’s Unfair Business Practices Government and Political Circles Join Anti-Google Move

By Michael Herh

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-

A ruling party lawmaker has proposed a bill to prevent app market operators such as Google from abusing ing to increase Google’s profits. In fact, their power. 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, ho Seung-rae, a lawmaker of The bill is likely to be the first of Google's toll hike will not only be passed the ruling Democratic Party its kind, with other lawmakers expect- onto consumers, but threaten the mobile Cof Korea, proposed a bill to ed to put forward similar bills to revise value chain of consumers-development revise the Telecommunications Business the Telecommunications Business Act companies-platforms-network compa- Act on Sept. 8 to prevent app market and the Fair Trade Act in order to block nies. In particular, small and medium- operators such as Google from abusing Google and Apple from abusing their sized venture companies and startups their power. monopoly on mobile platforms. with weak business bases become more The bill was prompted by Google’s Google's toll controversy is emerg- likely to vanish from the market in the plan to collect 30 percent fees for appli- ing as a key issue in a parliamentary process. cations sold through its app market. audit scheduled for October. In fact, the Not only the political community but The bill prohibits all acts that have National Assembly's Science, Technol- also the Korean government has begun been cited as representative cases of app ogy, Information and Communication to speak out in unison against Google's market operators’ abuse of power, such Committee dealing with the toll contro- unfair monopoly. While the National as forcing certain payment methods, an versy among others has picked Google's Assembly has started moves to revise the unfair delay of app reviews or an unwar- demand for higher tolls as the biggest relevant laws, related government agen- ranted deletion of apps, and interference issue along with the quality of 5G ser- cies such as the Fair Trade Commission, with app registration in other app mar- vices, and is having a discussion on sub- the Science and ICT Committee, and the kets. It also obliges app market operators poenaing Google managers as witnesses. Korea Communications Commission to protect their users in payments and Controversy over Google's tolls have also begun to investigate the situa- refunds. was caused by Google's recent official tion.

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An Interview with Chairman of Incheon Chamber of Commerce & Industry Incheon Poised to Lead Korea's Economic Growth in Post-viral Era

By Jung Min-hee

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 Lee Kang-shin, chairman of the Incheon Chamber of Commerce & Industry should be established without delay. The pandemic has shown that global COVID-19 is a challenge that How is the Incheon Chamber of Com- value chains may collapse. Stable sup- demands companies and govern- merce & Industry (ICCI) responding to the ply is emerging as a production factor ments address multiple dimensions economic impact of COVID-19? as important as cost. This means stable that go beyond the pandemic's health According to a recent survey, the busi- local supply networks are now as impor- implications. The Korean govern- ness sentiment index of the manufacturing tant as global supply networks on the ment, says Lee Kang-shin, chairman sector is 50 and that of retail and distribu- part of enterprises. of the Incheon Chamber of Com- tion is 56 for the third quarter of this year. merce & Industry, needs to come up The figures show that enterprises are very How should the economy overhaul with policies to help companies navi- pessimistic about the status quo. itself with the pandemic going on? gate through uncertain times and The government needs to come up We are now realizing that we have to adapt to the new normal. For the city with more policies so that companies can deal with systems and fundamentals as of Incheon, he paints a rosy picture in find a breakthrough with the pandemic, well as pending issues to get over a crisis. the post-viral era as it is home to the which is fundamentally changing the For example, regulations are hinder- world’s finest social overhead capital. global economy. ing reshoring to the capital area, which is Yet he called on the central govern- The policies have to focus on help- necessary with the value chains collaps- ment to accelerate deregulation to help ing them overcome the crisis and pre- ing. In other words, enterprises are fail- Incheon realize its immense growth pare for the new normal, that is, the ing to do business in their favorite place. potential. Following are excerpts of an post-COVID-19 era. The policies have Besides, the capital area has been ruled interview with Lee. -- Ed. to come in the form of financial and tax out of the government’s deregulation

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zone policy for the growth of innovative According to our October 2013 sur- tion of governance and a blueprint for the and strategic industries. This means regu- vey covering companies that relocated to future of the economy of Incheon. lations on the most competitive area are China from Incheon, 34.1 percent, 32.9 The Seoul Metropolitan Area Read- affecting the national competitiveness of percent, 10.6 percent, and 10 percent justment Planning Act, which took effect South Korea. of the companies did so for lower labor about four decades ago, has blocked the Those regulations covering the entire costs, market creation, relocation to China city from making the most of its region- business activities have to be reconsidered of their parent companies or business al capabilities. The central government for economic growth after COVID-19. partners, and strategic partnership with needs to revoke the law, overhaul the local companies, respectively. In addition, Special Act on Balanced National Devel- What is your diagnosis of the past, pres- 83 percent of the respondents said that opment, and abolish superfluous regula- ent and future of the economy of Incheon? they would return to the capital area, that tions related to Incheon’s infrastructure, Incheon led the modernization and is, Seoul, Gyeonggi and Incheon, if they the Ganghwa-Ongjin area, etc. industrialization of South Korea as home came back to South Korea. In addition, regional financial expan- to the country’s first railroad, first com- At present, rapidly rising minimum sion based on an increase in local tax munications, first expressway, and so wages and shorter working hours are ratio, administrative authority transfer on. Incheon is one of the fastest-growing leading to an increase in labor-related related to ports, small and medium-sized South Korean cities. Here, Incheon Inter- costs and hampering reshoring. More- enterprises, and so on and more partic- national Airport opened in 2001, New over, the central government’s reshor- ipation in the management of national Incheon Port opened in 2015 and the ing policy has been limited to non-large public enterprises located in the city will population topped three million in 2016. companies and failed to result in large facilitate region-specific policies based It was designated as a free economic companies’ reshoring, which will be on the decentralization of power. zone in as early as 2003. much greater in impact. Incheon is home to foundations Unfortunately, though, the qualita- More policies are needed for reshor- for new industries such as biotech and tive growth of the city has fallen short of ing of South Korean companies, large healthcare as well as traditional manu- its quantitative growth. The manufactur- ones in particular. Also, labor-related cost facturing components and infrastruc- ing sector of the city, its industrial back- reduction and deregulation in the capital ture. I am convinced that the economy bone, is losing its competitive edge and area are urgent as well. of Incheon will continue to flourish its service sector is still small in scale. based on a new economic zone that sur- The knowledge-based part of the service What is on the ICCI’s economic legisla- rounds Incheon International Airport, a industry is still fragile despite its huge tion wishlist for this year and what is its new master plan for the development of growth potentials and job creation capa- feasibility? Incheon Port, a manufacturing revival bilities. This has led to Incheon citizens’ The Incheon office of the Citizens’ and a strategic concentration on biotech income lower than the national average Coalition for Economic Justice and the and healthcare. and large household debts. ICCI sent a letter to both the ruling and We are anticipating that the three key Still, the economy of Incheon is capa- opposition parties in March this year and agenda items will be proactively and effi- ble of growing. The ratio of young people the letter contains the necessity of a change ciently handled in the current session of of the city is higher than those of most in metropolitan policy, more decentraliza- the National Assembly. 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. The main office of the Incheon Chamber of Commerce & Industry

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Only 40% of Investment Recouped State-run Energy Companies Extremely Inefficient in Overseas Resources Development

By Jung Min-hee

eople Power Party lawmaker Koo Ja-geun remarked on Sept. 20 that state-run energy companies invested PUS$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 The Ankor oil field in the Mexico Bay which was acquired by Korea National Oil were US$21.55 billion and 51.1 percent. It was participating in Corp. and Samsung C&T in 2008. 26 projects, including West Fergana & Chinabad in Uzbekistan in which nothing was recouped. At the Harvest oil field in Can- US$181 million and US$127 million from US$1.53 billion and ada, the corporation invested US$4.08 billion and only US$34 US$746 million, respectively. million came back. Korea Electric Power Corp. and its subsidiaries engaged Korea Gas Corp.’s were US$10.76 billion and 33.8 percent. in 13 projects in five countries. Their investment amounted to Its 21 overseas projects included 10 with a zero return at the US$1.83 billion but recoupment stood at US$200 million. end of 2019. In the Gladstone LNG project in Australia, the The poor performances are because those corporations’ biggest of those, the corporation invested almost US$3.97 bil- asset values and profits plunged in 2014 and later, when the lion and the payback stood at 8.9 percent. prices of resources such as petroleum continued to fall. Also, Korea Resources Corp. invested over US$4.78 billion in those are because of resources sold at excessively low prices 22 projects and recouped only US$698 million. Nothing came and the lack of feasibility that led to halted or delayed pro- back in seven and only US$30 million out of US$1.53 bil- duction. The corporations’ inefficiency, lack of capability and lion was regained at its largest Ambatovy nickel project. At imprudent investment relying on borrowings are also mention- the Boleo and Cobre Panama copper mines, it recovered just able.

LG Electronics Closing Down Offline Stores in China Korean Home Electronics Companies Withdrawing from China

By Michael Herh

orean home appliance makers are leaving the Chi- Industry watchers say LG Electronics' withdrawal from Knese market as they are losing ground to local com- offline stores in China results from the long slump of its TV panies, which are waging a price war based on improved business in China. LG Electronics' share of the Chinese TV technology. market stands at 0.4 percent, less than 1 percent, in 2020, LG Electronics is closing down its shops housed at offline according to data from IDC, a market research firm. stores of Suning.com, one of China's leading retailers, and will LG Electronics has been desperately trying to increase sales gradually shut down its stores at Gome, another major Chinese of premium products such as OLED TVs in China but to little home appliance distributor. avail. The company’s share of China's OLED TV market was

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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- LG Electronics is closing down its shops housed at offline stores of China's lead- ing retailers. mi’s 20.3 percent.

Withdrawal vs. Two-track Approach Samsung and LG Go Separate Ways in LCD Business

By Michael Herh

amsung Display and LG Display are showing different Smoves 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 Samsung Display and LG Display go separate ways in the LCD panel market. its production line in Suzhou, China to CSOT, a subsidiary of Chinese display company TCL, for US$1.08 billion on Aug. for laptops and tablet PCs has soared due to the spread of the 28. Samsung Display also sold a 60 percent stake in Samsung COVID-19 virus, which triggered an increase in shipments of Electronics' LCD technology fab. LCD panels. Samsung Display is currently focusing on setting up QD LG Display's shipments of LCD panels for tablet PCs with display production lines. The company is aiming to start mass- a 9-inch or larger screen reached 1.91 million units in May, up production of QD panels after going through a step-by-step 150 percent from a year earlier, market research firm Omdia market operation early next year. Reportedly, Samsung Display said. The company’s shipments of LCD panels for laptops also provided QD panel samples to Samsung Electronics, Sony, and climbed 35 percent on year to 3.51 million units. Panasonic. It is planning to initially process 30,000 sheets of In addition, LG Display is planning to expand its large mother glass per month and gradually ramp up production. It OLED panel business. The company has invested 22 trillion is going to invest more than 13 trillion won in its QD business won in OLED facilities over the past three years. This indicates by 2025. that it invested more than 7 trillion won annually on average. LG Display's strategy is to strengthen profitability by Its OLED plant in Guangzhou started full-scale operation in focusing on LCDs for IT devices. This is because demand July and is set to begin mass production of OLED panels.

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GM Korea, SsangYong Post Output Growth Automotive Industry Contracts in August

By Jung Min-hee

he Ministry of Trade, Industry and Energy announced Ton 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’ Automakers’ production, domestic sales and exports all dropped from a year ago in August. decline stood at 11.8 percent. The domestic sales added up to 135,349 with the first 26.9 percent, 50.2 percent, 58.8 percent and 36.3 percent to decrease in six months. A total of 111,190 South Korean cars US$560 million, US$358 million, US$174 million and US$168 (down 4.9 percent) were sold along with 24,159 imported cars million, respectively. (up 20.7 percent). In the meantime, the domestic green car sales volume The exports, which were 136,538 vehicles last month, fell jumped 85.4 percent year on year to 15,930 to increase for the for the 13th consecutive month. Although those to North Amer- seventh consecutive month. In addition, the ratio of green car ica increased 12.3 percent to US$1.25 billion, those to the Euro- sales to domestic sales hit an all-time high of 11.8 percent and pean Union, the Middle East, Latin America and Asia dropped electric vehicle exports rose 22.2 percent from a year ago.

Auto Sales Fall 10.5% on Year in Aug. South Korean Automakers’ Exports Show Some Recovery in August

By Jung Min-hee

outh Korean automakers’ sales volumes totaled 573,279 Scars 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 South Korean automakers sold a total of 573,279 cars in August, down 10.5 per- recovery in about six months. GM Korea exported 21,849 cars cent from a year ago. last month, up 20.7 percent from a year earlier. When it comes to decreased compared to the same month of the previous year. The Hyundai, Kia and SsangYong, the volumes increased 2 percent three companies’ overseas sales volumes continued to fall from the to 63 percent compared to the previous month although those previous month in the first six months of this year.

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For Use by Non-automotive Companies Hyundai Motor Exports Hydrogen Fuel Cell Systems to Europe By Jung Min-hee

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- Hyundai Motor's hydrogen fuel cell system sive hydrogen ecosystem.” Hyundai Motor in July announced yundai Motor Co. announced fuel cell electric vehicle in 2000, the a plan to respond to the South Korean on Sept. 16 that it has begun Santa Fe FCEV, followed by the world’s government’s Green New Deal policy Hshipping its proprietary fuel first mass-produced FCEV, the ix35, in with the export of hydrogen fuel cell cell system to Europe for use by non- 2013, and the second-generation fuel systems, while steadily seeking to diver- automotive companies including a Swiss cell SUV, the NEXO, in 2018. Recently, sify its hydrogen business to secure hydrogen solution firm, GRZ Technolo- the company successfully shipped the leadership in the global market. gies Ltd. first 10 units of the XCIENT Fuel Cell, In December 2018, Hyundai Motor The move reinforces Hyundai’s lead- the world’s first mass-produced fuel cell Group announced its long-term road- ership in the development and mass pro- heavy-duty truck, to Switzerland as well. map, ‘Fuel Cell Vision 2030,’ and reaf- duction of fuel cell systems for vehicles Hyundai Motor and GRZ Technolo- firmed its commitment to accelerate the and beyond. gies have been pushing for cooperation development of a hydrogen society by Hyundai Motor became an automo- in hydrogen storage technology since leveraging its global leadership in fuel bile manufacturer to export both fuel late last year. GRZ has the technology to cell technologies. As part of this plan, cell systems and fuel cell electric vehi- store about five to 10 times more hydro- Hyundai Motor Group aims to secure a cles. Export of its fuel cell system dem- gen than before, with a pressure lower 700,000-unit-a-year production capacity onstrates Hyundai’s high technology and than 30 bar, which is significantly lower of fuel cell systems for automobiles as production capacity in support of eco- than the storage pressure of a normal well as for non-automotive sectors such friendly energy businesses. hydrogen storage tank, 200 to 500 bar. It as vessels, rail cars, drones and power Hyundai Motor introduced its first is expected that this technology will be generators by 2030.

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Indonesian Officials in Seoul to Discuss Investment Conditions site in Batam, Indonesia. He also said on Sept. 14 that Indonesia has signed agree- Hyundai Motor and LG Chem Promoting ments on investment in battery factories with large companies from two countries. Joint Venture Battery Plant in Indonesia He said the agreements involve invest- ment of 70 trillion rupiah (5.5 trillion By Michael Herh 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. 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 But Hyundai Motor Group and LG Province, on June 22. Chem say nothing has been decided on the joint venture for electric vehicle bat- yundai Motor Group and LG Sept. 24. The Indonesian government has teries in Indonesia. Hyundai Motor is HChem are reportedly promoting been working hard to attract LG Chem's investing 1.8 trillion won in Indonesia to the establishment of a joint venture elec- battery plant following Hyundai Motor's build a car factory capable of producing tric vehicle (EV) battery plant in Indo- car plant outside Jakarta. Hyundai Motor 250,000 units a year. Although its initial nesia. Indonesian government officials and LG Chem are considering setting up goal was to complete the project by the are visiting Korea to discuss investment their first battery joint venture in Indonesia. end of 2021, the COVID-19 pandemic conditions. Before leaving the country, Bahlil may delay the completion of the plant. Erick Thohir, Indonesia's minister of was quoted as saying, “We are visiting Not only internal combustion-powered state owned enterprises, and Bahlil Laha- Korea to solve the electric vehicle battery cars but electric vehicles can be pro- dalia, chairman of Indonesia Investment plant issue.” In particular, he said the bat- duced at this plant, according to industry Coordinating Board, arrived in Seoul on tery plant will be built on a 100 hectare sources.

Eligible for Chinese Government's Subsidy joint venture will be used for Chinese trucks and buses starting in 2022. Toyota Launches Hydrogen Fuel Cell Joint The joint venture company is expect- ed to receive the subsidy that the Chi- Venture with Chinese Companies nese government offers to hydrogen car technology developers, as the related By Jung Min-hee regulations do not have a clause on the share of foreign capital. oyota has recently established Toyota holds a 65 percent stake in The Chinese government introduced Ta joint venture for the develop- the company, with five Chinese auto- a subsidy system for electric vehicles in ment of hydrogen fuel cells with five mobile and technology companies each 2009 that played a great role in making Chinese companies, the Nihon Keizai holding a 5 to 15 percent stake. A hydro- China the world's largest electric vehicle Shimbun reported on Sept. 22. gen fuel cell system developed by the market with one million units in annual

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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. A hydrogen fuel cell truck developed by Toyota Motor Meanwhile, Hyundai Motor's sales in China in 2020 are on the verge of falling below 500,000 units. In the first eight is about a quarter of Toyota's sales in China during the same months of this year, its cumulative sales reached 262,621 units, period. Hyundai Motor's sales in China fell to 650,000 units in down 31.4 percent from the same period last year. The figure 2019 after peaking at 1.14 million units in 2016.

Tesla's Battery Day Just a Week Away Korean Battery Companies Show Mixed Reactions to Tesla's EV Batteries

By Jung Min-hee

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 Tesla will unveil its new electric vehicle (EV) battery technology on Sept. 22 (local about the possibility of Tesla's full-fledged entry into the battery time). market, they are also expecting positive effects from it in terms ith Tesla's Battery Day just a week away, tension is of battery market expansion. Wrising among Korean battery producers. "As Tesla triggered an EV boom, we believe that an Tesla will take the wraps off its new electric vehicle (EV) announcement of its entry into the battery market will contribute battery technology on Sept. 22 (local time). The three major to expanding the market once again," said an industry analyst. Korean battery makers, who account for one-third of the global "If Tesla makes its own batteries, it will take some market share EV battery market, say that they are concerned and at the same from the Korean battery makers, but at the same time it will time, have some expectations about Tesla’s new technology. also promote competition for new technologies among battery The core of Tesla's Battery Day is the Roadrunner Project, companies." a blueprint for producing batteries. Industry insiders expect the "Some analysts speculate that Tesla will unveil innovative Battery Day event to present the status of this project, which is technologies that are more advanced than those of its competi- intended to reduce costs, improve energy density and enhance tors, it will not be easy for Tesla to catch up with technologies durability, and outline future battery production strategies. The that battery companies have accumulated for decades at once." largest strength of Tesla, the world's No. 1 EV maker, is its ver- another industry insider said.

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Putting Public Good Before Patent Right Ford in Support of SK Innovation in Battery SK Innovation's battery manufacturing plant under construction in Georgia Lawsuit with LG Chem against SK Innovation early this year and By Jung Min-hee the ruling is likely to be maintained next month. However, the possibility cannot ord, which is planning to ed States. This is because SK Innovation be ruled out that the administrative order launch the electric F-150 in cannot bring required components and including an import ban would be kept to F2023, is currently building materials into the United States if the U.S. a minimum with the ruling maintained. It facilities for the purpose in Northern International Trade Commission (USITC) is said that the cooperation between Ford Michigan, which is home to its headquar- maintains its ruling against SK Innovation and SK Innovation in the electric vehicle ters. By the way, the automaker is plan- in the final judgment scheduled for Oct. 5. industry can affect the final ruling. ning to use batteries from SK Innovation, Ford is actively supporting SK SK Innovation cannot bring compo- which is building a battery manufactur- Innovation. In its recent written opin- nents and materials into the United States ing plant in the southeastern U.S. state of ion submitted to the USITC, Ford said as the case may be. Then, the company, Georgia, for the vehicle instead of those that it selected SK Innovation as a part- which is building the plant in Georgia to from LG Chem, which has a battery man- ner before the controversy began and the put it into operation in 2022, cannot pro- ufacturing plant near its headquarters. selection was based on its conclusion that duce batteries to be supplied to Ford and Ford is paying much attention to their the company is suitable for its purpose. Volkswagen and the failure is likely to ongoing trade secret litigation in the Unit- The ITC made a default judgment lead to significant losses. Ford is focusing

Plans to Hire over 1,000 Workers by End of 2021 SK Innovation Accelerates Hiring at Its EV Battery Site in Georgia

K Innovation announced on Sept. specialists who will set up, work and serve SK Innovation plans to hire more than 1,000 S22 that it plans to hire more than as the trainers for the EV battery production skilled American workers by the end of 2021 for 1,000 skilled American workers by the end workforce at the two SK Battery America its electric vehicle battery plant in Georgia. of 2021 as it prepares for initial production plants. SK Innovation also recently achieved at the first of two electric vehicle (EV) battery SK Battery America’s EV plants will key construction milestones at the Georgia plants in Georgia, the United States. directly create more than 2,600 perma- site with the completion of the exterior of its SK Innovation's EV battery plant is one nent jobs in the Jackson County area by first manufacturing plant and groundbreak- of the largest economic projects in Geor- 2024. The company began initial hiring and ing on the second plant at the same site. gia’s history. The company affirmed its training employees at the Georgia site with The two EV battery plants at Georgia are long-range investment plans for the facility plans to have more than 150 employees by part of SK Innovation’s $2.6 billion invest- that would make Georgia one of the larg- the end of this year. In addition, about 900 ment in its U.S. battery business. The first est hubs of EV battery manufacturing in the employees are expected to be recruited plant is scheduled to begin initial operations world. next year. The new jobs will include a range in 2021 with mass production in 2022, and SK Innovation, through SK Battery of technical roles from production operators the second one is expected to begin mass America, its battery business subsid- to senior engineers focused on manufactur- production in 2023. Together, the two SK iary in the U.S., recently reached a hiring ing highly sophisticated lithium-ion battery Battery America plants will have total annual milestone with the on-boarding of its first cells at scale. To help begin the process capacity of 21.5 GWh, which is enough to 60 employees at the plant site in the city of of hiring and training workers, SK Battery power more than 300,000 electric vehicles. Commerce. These employees include pro- America has signed a partnership agree- As the market for EVs continues to grow, SK duction supervisors, production/process/ ment with Quick Start and Lanier Technical Innovation is committed to making Georgia a electrical engineers and quality/logistics College in Georgia. world leader in EV battery manufacturing.

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on this point, that is, the possibility of a use different batteries and, as such, sup- Ohio and Michigan are facilities focus- failed battery supply leading to automo- plier selection has to be carried out at ing on supply to GM, Nissan and Tesla bile production setbacks and a decrease least four years before the initial produc- and have no room for us.” Experts point in employment as a public interest. tion,” it said, adding, “The argument that out that U.S. President Donald Trump, Ford also pointed out that non-SK LG Chem can take the place of SK Inno- whose top priorities include job creation, Innovation batteries are not suitable for vation is unacceptable in this regard, and may exercise his veto if the public inter- its vehicles. “Different electric vehicles LG Chem’s plants under expansion in est comes into play.

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 yundai Motor Group and SK EVs and battery reuse, and create syner- HInnovation Co. have agreed to gies by maximizing added value through Chi Young-cho, president and chief inno- cooperate in the development of a sus- the optimal design of batteries. vation officer of Hyundai Motor Group. tainable ecosystem for electric vehicle To enable cooperation, both sides are “We expect our cooperation to play an (EV) batteries that are key to the future focusing on the initial process of collect- immensely positive role in strengthening mobility industry. ing and verifying the battery pack of Kia Hyundai-Kia’s competitiveness in clean The two parties announced on Sept. Motors’ Niro EV model. mobility as well as expanding the supply 8 their plan to cooperate in diverse busi- In particular, the two companies of eco-friendly EVs.” ness areas related to the EV battery will seek solutions that can maximize “This collaboration between Hyundai industry, including battery sales solu- value and eco-friendliness of EV batter- Motor Group, which is leading the popu- tions, battery management service and ies, including reuse of batteries that are larization of EVs in the global market, battery reuse and recycling. no longer useable in vehicles in diverse and SK Innovation, which possesses the The collaboration stems from the applications such as the energy storage advanced technology in battery develop- companies’ shared need to create a bat- systems (ESS); and battery recycling that ment and recycling, is highly meaningful tery value chain and strengthen eco- extracts economically valuable metals in that the two have joined forces to col- friendliness in business operations cover- such as lithium, nickel and cobalt. laborate across the entire EV cycle,” said ing the entire lifecycle of EV batteries. These innovations are expected to Jee Dong-seob, president of SK Innova- Unlike existing cooperation schemes enhance the value and competitiveness of tion’s Battery Business. “Both companies between mobility companies and battery the battery recycling industry, which will will create a seamless collaboration sys- companies that tended to center on bat- buttress the future EV era. tem to explore new business opportuni- tery supply, the Hyundai-SK coopera- Furthermore, Hyundai Motor Group ties across the whole battery value chain.” tion aims for a virtuous cycle of battery and SK Innovation plan to synergize Apart from collaborating with SK usage known as the Battery as a Service their respective affiliates’ business Innovation, Hyundai Motor Group is (BaaS), which includes lease or rental infrastructure and capabilities spanning striving to secure and open up new mar- service. As a result, the cooperation is diverse industries, thereby strengthen- kets by collaborating with global players expected to catalyze the spread of diverse ing their battery competitiveness and specializing in EV battery reuse, includ- cooperation systems between mobility expanding the growth of related sectors. ing Korea Hydro & Nuclear Power Co., and battery companies. “Hyundai Motor Group’s coopera- Wärtsilä, OCI, and . Through this partnership, the two tion with SK Innovation, a first-tier bat- The group, via the collaboration with parties aim to strengthen the stability of tery supplier for our Electric Global SK Innovation Co., plans to fundamen- the battery supply chain and create a vir- Modular Platform (E-GMP) that will be tally reinforce its technological com- tuous cycle of resources from recycling introduced in 2021, marks a critical first petitiveness by securing technology and to production; reduce carbon emissions; step in maximizing synergies between infrastructure, and expand its business encourage optimal design that connects mobility and battery companies,” said areas.

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An LNG carrier built by in test operation

EU Holds the Key Merger between Korea's Two Top Shipbuilders Delayed by COVID-19

By Jung Min-hee

he planned merger between ficult to predict when the review results cent of the LNG carrier market, which is Hyundai Heavy Industries will come out. much higher than their combined market Tand Daewoo Shipbuilding Hyundai Heavy Industries and share of 21 percent for all types of ships. & Marine Engineering (DSME) with- DSME are required to undergo a corpo- If the EU approves the merger, other in 2020 has become uncertain due to rate combination review in six countries countries are likely to follow suit because delayed reviews at home and abroad due — Korea, Europe, Japan, China, Kazakh- there are few reasons not to allow it. The to the COVID-19 pandemic. stan and Singapore. Only Kazakhstan Korean Fair Trade Commission plans to The European Commission has sus- and Singapore have thus far approved the complete its review by the end of 2020. pended its review of the business com- merger between the two companies. It will be difficult for China and Japan bination between Hyundai Heavy Indus- Of the remaining four, the biggest to oppose the merger due to mergers of tries and DSME three times this year, hurdle is the EU. Its competition laws are their own companies. saying it is difficult to collect data due to more complicated than other countries. China's two top shipbuilders, SSSC the pandemic. In Europe, Greece, Norway, Denmark and CSIC merged in November 2019, The commission postponed its and Switzerland have global shipping while Japan's No. 1 shipbuilder Imabari review twice in March in the aftermath companies. The EU is reportedly exam- Shipbuilding and No. 2 JMU will marry. of the pandemic, but resumed it two ining the possibility of the HHI-DSME Against this backdrop, the two Kore- months later, setting Sept. 3 as the dead- merger restricting competition in the gas an shipbuilders see Singapore's "uncon- line. However, it suspended the screening carrier business. ditional approval" in late August as good process in July for the third time and as a If the two companies merge, the uni- news because Singapore's judgment can result passed the deadline, making it dif- fied company will account for 60 per- affect the EU's decision.

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Korean Shipbuilders in the Lead Korea, China and Japan Competing for LNG-powered

An LNG-powered ship built by Hyundai Heavy Vessel Orders Industries By Jung Min-hee China and Japan are also busy. In the case of China where the shipbuilding hipbuilders in Korea, China, builders signed a 3.5 trillion won deal for industry directly linked to national secu- and Japan are having fierce 16 ships and Japanese shipbuilders went rity, the Chinese government is devoting Scompetition in order to take home empty-handed. itself to helping Chinese shipbuilders build a bigger share of the global LNG-pow- The competitiveness of the three Kore- LNG-fired ships. ered vessel market. As the global energy an shipbuilders comes from their design "China is concerned that if foreign demand is shifting to eco-friendly sourc- of fuel tanks and fuel supply systems shipowners or shipbuilders stop shipping es, the shipbuilding market is shifting its that require state-of-the-art technology. for political and economic purposes, China focus to LNG-powered ships from those Only in the 1990s, shipbuilders favored will be seriously hurt as the nation depends powered by coal and oil. the "MOSS" type with an independently on the outside for 60 percent of LNG it For now, Korean shipbuilders have designed hull and LNG fuel tank in order needs," said an official of the shipbuild- taken the lead in terms of LNG-powered to enhance the stability of LNG storage. ing industry. "China is securing its com- ship order intake. However, Chinese ship- However, the “Membrane” type which inte- petitiveness through mergers and acquisi- builders, who are enjoying full support grates a hull and a fuel tank to increase load tions of large shipbuilders and increased from the Chinese government, are mount- capacity by 40 percent compared to the investment under the leadership of the ing a serious challenge. On top of that, MOSS type, has become the main stream. Chinese government." Following China's Japanese shipbuilders are trailing their DSME and first self-designed LNG carrier export in Korean rivals through strategic alliances have built ships through membrane design January 2015, China's Hudong-Zhonghua with China. only and even Hyundai Heavy Industries Shipbuilding agreed with DNV GL, a Nor- A total of 13 companies are participat- which was the only company in Korea wegian ship classification association to ing in the global market. Among them, only that secured MOSS design technology, develop a 270,000-cubic-meter LNG car- eight companies have received LNG-pow- quickly switched to the Membrane sys- rier, the world's largest. The 270,000-cubic- ered ship orders — three Korea shipbuild- tem. However, as Japanese shipbuilders meter LNG carrier is capable of transfer- ers (Daewoo Shipbuilding & Marine Engi- insisted on the MOSS type, LNG-powered ring 155 million-cubic-meter LNG once, neering (DSME), Hyundai Heavy Indus- ship orders to Japanese shipbuilders have the amount which can be used by 4.7 mil- tries (HHI), and Samsung Heavy Indus- plummeted since 2015. lion households for one month. tries), one Chinese shipbuilder (Hudong- In fuel supply systems, a key technol- Japanese shipbuilders are trying to Zhonghua Shipbuilding), and four Japanese ogy for LNG-powered ships, the three find a way out of their slump by setting up shipbuilders (Mitsubishi Heavy Industries, Korean shipbuilders have all secured joint ventures with Chinese shipbuilders. Kawasaki Heavy Industries, Japan Marine their own fuel supply systems — the HI- They aim to combine their technology with United, and Imabari Shipbuilding). Gas of Hyundai Heavy Industries (HI- Chinese shipbuilders low production cost. Among them, Korean shipbuilders Gas), the HiVar of DSME and the FuGas In August 2019, Mitsui E&S Shipbuild- are superior to their Japanese and Chinese of Samsung Heavy Industries. ing of Japan and Yangzijiang Shipbuilding, rivals. Korean shipbuilders built 66 (91.7 Hyundai Heavy Industries won a total a Chinese shipbuilder, jointly launched a percent) of the 72 LNG-powered ships of six LNG-fired ships from Singapore's shipyard in China. The two sides plan to awarded in 2018 and 48 (80 percent) of EPS in April 2018 and recently succeeded invest a total of US$300 million in building the 60 ships ordered in 2019, according in the world's first test drive. On the other a medium-sized LNG carrier to move LNG to Clarkson Research, a shipbuilding and hand, a Chinese shipbuilder won an LNG- to China and Southeast Asia in 2022 and a shipping analysis agency. In the world's fired ship from CMA CGM of France in large 180,000-cubic-meter LNG carrier by largest-ever tender for LNG carriers held September 2017, seven months ahead of 2026. Kawasaki Heavy Industries of Japan by Qatar in 2020, three Korean ship- Hyundai Heavy Industries. But the Chi- also established a joint shipyard in China builders signed a deal to build 100 units nese shipbuilder has not even met the with China's China Cosco Shipping Group for 23.6 trillion won, while Chinese ship- delivery date due to a lack of technology. and is expanding its operations.

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Self-sailing Vessels Korean Shipbuilders in Competition to Develop Eco-friendly and Fuel-saving Smart Ships

By Jung Min-hee

ecently, competition is heat- ing up among domestic Rshipbuilders 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- Hyundai Heavy Industries' Autonomous Navigation System HiNAS trol the operation of a vessel on land via a satellite. The number of smart ship it can analyze and provide comprehen- DSME plans to develop digital orders amounts to 400 units a year, and sive information, such as the location and twin ships that can virtually detect risks the company is speeding up research and speed of obstacles, using infrared cam- in advance, an axial power generation development on smart ships. In 2017, eras. motor system that produces electricity HHI developed the Integrated Smart This year, HHI developed HiMSEN by rotating the axis of a ship's engine Ship Solution (ISS) based on IoT tech- Engine on its own. The engine is loaded while sailing, and an air lubrication sys- nology. with cutting-edge technologies such as tem that uses air to reduce resistance. It In the first half of this year, the com- artificial intelligence (AI), big data, and expects these technologies to cut fuel pany installed “HiNAS” (Hyundai Intel- the IoT and is expected to save billions costs. ligent Navigation Assistant System) on of won in fuel costs or cut 10 percent of Samsung Heavy Industries is busy SK Shipping’s 250,000-ton bulk carrier, cost per year. developing eco-friendly technology to becoming the world’s first shipbuilder to Daewoo Shipbuilding & Marine save fuel. The case in point is an air apply a core technology for autonomous Engineering (DSME) also plans to lubrication system, one of energy saving sailing to a large ship already in service. develop high-efficiency ships by using devices (ESDs). In particular, the compa- HiNAS automatically recognizes sur- carbon-free and smart technology. It has ny applied its own air lubrication system, rounding vessels through camera analy- delivered to HMM a smart ship based on SAVER Air, to LNG carriers, reducing sis via artificial intelligence (AI) to deter- its own platform Smart Ship 4.0. Further- their energy use 5 percent. In addition, mine and alert the risk of collision based more, DSME continues to upgrade tech- it improved fuel efficiency by about 3 on augmented reality (AR). Particularly nologies for navigational environment percent by applying SAVER Stator-D, noteworthy about this advanced naviga- measurement, maintenance and repair a fuel-saving device that increases pro- tion support system is that even when and safe navigation to ultimately realize pellers' power by equalizing the flow of visibility is limited at night or by sea fog, autonomous navigation. seawater into the propellers.

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No signs of Recovery in Oil Refining Sector Oil Refining and Chemical Sectors Decoupling from Each Other By Jung Min-hee

ntil recently, the chemical and approximately 2 percent and 3.6 percent, No signs of recovery are in sight in the oil refining Uoil refining industries moved respectively. For the past one month, ker- sector. in close connection to the international osene fell more than 3 percent, diesel fell in consumer electronics. Global home oil price, that is, product prices and cor- more than 3 percent, and only gasoline appliances sales increased a lot after porate profits rose or fell along with edged up slightly. the outbreak of COVID-19, leading to the oil price. However, COVID-19 has This has to do with COVID-19. the higher ABS price. The same applies completely changed this. The chemical Diesel, aviation fuel and gasoline con- to polyvinyl chloride (PVC), which is industry is recovering fast whereas the stitute the three largest parts of the sales mainly used for interior design. The PVC oil refining sector is showing no signs of of South Korean oil refining compa- price rose 8.5 percent in the latest month. recovery after massive losses in the first nies. In other words, their sales increase In addition, the demands for acetone, half of this year. or decrease in proportion to how many polypropylene, and so on have skyrock- Major South Korean oil refin- people travel. At present, travel restric- eted since the outbreak of the pandemic. ing companies are barely meeting their tions, social distancing and the like are The price of acetone, which is used in break-even points this quarter after hav- still going on worldwide and the compa- hand soaps, has soared 68 percent from ing imported oil at very low prices in the nies’ conditions are likely to continue to a year ago. Polypropylene is a material second quarter. Specifically, the import deteriorate for a while. used in mask filters. and current prices are US$30 or so and Things are totally different in the Under the circumstances, securities US$40 or so, respectively. The oil will chemical sector. This quarter, the prices companies are becoming increasingly constitute their inventory valuation prof- of chemical products are rising without optimistic about local chemical compa- its for this quarter. In other words, the exception and much more than expected. nies while refraining from mentioning companies are resorting to accounting The examples include acrylonitrile buta- oil refining companies. For instance, they profits while failing in their business. diene styrene (ABS). Its price jumped adjusted their average Q3 operating prof- The prices of their products are 16.4 percent in one month and more it estimate for LG Chem from 500 billion falling, too. For example, in the latest than 20 percent in one year. ABS, which won or so to more than 600 billion won week, the gasoline and diesel prices fell is a plastic raw material, is mainly used in August.

To Supply 8,000 Tons of Steel Pipes Next Year South Korean Steelmakers Participate in LNG Development Project in Canada

By Jung Min-hee

Kitimat LNG facility in Canada eAH Steel, POSCO and DKC mately 8,000 tons of thick wall steel Swill participate in the Kitimat pipes early next year. finished goods, and SeAH Steel produces Project as thick wall steel pipe suppliers. The plant will be built in two stages. the pipes from the finished goods and The project is to build a natural gas The first phase is for two LNG produc- supplies the products to LNG Canada. liquefaction plant in Kitimat, Canada, tion facilities, each with a capacity of 6.5 The three companies already started the procure natural gas from local gas fields million tons. The production capacity production in the first quarter. and export it to Asia in the form of LNG. will be increased to 26 million tons in the The Korea Gas Corp. also partici- The size of the largest LNG development second phase. pates in the project with a stake of 15 project in Canada amounts to US$14 When it comes to the steel pipes, percent. The corporation is planning to billion and the three South Korean com- POSCO supplies thick stainless steel import 700,000 tons of LNG from the panies are scheduled to supply approxi- plates to DKC, DKC turns the plates into plant in each of 2024 and 2025.

67 IR & Management

Precious Donation LG Chairman Koo Donates 1 Bil. Won for Development of COVID-19 Vaccine

By Jung Min-hee

G Group chairman Koo Kwang-mo has donated 1 bil- Llion 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 LG Group chairman Koo Kwang-mo with partner agencies to develop a vaccine as soon as possible and ensure that Koo's precious donation generates maximum tion in the human immune system and improve human immune effects for people around the world." responses to a COVID-19 vaccine, as well as to strengthen the In addition, the donation was delivered through the Korea IVI’s capacity to measure important immune responses induced Support Committee for the IVI. The institute plans to use it by a COVID-19 vaccine and prepare for COVID-19 clinical tri- for studies to understand the principles of COVID-19 preven- als around the world.

Secures 800 Bil. Won in Liquidity Korean Air Sells In-flight Meal and Duty-free Businesses

By Choi Moon-hee

orean Air announced on Aug. 25 that it has signed a Kbusiness 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 Korean Air will sell off its lucrative in-flight meal and duty-free businesses to a private equity fund. Hahn & Company. Korean Air will acquire 20 percent of the shares of the corporation. most lucrative parts of the airline and it was expected that the The agreement is likely to be completed in two or three business unit would lead the airline’s business performance months. Korean Air is planning to sign an in-flight meal supply recovery after a rebound in global aviation demand from and duty-free sales contract with the corporation before the final COVID-19. date of the agreement. The total assets under management of the 10-year-old PEF The annual sales of Korean Air’s in-flight meal and duty- are 8.1 trillion won. Last year, it raised a blind fund of 3.8 tril- free business have been over 200 billion won. It is one of the lion won.

68 IRIR & MANAGEMENTMANAGEMENT

Prize Money to Be Increased to 1.8 Bil. Won Samsung to Upgrade Hoam Awards into Korean Version of Nobel Prize

By Jung Min-hee

Samsung Electronics vice chairman Lee Jae-yong he Hoam Foundation announced Prize, and the Social Service Prize. Each visits a multilayer ceramic capacitor (MLCC) pro- on Aug. 4 that it will upgrade winner will be awarded with a prize, a duction line at Samsung Electro-Mechanics' fac- T tory in Busan in July. the current Hoam Science Awards into medal and prize money of 300 million a Korean version of the Nobel Prize. won. Total prize money has increased society. This year marks the 30th anni- It will award a total of 1.8 billion won from 1.5 billion won to 1.8 billion won. versary of the Hoam Awards. in prize money to outstanding Korean The change was made based on Sam- In the meantime, Samsung Group researchers in basic science including sung Electronics vice chairman Lee Jae- has already been providing hefty sup- physics, mathematics, chemistry and life yong's determination to raise the status port to the nation's basic science sector science. of the Hoam Awards to the level of the based on the win-win growth philoso- The foundation plans to divide Nobel Prize. The move is also aimed at phy championed by Lee Jae-yong. Since and expand the current Hoam Science increasing support for the nation’s basic 2013, Samsung has contributed 771.3 Awards into the physics and mathemat- science sector, whose standard is consid- billion won to 601 innovative research ics category and the chemistry and life ered to be lower than that of the nation’s projects in basic science including phys- science category starting next year. engineering or medicine field. The Hoam ics and mathematics through the Future Accordingly, starting 2021, the Awards was created in 1990 by Samsung Technology Development Project. Hoam Awards will consist of the Science Group chairman Lee Kun-hee to honor Moreover, the group will invest more Prizes (a Science Prize for Physics and the late group founder and his father Lee than 100 billion won this year in indus- Mathematics, and a Science Prize for Byung-chul, whose penname is Hoam. try-academy cooperation to help Korean Chemistry and Life Science), the Engi- The founder put the highest value on nur- universities develop future technology neering Prize, the Medical Prize, the Art turing talented people and contributing to and foster talents.

A Platform for Insight Sharing SK Innovation Forms 'SOVAC Avengers' with 11 Social Ventures

By Jung Min-hee

ocial Value Connect 2020 10 that it has formed the "SOVAC S(SOVAC 2020) kicked off Avengers" with 11 social enterprises A talk show of Social Value Connect 2020 on Sept. 1 to seek solutions to vari- and social ventures to share insights ous social problems. Organized by SK obtained through SOVAC 2020. The everyone can participate in solving Group, SOVAC is Korea's largest pri- SOVAC Avengers will serve as an online social problems and create social val- vate festival related to social enterprises, communication platform. It is an exten- ues," Chey said. The first event was held companies that operate to solve social sion of SK Innovation's SV Commu- last year, attracting 5,000 visitors. problems and promote social values. nity, which was launched in early 2020 Even though this year’s event is SOVAC 2020 will offer various pro- to support social enterprises and social held online, its scale has been expand- grams such as lectures, talk shows, real- ventures. ed. Major ICT companies including time contests, and college student chal- SOVAC began with SK Group Naver, Kakao, and Google, as well as lenges online from 10 a.m. every Tues- Chairman Chey Tae-won's proposal at SK Group's affiliates are participating day to Friday from Sept. 1 to 24. the end of 2018. "Let's create a venue in it along with public institutions and SK Innovation announced on Sept. for cooperation and exchanges so that influencers.

69 IRIR & MANAGEMENTMANAGEMENT

Founder Families’ Stakes in Conglomerates Slightly Fall Founder Families Control Business Groups with a Mere 3.6% Stake

By Jung Min-hee

orea Fair Trade Commission into 1.7 percent of owners and 1.9 per- The founder families of Korea's major business groups have a 3.6 percent stake in group affiliates Kreleased data on the sharehold- cent of their relatives. The shareholding on average. ing status of 64 business groups on Aug. ratio of subsidiaries fell 0.2 percentage 31. The 64 groups, which has 2,292 affil- point to 50.7 percent. A total of 210 out of the 2,114 sub- iated companies, were subject to manda- The 55 groups had a total of 2,114 sidiaries of the 55 groups were subject tory public disclosure as of May 1 this subsidiaries, consisting of 419 where to regulations on private benefit taking. year and both their internal shareholding the owner families had stakes and 1,695 The regulations, which were applied to ratio and their founder families’ share- without owner family stakes. Those fam- 47 groups’ 219 subsidiaries in the previ- holding ratio edged down last year. ilies’ average subsidiary ownership was ous year, target every listed company in Specifically, the 64 groups include 55 10.4 percent. which an owner family’s stake is 30 per- run by owners and the 55 groups’ inter- Owners had stakes in 235 subsidiaries cent or more and every unlisted company nal shareholding ratio fell to 57 percent and the average ownership was 10 per- in which the ratio is 20 percent or more. from 57.5 percent recorded by 51 such cent. Their sons and daughters posted an Last year, the regulatory blind spot was groups in the previous year. The fami- average of 4.9 percent in 184 subsidiaries found in 388 companies of 51 groups. lies’ shareholding ratio fell 0.3 percent- and their relatives recorded an average of The numbers rose from 376 and 48, age point to 3.6 percent, which is divided 4.9 percent in 251 subsidiaries. respectively.

Prize Money to Be Increased to 1.8 Bil. Won Samsung to Upgrade Hoam Awards into Korean Version of Nobel Prize By Jung Min-hee

he Hoam Foundation announced ner will be awarded with a prize, a medal on Aug. 4 that it will upgrade and prize money of 300 million won. Samsung Electronics vice chairman Lee Jae-yong T visits a multilayer ceramic capacitor (MLCC) pro- the current Hoam Science Awards into a Total prize money has increased from 1.5 duction line at Samsung Electro-Mechanics' factory Korean version of the Nobel Prize. It will billion won to 1.8 billion won. in Busan in July. award a total of 1.8 billion won in prize The change was made based on Sam- versary of the Hoam Awards. money to outstanding Korean researchers sung Electronics vice chairman Lee Jae- In the meantime, Samsung Group in basic science including physics, math- yong's determination to raise the status has already been providing hefty sup- ematics, chemistry and life science. of the Hoam Awards to the level of the port to the nation's basic science sector The foundation plans to divide Nobel Prize. The move is also aimed at based on the win-win growth philoso- and expand the current Hoam Science increasing support for the nation’s basic phy championed by Lee Jae-yong. Since Awards into the physics and mathematics science sector, whose standard is consid- 2013, Samsung has contributed 771.3 category and the chemistry and life sci- ered to be lower than that of the nation’s billion won to 601 innovative research ence category starting next year. engineering or medicine field. The Hoam projects in basic science including phys- Accordingly, starting 2021, the Hoam Awards was created in 1990 by Samsung ics and mathematics through the Future Awards will consist of the Science Prizes Group chairman Lee Kun-hee to honor Technology Development Project. (a Science Prize for Physics and Math- the late group founder and his father Lee Moreover, the group will invest more ematics, and a Science Prize for Chem- Byung-chul, whose penname is Hoam. than 100 billion won this year in indus- istry and Life Science), the Engineering The founder put the highest value on nur- try-academy cooperation to help Korean Prize, the Medical Prize, the Art Prize, turing talented people and contributing to universities develop future technology and the Social Service Prize. Each win- society. This year marks the 30th anni- and foster talents.

70 IRIR & MANAGEMENTMANAGEMENT

2.2 Tril. Won Raised This Year Hotel Lotte Increasing Financing Volume By Choi Moon-hee

otel Lotte is increasing its Signiel Busan in June and Lotte Hotel Hfinancing at a rapid pace. For Seattle is scheduled to open this month. Lotte World Tower located in Songpa, Seoul example, it raised 50 billion won by issu- Unfortunately for it, though, the losses of ness unit’ losses soared from 11.8 billion ing private corporate bonds on Sept. 4. the hotel business unit of the company are won to 68.5 billion won. As a result, Hotel The maturity is 3.5 years and the annual snowballing due to COVID-19. In the sec- Lotte's red ink amounted to 342 billion interest is 2.3 percent. Mandatory amor- ond quarter, its sales and operating profit won in the first half of this year. tization would follow if the company's stood at 241.4 billion won, down 37.86 Its cash flow is deteriorating and bor- credit rating fell two notches or more. percent from a year ago, and amounted to rowings are skyrocketing. Its net debt was In the first half, its public and private 192.8 billion won, respectively. The busi- 3.73 trillion won in 2015 but jumped to corporate bond issuances totaled 700 bil- ness unit requires approximately 270 bil- 6.5 trillion won in 2019 and to 8.26 trillion lion won and 860 billion won, respec- lion won to run its hotels this year and its won in the second quarter of this year. tively. In addition, it issued 600 billion losses are currently increasing along with It is also pointed out that Hotel Lotte is won of long-term commercial paper for the number of business days. still financially solid in view of its shares the first time in three years. Hotel Lotte's Hotel Lotte’s duty-free business unit is (worth 3.8 trillion won or so), land (worth financing already topped 2.2 trillion won going through a hard time, too. Its operat- 4.7 trillion won or so), invested real estate this year whereas it was 1.79 trillion won ing profit dropped from 177.8 billion won assets (worth 1.2 trillion won or so), etc. in 2019 as a whole. to negative 73.5 billion won from the first The company is also planning to strength- This is because of its recent aggressive half of 2019 to the first half of this year. en its financial stability by reducing the business expansion. The company opened During the same period, the world busi- ratio of short-term borrowings.

To Secure Footing in EV Parts Business Lotte Group to Invest 290 Bil. Won in Doosan Solus Acquisition Fund By Jung Min-hee otte Group will invest 290 bil- 23, the company said it will invest 290 Llion won in a private equity fund billion won, which amounts to 19.42 per- (PEF) to be established to acquire Doosan cent of its equity capital, in Skyscraper to Lotte World Tower which houses Lotte Group's Solus Co., a battery copper foil and OLED earn investment gains. major affiliates materials affiliate of . Lotte Group’s investment in Sky- Earlier this month, Doosan Group scraper appears to be intended to take materials division is expected to cre- agreed to sell a 53 percent stake in Doo- an advantageous position when Doosan ate synergy with Doosan Solus’ OLED san Solus, which is valued at around Solus is put up for sale some day. display business, which has the largest 698.6 billion won ($600 million), to Lotte Group has been seeking to OLED market share in Korea. SkyLake Investment Co., a PEF led by enter the electric vehicle (EV) core mate- Doosan Solus has a plant in Hunga- former Information and Communication rial business. Compared with other major ry that produces 10,000 tons of battery Minister Chin Dae-je. Korean business groups, Lotte is late in copper foil a year. The company plans SkyLake is taking steps to launch entering the promising industry. to increase its output to 25,000 tons by Skyscraper Long-term Strategic PEF The group’s affiliate Lotte Aluminum 2022 and 50,000 tons by 2025. Co. to raise funds needed to finance the Co. has invested about 110 billion won to To finance the expansion, Sky- acquisition of Doosan Solus. set up a plant in Hungary for production Lake plans to carry out a paid-in capi- Lotte Group’s investment in Sky- of aluminum anode foil used in second- tal increase worth 450 billion. SkyLake scraper will be made through Lotte Fine ary EV batteries. plans to nurture Doosan Solus as a lead- Chemical. In a regulatory filing on Sept. Lotte Fine Chemical’s electronic ing provider of core materials.

71 IR & MANAGEMENT

To Finance Massive Investment in R&D and Facility Expansion To Be Split into LG Chem to Spin off Battery Business into 3 Companies in 2021 Wholly Owned Subsidiary Daelim Industrial

By Michael Herh Adopts a Holding Company Structure research firm IHS Markit predicts that the market for EV batteries will grow by By Jung Min-hee 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 LG Chem will spin off its secondary battery busi- jump such as the development of full- ness to raise funds needed to for investment in R&D and facility expansion. solid batteries that have twice as much capacity as existing products. Large- umors about LG Chem spinning scale R&D investment is essential to Roff its secondary battery busi- securing advanced technologies. ness have been going around steadily "The current global EV battery mar- since the global electric vehicle (EV) ket is reminiscent of the early 2000s market began to take shape in earnest. when semiconductor technology signifi- Every time such rumors surfaced, the cantly advanced and competition for tak- company said that it has not decided on ing orders was hot," an industry analyst Daelim Industrial’s main office in central Seoul the matter yet. said. "As the EV market has begun to The spin-off has been continuously expand in earnest, EV battery producers aelim Industrial will adopt a discussed within LG Group. Its decision need to make large-scale R&D invest- Dholding company structure next to implement it in coming December has ments to stay ahead their competitors." year. The company announced on Sept. to do with the recent global market situ- At the same time, they need to make 10 said that it will split into three com- ations. The global car market has begun large-scale facility investments to keep panies -- DL Corp. (tentative name), a to shift towards eco-friendly vehicles, up with rapidly expanding EV demand. holding company; DL E&C (tentative fueling the growth of the rechargeable As of the end of 2019, LG Chem's order name) a construction company; and DL battery market. backlog amounted to 150 trillion won. Chemical (tentative name), a petrochem- The European Union’s tougher The fact that LG Chem’s battery ical company. The holding company will regulations on emissions have pushed business division has become profitable be launched on Jan. 1, 2021. global carmakers towards increasing the also encouraged the company to spin Daelim Industrial will be first proportion of eco-friendly car produc- it off. LG Chem surprised analysts by divided into DL Corp. and DL E&C, tion and sales. U.S. Tesla, a worldwide posting 6.953.2 billion won in sales and with the stock split ratio being 44:56. leader in the EV industry, has begun to 571.6 billion won in operating profit in DL Corp. will spin off DL Chemical as cooperate with China's CATL in addi- the second quarter. Although the busi- a wholly-owned subsidiary. tion to its long-time partner Panasonic, ness results of the battery division were DL Corp. will focus on supporting sparking off new partnerships between not disclosed separately, it is believed to independent growth of the two affili- carmakers and battery makers. Recently, have posted a meaningful surplus for the ates and coordinating their strategies. (GM) announced that first time. Based on stable profit growth, DL E&C it will invest US$2 billion in Nikola, a LG Chem will spin off the battery will boost its productivity and grow hydrogen truck company called a "sec- business into a wholly owned subsid- into a total solution provider centered ond Tesla." iary, which makes it easier for the com- on development. DL Chemical will aim Above all, the rapid growth of the pany to attract investment. The spin-off to become a global top 20 petrochemi- EV market has intensified competition is expected to allow LG Chem to raise cal player by expanding its low-cost among Korean, Chinese and Japanese funds needed to finance its massive raw material-based business and enter- battery makers, who are virtually domi- investment in R&D and facility expan- ing new businesses such as lubricating nating the global battery market. Market sion. oil and new medical materials.

72 IR & MANAGEMENT

To Ease Job Insecurity POSCO’s Labor Union and Management Agree to Freeze Wage in 2020

By 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.

OSCO labor union and its to the company so that employees help maternity benefit for firstborns from 1 management have agreed to overcome the current sluggish econo- million won to 2 million won. Further- Pfreeze wages for 2020. my caused by the COVID-19 pandem- more, to improve the social awareness POSCO Labor Union, the represen- ic. Accordingly, POSCO prepared and of adoption and celebrate a new family, tative union for collective bargaining, delivered the 2020 wage agreement pro- the company will establish an adoption put the company’s 2020 wage proposal posal on Aug. 13. support fund of 2 million KRW. POSCO to a vote on Aug. 31 and 93.44% of the POSCO decided to freeze the basic will also expand the targets of scholar- unionized workers were in favor of the wage, taking into account its unfavorable ships for employees’ children from kin- offer. business performance this year. On the dergarten to daycare centers. In exchange, the approved proposal other hand, the company is to guarantee Meanwhile, POSCO had temporar- includes the following as well: 1) job its employment to relieve job insecurity ily shut down certain sites since June, security, 2) traditional market gift certifi- triggered by the COVID-19 issue. paying 70% of the average wage, but cates worth of 500,000 won, 3) improve- In addition, POSCO plans to provide due to recent recovery of orders and ments in the company rules regarding all employees with traditional market gift the efforts of employees, the company childbirth & parenting, and 4) suspension certificates worth 500,000 won to boost decided to cease its temporary closure. of the temporary workplace closures. employee morale and revitalize the local POSCO labor union and management POSCO Labor Union held a repre- economy. held the signing ceremony for the 2020 sentative meeting on Aug. 11 and decid- As to resolve the social issue of wage agreement at its HQ in Pohang on ed to entrust this year’s wage negotiation low birth rate, POSCO will increase the Sept. 1.

73 IR & MANAGEMENT

A Dividend Income of 50 Bil. Won POSCO Reaps First Dividend on Investment in Roy Hill Mine in Australia

By Jung Min-hee

OSCO will receive 50 billion won in dividend from Roy PHill Holdings. Roy Hill Holdings' board of directors resolved on Sept. 14 Iron ore from Roy Hill is piled up at a local yard. to pay dividends based on the company's enhanced financial soundness and solid earnings. This is the first dividend payment of six million tons of iron ore in 2016 two years after the start of since Roy Hill Holdings was founded. The total dividend payout mining, POSCO currently receives 15 million tons of iron ore, will be 4.75 million Australian dollars. POSCO will receive or 26 percent of its annual demand. about 50 billion won in October as it holds a 12.5 percent stake Roy Hill Holdings' business performance has improved rap- in the mine. idly since it began commercial production in 2017 with its oper- Roy Hill Holdings is a corporation established to devel- ating profit reaching 3.2 billion Australian dollars. POSCO's op Roy Hill Mine in the northwestern Australian province of profits based on the percentage of its ownership interest also Pilbara. Its major shareholders include Hancock (70 percent), grew from 12 billion won in 2016 to 150 billion won in 2019. In POSCO (12.5 percent), Marubeni Corp.n (15 percent), and August this year, Roy Hill Holdings paid back the entire US$6.2 China Steel (2.5 percent). billion loans earlier than originally scheduled. Roy Hill Mine is Australia's largest single mine, with iron ore Meanwhile, POSCO has been developing overseas raw mate- reserves amounting to 2.3 billion tons. Roy Hill Holdings exports rials since 1971 before the start of the operation of its iron mill in 55 million tons of iron ore annually, ranking fifth in the world. Pohang in 1973. Now the company owns 23 iron and steel mate- POSCO signed a partnership agreement with Roy Hill Hold- rial development projects around the world, It made its first equity ings in 2010 to develop the mine. Starting with the procurement investment in Mount Soli Mine in Australia in 1981.

An Unusual Business Trip Ssangyong E&C Chairman Flies to Dubai to Visit Construction Site

By Jung Min-hee

sangyong Engineering & Construction announced on SSept. 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 Ssangyong E&C CEO Kim Seok-joon (left) these days due to the spread of the novel coronavirus. The hotel has 46 floors above ground and 795 rooms. The Expo, which will be held in October next year. construction work alone costs US$1 billion. Seem from the sky, Ssangyong E&C has been carrying out a total of nine proj- the hotel is an S-shaped structure, with the front looking like a ects worth about US$2.1 billion in Dubai since 2015. The complex stack of Lego blocks. It is expected to be introduced to Investment Corporation of Dubai (ICD) with 310 trillion won in the world as a landmark symbolizing Dubai through the Dubai assets is the largest shareholder of the builder.

74 IR & MANAGEMENT

Warns Bupyeong Plant Might Be Closed in 2022 GM Korea President Expresses Complaints about Unreasonable Union Demands

By Jung Min-hee

GM Korea president Kaher Kazem

ith labor-management “The management promised to invest of the union members are in favor of a disputes intensifying at 830 billion won in Changwon until 2028 strike. Recently, the union stopped the WGM Korea despite the and not to dispose of GM Korea assets production lines in Bupyeong for two COVID-19 situation, the management or shares until that year, and the union is days after the management decided to recently reiterated that no new car would taking advantage of the promises in mak- increase the hourly output of the Chevy be assigned to the company’s plant in ing unreasonable demands.” Trax from 28 to 32 with its popularity Bupyeong, implying that the plant might The demands include an increase in rising in the United States. be closed in 2022 or later. base pay of 120,304 won and an annual The president also mentioned that the “The union is convinced that GM bonus of more than 20 million won. “The head office of GM is worried about South will continue with its business in South union is ignoring the fact that the com- Korea’s rules and systems hindering busi- Korea, but that will be possible only pany’s operating loss has continued since ness activities. The president was indicted when the labor-management relations are 2014 and this year will be the same,” by the prosecution in July this year in normal, and the current situation is more said a GM Korea executive, continuing, relation to worker dispatch and forbidden than worrisome from the perspective of “With even Hyundai having frozen its from leaving South Korea. It is said that the GM headquarters,” GM Korea presi- base pay, the union is going too far.” South Korea has been GM executives’ dent Kaher Kazem recently said, adding, At present, more than 80 percent least favorite destination since then.

75 SME & STARTUP

North America Most Popular Region for Korean Startups About 40% of Korean Startups Doing Business Abroad Begin with World Market in Mind By Jung Min-hee

About four out of 10 startups that have entered foreign markets started their business targeting the global market from the beginning.

bout four out of 10 startups Middle East (3.0 percent), Oceania (2.2 stage with 17 percent, those in the Free A that have entered foreign percent), and Latin America (1.5 percent). (about 500 million won) stage with 10.4 Amarkets targeted the global Their business sectors varied –- the percent, those in the Series B (about 5 market from the beginning, a KOTRA mobile sector (11.1 percent), artificial billion won) stage with 9.6 percent and survey has found. intelligence (9.6 percent), big data (9.6 those in the Series C and above (about 10 KOTRA conducted a survey on 135 percent), games (8.9 percent), lifestyle billion won) stage with 5.9 percent. Korean startups with CEOs under 39 (7.4 percent), and edu-tech (7.4 percent). As for the numbers of employees, years old that entered overseas markets Intangible services or applications 37.8 percent of them ranked first with with innovative technology. (72.6 percent) accounted for an over- five or fewer employees. Those with six Startups that started a business over- whelming majority of their business to 10 employees and 11 to 30 employees seas without a parent company based in items. Items that combine tangible prod- accounted for 18.5 percent and 17.8 per- Korea accounted for 37.0 percent of the ucts and services took up 18.5 percent cent, respectively. Those with more than total, the survey says. and tangible products 8.9 percent. 30 employees were 17.8 percent. Of the 135 companies, 91.1 percent In terms of preparation periods, one Observing sales figures, two out of 10 moved into overseas markets by estab- to two years were the most common with companies (17.8 percent) exceeded US$1 lishing local corporations, and only 6.6 40 percent, while less than one year and million in annual sales. Those with annu- percent set up liaison offices or branch more than three years were 7.4 percent, al sales of more than US$500,000 and offices. respectively. less than US$1 million dollars accounted North America was the most popular In terms of the amount of attracted for 4.4 percent. Those with annual sales region for Korean startups with 48.1 per- investments, companies in the series A between US$100,000 and US$500,000, cent of the total operating there. Of them, (about 1 billion won) stage accounted 6.7 percent, those with annual sales 80 percent were located in Silicon Valley. for the largest portion, or 26.7 percent between US$10,000 and US$100,000, North America was followed by Asia of the total. This was followed by those 8.9 percent and those with annual sales of (34.1 percent), Europe (11.1 percent), the in the Seed (less than 100 million won) less than US$10,000, 7.4 percent.

76 Science & Technology

Looking to Develop Mobile Primary Diagnostic System UNIST Develops Chip for Faster and Easier Virus Detection By Choi Moon-hee

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 A UNIST researcher conducts an experiment with a micro fluid chip. diagnosis is smartphone-compatible in terms of magnifying power,” the professor explained, adding, “Our ultimate goal is he Ulsan National Institute of Science and Technology an inexpensive and mobile primary diagnostic system capable T(UNIST) announced on Sept. 23 that its research team of detecting infection within five to 10 minutes.” led by biomedical engineering professor Kang Joo-hun devel- Details of the research were posted on Aug. 29 on the online oped a micro fluid chip for rapid detection of viral and bacterial edition of the Biosensors and Bioelectronics journal, which will infections. be published soon.

Enhances Performance of Solar Cell Membrane UNIST Reduces Solar Cell Production Cost with Water

By Choi Moon-hee

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- Kim Kwang-soo, professor of psychiatry and neuroscience at Harvard Medical ing to membrane performance improvement. This method does School not require membrane hole formation, which is expensive. Exist- he Ulsan National Institute of Science and Technology ing membranes are not conductive, and thus passages need to be T(UNIST) announced on Sept. 16 that its research team made by hole formation for electrons and holes. The membrane led by professor Choi Kyung-jin has developed a technique for developed by the team is characterized by facilitating the forma- improving the performance of the back surface membrane or tion at the site where the added water is removed by evaporation. back surface field layer of a silicon solar cell and simplifying Details of the research are available in the online edition of related manufacturing processes. the Advanced Functional Materials journal.

78 Science & Technology

A New Method to Produce Hydrogen Biopolymer-based Photocatalyst Developed for More Efficient Hydrogen Production By Choi Moon-hee

he Korea Basic Science Institute (KBSI) announced on Sep. 15 that its research team led by Dr. Kim Hae-jin T Photocatalyst for sunlight-based hydrogen production 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 to the research team, 48.5 ml of hydrogen gas can be produced fuel of the future. However, chemical fuels such as natural gas per hour from 1 gram of the photocatalyst, this is equivalent to have been required and water has had to be split by massive a 220 percent improvement in hydrogen production efficiency electric energy for hydrogen production. Photocatalyst-based compared to existing semiconductor catalysts, and it is photo- hydrogen production has been limited in terms of industrial uti- stable enough to maintain a hydrogen production efficiency of lization due to its low production efficiency and photostability. 78 percent even after 24-hour exposure to light. The photocatalyst developed by the team can be defined as The research was conducted in cooperation with Incheon a biopolymer-semiconductor compound in which a zinc sulfide National University professor Kim Yeon-ho, the Adam Mickie- semiconductor nanorod is uniformly coated on a nanometer wicz University and the University of Barcelona. Details of the scale with polydopamine as a biopolymer substance. According research are available in Applied Catalysis B: Environmental.

Enhancing Safety of Electric Vehicles 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 New Technology Lowers Fire unevenly or thickly, and the surface protection layers them- Hazards of Li-ion Batteries, 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 Increasing Charging Speeds hours to reach the theoretical capacity (372mAhg-1) of a graph- ite cathode. 4 Times Using a new organic non-flammable electrolyte, the research team put a thin and stable surface protection layer on By Yu Kun-ha the surface of a graphite cathode, and succeeded in charging the team of Korean researchers has developed technol- graphite cathode more than four times faster than before. The ogy that can reduce fire hazards of lithium-ion bat- research team realized 370 mAhg-1, the theoretical capacity Ateries while increasing charging speeds. level of graphite cathodes, and secured stable charge-discharge The National Research Foundations of Korea announced on cycle performance. Sept. 10 that a research team led by Song Seung-wan, a profes- Previously, flame-resistant electrolyte additives were used, sor of applied chemical engineering at Chungnam National Uni- but their poor surfactant compatibility with a graphite cathode versity, has developed high-safety interface control technology boosted safety but weakened performance. In order to address that can elevate the charging speeds of lithium-ion secondary the problem, the research team enhanced both the safety and batteries by more than four times. performance of lithium-ion secondary batteries by developing a Amid the expansion of the electric vehicle and energy stor- nonflammable electrolyte highly compatible with graphite cath- age system (ESS) markets, efforts are being made to improve odes and putting a thin and stable surface protection layer with the energy density and charging speeds of lithium-ion batteries. low surface resistance on the surface of a graphite cathode. The In particular, researchers focus on increasing the stability of findings of the research were published on the Aug. 2 online an electrode surface protection layer, which determines the life edition of "ChemSusChem," an international journal on energy and safety of lithium-ion batteries. They seek to stabilize an elec- and chemistry.

79 Science & Technology

Overrunning Conventional Wisdom Korean Research Team Identifies Energy Sources of Cancer Cells By Choi Moon-hee

team of Korean researchers has Until now, cancer cells have been A team of Korean researchers has confirmed that Aconfirmed for the first time in known to metabolize through a process the energy source of cancer cells is fatty acid the world that the energy source of can- of decomposing glucose into lactic acid. the team found out that while the energy cer cells is fatty acid. The result overruns Based on this research, Otto Warburg source of normal cells is glucose, cancer a study by German physiologist Otto took home the Nobel Prize in physiology cells entirely rely on fatty acid oxidation. Warburg who nabbed the Nobel Prize in and medicine in 1931. In an actual test of mice with pan- physiology and medicine in 1931. Professor Kim's team produced dif- creatic cancer, cancer incidence dropped The National Cancer Center ferent results from Warburg’s findings fourfold when fatty acids were replaced announced on Sept. 14 that a team led by through cell and animal tests. When War- with carbohydrates. professor Kim Soo-yeol of the Depart- burg conducted tests, they used a culture "The four-fold decrease in cancer inci- ment of Cancer Biology Research con- fluid containing only glucose, which led dence just by replacing fatty acids with car- firmed that the energy source of cancer to erroneous results. Kim's team conduct- bohydrates as the energy source is an effect cells is fatty acid. The results of the study ed cell tests under conditions similar to comparable to cancer treatment," Kim were published in the latest issue of Can- those of the human body to confirm that said. "Our research results suggest that cers, an international, peer-reviewed cancer cells use more oxygen and grow new treatments can be introduced based on Open Access journal. faster than normal cells. In this process, blocking cancer energy metabolism."

Stable at a High Temperature KIST Develops Atomic Catalyst for Solid Oxide Fuel Cells By Choi Moon-hee

he Korea Institute of Science and A solid oxide fuel cell, which is oper- TTechnology (KIST) announced able even at over 700 degrees Celsius, that its research team led by Dr. Yoon is the most efficient type of fuel cell. A conceptual diagram of single-atom catalyst devel- Kyung-joong has developed an innovative In addition, it enables combined cycle oped by KIST single-atom catalyst in cooperation with power generation in which hydrogen is um oxide nanoparticles and succeeded Hanyang University professor Lee Yoon- reproduced by steam cracking during in fixing the atoms at a uniform distance jeong. power generation. However, the fuel cell of approximately one nanometer on the According to the institute, the cata- can be commercialized only when there surface of the cerium oxide particles in a lyst uses a very small amount of plati- is a catalyst that is stable at a high tem- solid oxide fuel cell electrode. The cata- num and yet is stable even at a high tem- perature. lyst boosted the reaction rate of the elec- perature of over 700 degrees Celsius, and Platinum-based catalysts, which are trode by at least 1,000 percent and stably thus it is capable of significantly enhanc- in wide use in the fuel cell industry, are operated for more than 500 hours at over ing the performance of a solid oxide fuel incomparable in performance. How- 700 degrees Celsius to quadruple power cell. “Each platinum atom in the catalyst ever, the atoms of the catalysts tend to generation and hydrogen production. reacts as a single atom, without agglom- agglomerate and are structurally unstable The title of the team’s research paper erating, even at a high temperature,” the at a high temperature and, as such, plat- is Highly Active and Thermally Stable research team explained, adding, “This inum-based single-atom catalysts have Single-atom Catalysts for High Temper- means the platinum catalyst can be never been applied to solid oxide fuel ature Electrochemical Devices. Details applied to solid oxide fuel cells as well as cells for high-temperature operation. of the research are available in the latest low-temperature fuel cells such as those The research team caused a strong edition of the Energy & Environmental in hydrogen electric vehicles.” bond between platinum atoms and ceri- Science journal.

80 Lifestyle

90% of Top 100 Companies Introduce Work from Home Many Companies Positive about Telecommuting as Anti-COVID-19 Measure

By Choi Moon-hee

he Korea Employers Federation has recently conducted a survey with the top 100 companies in terms of sales About 90 percent of Korea's top 100 companies in terms of sales have intro- T duced telecommuting after the government implemented Level 2.5 social dis- and announced on Sept. 13 that office workers of 88.4 per- tancing measures. cent of the respondents are telecommuting and it is about to be applied to those of 2.9 percent of the respondents. to 79 percent. The federation explained that those high levels According to the result of the survey, none of the respon- of receptiveness have to do with the fact that the survey cov- dents are applying telecommuting to their manufacturing work- ers large corporations capable of managing the productivity of ers. Instead, those companies are minimizing their contact by telecommuting by utilizing IT programs, job and performance means of an additional paid leave of absence, schedule adjust- management tools, and the like. ment and similar measures for the purpose of COVID-19 infec- Slightly more than 53 percent of the respondents mentioned tion prevention. that telecommuting would be expanded in the post-COVID-19 When it comes to the work productivity of office employees era whereas the opposite answer was given by 33.9 percent. The working from home, 46.8 percent of the respondents answered federation said that systems for performance-oriented person- that the productivity is 90 percent or more of that of working nel management and better in-house communication are very from office. In addition, 25.5 percent evaluated it as 80 per- important for successful telecommuting and flextime in the era cent to 89 percent and 17 percent evaluated it as 70 percent of Industry 4.0.

Korea Ranked 3rd behind Germany, New Zealand Germany, New Zealand and South Korea Classified as Countries Safest from COVID-19

By Choi Moon-hee

eep Knowledge Group (DKG) recently classified South DKorea 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. DKG’s COVID-19 regional safety assessment Specifically, the IMF lowered its economic growth forecasts for Germany, South Korea and China, which ranked seventh, by ments amounted to 3.7 percentage points, 3.7 percentage points 0.8 percentage point, 0.9 percentage point and 0.2 percentage and 2.1 percentage points for the United Kingdom, Italy and the point, respectively. On the other hand, the downward adjust- United States, which came in 31st, 43rd and 55th.

81 LIFESTYLE

Twitter's Emoji Campaign Garners Attention from Fans 46 Million Tweets Generated about BTS’s Number One Song on Billboard Chart

By Yoon Young-sil

hen the BTS’s digital single "Dynamite" topped Billboard's Hot W100 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 #방탄소년단 was initially provided as a flame- mentioned related keywords from Aug. 3 to Sept. 3 in the Korean time, when like image and replaced with a disco ball image in the name of the single "Dynamite" was first disclosed. line with a music video schedule without a prior Twitter, in particular, effectively garnered much attention from BTS Army notice. fans around the world by launching a special emoji campaign at a time when Currently, a Twitter account run by the BTS BTS first unveiled its new single "Dynamite." The emoji, which automatically members has 28.64 million followers while the applies to tweets using hashtags #BTS and #Dynamite and #방탄소년단 and official BTS Twitter account has 23.25 million.

In Cooperation with 3 Partners KT to Introduce AI-powered Companion Robots for Kids and Senior Citizens

By Choi Moon-hee

T announced on Sept. 17 that it has signed a memorandum of under- Kstanding (MOU) with Stage Five, Nuwa Robotics, and Ashoka Korea An AI companion robot from Nuwa Robotics to promote the artificial intelligence (AI)-powered companion robot business. Under this agreement, the four companies will develop and commercialize Through this business agreement, the four next-generation AI companion robots for kids and senior citizens by combin- companies will release AI companion robots in the ing their expertise in AI, telecommunications, robots and content. first half of 2021. The AI companion robots will Stage Five is an affiliate of Kakao that specializes in telecommunication provide customized services for kids and senior and the Internet of Things (IoT). It will be in charge of developing specialized citizens using their moving arms and heads and content for AI companion robots by age group. Giga Genie AI-based interactive contents. Nuwa Robotics is a global social robot company that specializes in hard- Contents for kids will consist of services that ware such as robotic joints and robot software of its own development. can increase children's physical activities by utiliz- Stage Five and Nuwa Robotics established a partnership in April to tap ing AI robots' dynamic moves, not general learn- into the global robot market. The agreement is expected to create greater syn- ing and play-oriented contents. ergies. Senior contents will include providing care Ashoka Korea is the Korean branch of Ashoka, a global non-profit organi- to people with dementia, becoming companions zation based in the United States engaged in discovering and supporting social to chat with, giving medication guides, and other innovation entrepreneurs to solve social problems. Ashoka Korea's participa- contents for active senior citizens. Senior citizens tion is expected to add social value to contents to be used in AI companion will be able to use the service through a simple robots. voice command.

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