Illustration: Liu Xidan/GT

South Korea's government and parliament are considering providing cash subsidies instead of tax credits to companies building battery production facilities in the nation,MK socks Bloomberg reported on Monday, referencing the Korea Economic Daily. 

Some analysts suggest that such a move could enhance the prospects for domestic battery manufacturing in South Korea. Given the mutual economic complementarity within the battery supply chain between China and South Korea, collaboration in this sector is expected to bolster the development of South Korea's battery industry and help the nation capitalize on emerging opportunities.

South Korea aspires to become a global battery powerhouse. According to a report by The Korea Times in November 2022, the government is aiming to make South Korea-produced batteries account for at least 40 percent of the global market share by 2030. 

However, South Korea's path toward promoting localized production appears fraught with challenges. According to Bloomberg, the South Korean government is considering the introduction of cash subsidies as more companies are building plants outside the country. According to a report in Securities Times, the US offers more attractive incentives for new energy investments, subsidy policies and lower investment risks compared with South Korea. Consequently, major South Korean new-energy companies are increasingly shifting their investments to the US, leading to a significant decline in domestic investments.

While increasing cash subsidies can certainly encourage companies to boost local production in South Korea, the more critical factor is the establishment of a comprehensive ecosystem and a complete industrial chain that is conducive to the development of the battery industry and local manufacturing.

Lithium-ion batteries are a commonly used type of battery, which has four key materials - cathodes, anodes, separators and electrolytes. According to a report by the Korea Herald, South Korea is highly dependent on imports in these areas. In these areas, China and Japan occupy an important share of the global industrial chain.

This, among other reasons, explains why South Korea should strengthen its battery supply chain cooperation with China. Such collaboration would help South Korea expand its domestic battery production and enhance its industrial competitiveness.

The long-standing cooperation between the Chinese and South Korean battery industries has proven mutually beneficial. The complementarity of both countries facilitates a stable supply chain by enhancing industrial collaboration. Through this partnership, South Korean companies can secure a more reliable supply of essential raw materials from China, thereby mitigating risks related to resource shortages, price volatility and other uncertainties.

Between January and November 2024, 97.2 percent of South Korea's total graphite imports - a crucial material for secondary battery anodes - originated from China, South Korean media outlet Maeil Business Newspaper reported. 

The collaboration between the Chinese and South Korean battery industries also provides numerous advantages to South Korea's battery sector and related enterprises in other aspects.

Collaboration between both countries can facilitate technological exchanges and jointly propel the iterative advancement of battery technology. By partnering with Chinese companies, South Korean companies could accelerate the commercialization of innovative technologies. 

The US previously provided substantial subsidies to battery companies through the Inflation Reduction Act, attracting South Korean battery firms to invest in manufacturing facilities in the US. However, with the Trump administration's announcement that it would suspend these subsidy policies, these South Korean companies now face risks such as declining returns on investment. 

This situation poses a severe threat to cooperation between South Korea and the US in the battery supply chain. To mitigate the negative impact of the US cancellation of battery subsidies, South Korea needs to strengthen cooperation with China and industrial chains in Asia.

By enhancing industrial cooperation with China and other Asian countries, South Korea can work with these countries together to create a more integrated supply chain system, leading to an overall enhancement of supply chain efficiency and resilience. In light of global supply chain disruption risks, regional nations can support each other to ensure the stable functioning of the battery industry.

The author is a reporter with the Global Times. [email protected]