South Korean display industry still paying a heavy price for Chinese deal

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While South Korea has a reputation for innovation, its economic development over the past half-century has been driven in large part by its ability to “absorb” and develop technologies — whether in the chip, battery, auto or shipbuilding sectors — that were invented elsewhere.

This was achieved principally through officially sanctioned “technical co-operation” with US and Japanese companies long since replaced as market leaders by their former partners. But it was sometimes supplemented by sharper practices. In one famous case dating back to the late 2000s, South Korea’s Kolon Industries paid $360mn in penalties and compensation over a conspiracy to convert trade secrets relating to the production of Kevlar body armour fibre from US chemicals giant DuPont.

Now South Korea finds itself potentially being subjected to similar practices from China — a problem illustrated by a legal battle being waged in the US between Samsung Display and Chinese state-owned rival BOE Technology, formerly Beijing Oriental Economics.

In 2018, several senior employees of Toptec, one of Samsung Display’s Korean subsidiaries, were charged with leaking intellectual property to the Chinese company. Five former and current Toptec employees, including the chief executive, and three intermediaries have since been handed prison sentences by the Korean courts. Last week, Toptec’s former head of sales received three years for violating the country’s Unfair Competition Protection Act and laws concerning the theft of trade secrets.

“This act not only made [Samsung’s] efforts obsolete, it could also hugely damage the nation’s industrial competitiveness,” the judge declared.

In October, Samsung Display filed a complaint against BOE with the US International Trade Commission to stop the Chinese company from selling displays in the US that Samsung alleges contain its stolen technology. On Friday, the ITC confirmed it was opening an investigation into BOE on the basis of Samsung’s complaint. BOE did not immediately respond to a request for comment on the allegations.

The display industry features much less prominently than chips or batteries in debates on economic security and supply chain resilience. But its importance goes beyond how sharp an image you can enjoy on your smartphone, laptop or TV. In the coming age of autonomous vehicles and weapons and virtual and augmented reality, cutting-edge display technologies will be vital components in next-generation military systems.

That helps explain why South Korea and China both take it so seriously. Display is the only technology other than semiconductors to feature on all four of the South Korean government’s lists of core technologies. According to South Korean government figures, between 2016 and 2023 Chinese entities successfully stole more technology from the South Korean display sector than from any other industry apart from the chip sector.

Samsung and fellow South Korean display maker LG still enjoy a technological edge in top-end organic light-emitting diode displays, but this may not last for long. Last week BOE, which has already squeezed its South Korean rivals out of the lower end LCD market, announced it was building a $9bn advanced OLED production facility in the Chinese city of Chengdu.

The Chinese company’s advance illustrates how South Korea’s technological superiority over its east Asian neighbour is slowly slipping away. But as Ben Forney, a researcher at Seoul National University notes, the story of BOE and South Korea goes back much further than the Toptec scandal.

In 2003, the Chinese company acquired Hyundai Display Technology, then a subsidiary of the Korean SK Group conglomerate. BOE sent 132 Chinese staff to South Korea to integrate the two companies’ systems — a process the South Korean company did not survive. “By 2008, HDT had gone bankrupt, while BOE has since emerged as one of the largest display companies in the world,” says Forney. “HDT was left for dead, and it was all entirely legal.”

In short, BOE is now threatening Samsung’s position at the high end of the global display market because Korea Inc did so much to help the Chinese company get off the ground in the first place. While Seoul is now making serious efforts to clamp down the “tech leakage” to China in a wide range of sectors, the mystery is how a country so adept at “absorbing” technologies from overseas should have left it so late.

christian.davies@ft.com