The fourth wave of industrial revolution is surging, the small chip is a matter of national security, has become the front line of U.S.-China competition. In order to ensure a stable supply of chips and control China, the U.S. restructuring of the global semiconductor supply chain is increasingly accelerated.
At the same time, China is seeking to break through the U.S. locking measures to achieve chip self-reliance. In this context, as one of the key players in the global semiconductor industry, South Korea is increasingly difficult, especially its reliance on the Chinese market will cause multiple risks. For this reason, from business to government, South Korea is seeking a more balanced layout to reduce dependence on China.
The White House will hold a meeting on the chip issue Samsung may be asked to choose sides?
Recently the United States in the restructuring of the chip supply chain action after action. Following last week’s discussion of the chip supply issue at the trilateral talks between the U.S., Japan and South Korea’s national security advisers, news has emerged that next week the White House will invite representatives of relevant industry companies to hold a meeting on the issue. According to Bloomberg, citing officials familiar with the matter, national security adviser Sullivan and National Economic Council Director Brian Deeds will discuss the impact of chip supply shortages and future countermeasures with business representatives on the 12th, and industry giants such as South Korea’s Samsung Electronics and TSMC are invited to attend. The official also said that the White House is in contact with Congress and allies on the issue.
As the United States is conducting a 100-day assessment of the supply chain of the semiconductor industry and other industries, the recently released $2 trillion infrastructure plan and emphasis on heavy investment in the semiconductor industry, combined with these circumstances, the Korean industry believes that the meeting will not just stop at figuring out the solution to the current shortage, but will also focus on the medium and long-term goal of strengthening the U.S. domestic semiconductor manufacturing base, seeking the cooperation and support of enterprises, specific measures may Including the request for additional factories, etc. Samsung Electronics already has a foundry in Austin, Texas, and will invest $ 17 billion to build additional, is currently negotiating with the state of Texas on favorable terms.
One of the more interesting issues is whether Samsung will be asked to choose sides between the U.S. and China at the meeting. Although Samsung has not issued any position so far, but according to “Money Today” (Money Today) and other Korean media, citing sources familiar with the matter, Samsung held a special meeting last weekend to discuss the White House’s invitation. The United States and China are both important markets and production bases for Samsung. Last year, Samsung Electronics’ semiconductor sales to the United States and China were about 51.9 trillion won and 49.3 trillion won respectively, which is comparable; in addition to the aforementioned U.S. factories, Samsung Electronics has a semiconductor production plant and a packaging plant in Xi’an and Suzhou, China, and a second plant in Xi’an is under construction at a cost of $15 billion.
Research member Moon Jong-cheol of the Korea Industrial Research Institute (photo courtesy of himself)
Moon Jong-cheol, a research member at the Korea Industrial Research Institute, a policy research institute, told VOA that “from Samsung’s standpoint, it is actually quite difficult,” but “the important thing is that Samsung cannot continue its business without the support of intellectual property rights (from the U.S.), so it cannot completely Therefore, it is impossible to completely ignore the U.S. request.
The Korea Semiconductor Industry Association (KSIIA) Special Affairs Director Ahn Ki-hyun also said, “Korea’s semiconductor industry is dependent on the U.S. source technology development, and this has not changed.
Korea’s semiconductor dependence on China is high under the U.S.-China competition risk is rising
Whether it is export or production, the overall Korean semiconductor industry is more dependent on China than Samsung has ever been. South Korea’s Ministry of Industry, Trade and Resources released data show that last year, South Korea’s exports to China (including Hong Kong) semiconductor exports of $60.65 billion, nearly eight times the amount of exports to the United States. SK Hynix, another major South Korean semiconductor maker with a flash memory production base in Wuxi, China, has also acquired Intel’s flash memory business, located mainly in Dalian, and accelerated the relocation of a domestic Korean foundry to Wuxi.
In response to this situation, the Industrial Research Institute issued a report recently with two warnings. The report points out that Korea’s overly China-biased export structure for semiconductors and the intricate materials, components and equipment industry structure of Korea and China are likely to, firstly, make Korea’s industrial ecosystem suffer a huge blow in the event that the U.S. completes its semiconductor supply chain assessment and imposes further sanctions on China; secondly, if the U.S.-China chip war escalates and China unilaterally stops the supply of basic materials, Korea’s industrial supply chain will inevitably be impacted. Therefore, South Korea “especially needs to conduct a careful analysis of the structure of the semiconductor industry linked to China”.
The South Korean government is clearly aware of this risk. The meeting between the Chinese and South Korean foreign ministers, held almost simultaneously with the trilateral talks between the U.S., Japan, and South Korean national security advisors, discussed economic cooperation between the two countries, although there were significant differences in the outcomes of the meetings released by the two countries afterwards. The Chinese Foreign Ministry explicitly mentioned that China is willing to strengthen cooperation with the ROK in areas such as 5G, big data, artificial intelligence, and integrated circuits (semiconductors), while the ROK Foreign Ministry only mentioned in general terms that the two countries agreed to sign a joint plan for Korea-China economic cooperation as soon as possible, without specifying areas other than cultural industries.
Raymond Pacheco Pardo, Associate Professor of International Relations at King’s College London (photo courtesy of himself)
In response, Raymond Pacheco Pardo, associate professor of international relations at King’s College London, analyzed that the Moon Jae-in administration has been insisting that no country should be excluded from the cooperation program, and that China may interpret this as a willingness to cooperate with China in high-tech fields such as semiconductors and 5G, “but Seoul’s priority partners in these fields are clearly the United States, Europe and other partners such as Australia and Japan. Europe and other partners such as Australia and Japan.”
China’s push for the rise of semiconductors poses a threat to South Korea
Even without considering the impact of U.S.-China competition, South Korea fears it will be difficult to continue to see China as only a huge market and production base as China vigorously develops its semiconductor industry. In order to bypass the U.S. technology blockade, China relies on strong capital to continue to acquire advanced semiconductor technology by acquiring companies around the world. 2019, Chinese companies accounted for three of the world’s 10 largest semiconductor mergers and acquisitions, although the objects of the mergers and acquisitions do not hold the core technology related to national security, but are ranked in the semiconductor segment of the leading European and American companies. Last year, a Japanese IDM semiconductor companies also by Chinese companies in the bag, IDM refers to the set of design and development, manufacturing, packaging and testing, the whole industry process in one vertically integrated model, Intel, Samsung and other global giants are IDM companies. This model has become a major trend in the global semiconductor industry.
China’s move also poses a threat to the Korean industry. China’s acquisitions of South Korean companies are mainly focused on the field of chip design, which is China’s weak link and one of the main reasons for the repeated failure of large chip projects and the collapse of a large number of companies in China. According to South Korean media statistics, five South Korean chip design companies have been acquired or controlled by Chinese capital since 2015. The latest deal was made at the end of last month, and the acquired Megna is the second largest player in the global OLED panel driver chip market, after Samsung Electronics. Such acquisitions, while unable to boost the overall strength of China’s semiconductor industry, can propel Chinese companies to achieve rapid growth in some segments and capture the domestic market. For example, South Korean drive chip companies’ exports to China have been affected by the development of local Chinese companies.
Moon Jong-cheol said that competition from China is indeed a very worrying part for South Korea, even more so in the current global semiconductor supply shortage. Companies can be absorbed by the market as long as they produce, which is an opportunity for semiconductor companies in various countries. “From the standpoint of South Korea is now standing in the leading position, if this opportunity China’s competitiveness has been improved, then after the imbalance between supply and demand of semiconductors is alleviated, it will have to compete in the market that has changed, and then Samsung and other Korean companies are likely to be unable to take the ‘cowardly game ( chicken game’ strategy”, “once you can not continue to lead, it is very likely to cause a crisis”.
South Korea seeks to reduce dependence on China
From any perspective, reducing dependence on China has become an inevitable choice for South Korea’s semiconductor industry. SK Hynix said at its shareholders’ meeting late last month that it is exploring the option of establishing R&D centers in the U.S. and Europe. Although the specific details have not been disclosed, but this is SK Hynix after nine years again to promote the new R & D stronghold in Europe and the United States, the industry is widely believed that this move is to deal with the possibility of the future part of the chip manufacturing industry transferred to Europe and the United States.
At the same time, the South Korean government recently approved the world’s largest semiconductor industry cluster project in Gyeonggi Province, which will start construction in the second half of this year at the earliest. The project aims to build a research and development and manufacturing base for semiconductors and related industries, promote the localization of basic semiconductor materials, components and equipment, and attract foreign companies to locate and Korean companies to return.
Pardo pointed out that although China is the largest market for South Korea’s semiconductors, but South Korea will remain cautious about deep cooperation with China due to the consideration of technological advantages. In particular, “South Korea has benefited from the U.S. curbs on Chinese semiconductors, and will continue to benefit in the future (slightly) Samsung and SK Hynix revenue will continue to rise, will also receive preferential terms when investing, which means they will continue to be ahead of competitors.
Moon Jong-che also believes that, as China promotes semiconductor self-sufficiency, the domestic market will be filled by local Chinese companies, in short for Korean companies, “will eventually form the effect of a decline in the share of the Chinese market”.
“In the future, South Korea will sell chips to China within the scope of the U.S. sanctions,” and the relationship between the two countries in this area will be just “between suppliers and customers,” Pardo predicted.
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