South Korea tries to secure China’s supply chain as US pressures proprietary ‘chip alliance’

Photochip: VCG

South Korea faces the dilemma of whether or not to join the US-led “Chip 4” semiconductor alliance, as President Yoon Suk-yeol has called for “active diplomacy ” with China to ensure that there are no misunderstandings regarding its possible participation. The news agency reported.

Yoon’s caution on the subject pointed to South Korea’s careful calculations of gains, if any, versus losses from a possible stake, as South Korea’s export-centric economy would be hit hard if it blindly joined the American technology that is suffocating China, the largest country in South Korea. trading partner, according to observers.

If South Korea blindly follows the United States, its chip exports will take a big hit, hurting its $40 billion to $50 billion-a-year chip trade with China, Jiwei chief executive Han Xiaomin said on Friday. Insights in Beijing.

South Korea’s chip trade with other countries is about $150 billion per year, and chip trade with China accounts for about 30%.

Cooperation between China and South Korea in the field of chips is very close and they are almost “inseparable”, veteran technology analyst Ma Jihua told the Global Times on Friday.

Ma said South Korea is upstream in most areas, but now some South Korean chip companies have a large number of manufacturers in China for production as well as research and development, and the chips used by some South Korean companies are also made in China.

SK Hynix announced plans in May to build a new wafer manufacturing base in Dalian, northeast China’s Liaoning province, further expanding its China business after acquiring the assets of the US chip giant. Intel in the region.

NAND flash memory chips manufactured by Samsung Electronics’ Xi’an factory account for more than 40% of its NAND flash memory production, while 45% of SK Hynix’s total DRAM chip production is produced in Wuxi, China. Jiangsu province (eastern China), according to South Korean media.

Samsung’s first-quarter fiscal report for 2022 showed the company’s net revenue in China was 10.46 trillion won ($7.98 billion), or 13% of the total.

“The microchip industries of South Korea and China have become intertwined over the past 20 years, and it’s almost impossible to frankly separate them,” Ma said.

Workers manufacture semiconductors at a company in Guiyang, southwest China’s Guizhou Province. Photo: cnsphoto

Who is behind?

In March, the United States proposed the idea of ​​”Chip 4″ and sent invitations to Japan, South Korea and the Chinese island of Taiwan. But four months later, South Korea has yet to give a clear answer.

According to South Korean media, without prior negotiations and coordination, the United States unilaterally informed South Korea that it was to hold a meeting on the issue in late August.

Adding to the pressure, US Treasury Secretary Janet Yellen showed up in Seoul on Tuesday, saying she was ending the US’ “undue reliance” on rare earths, solar panels and other key products from China, according to Reuters.

True to the idea of ​​”America first”, the United States will certainly be the biggest beneficiary of such an alliance, while Japan and South Korea will be the victims, Ma said, citing precedents in history.

Japan’s semiconductor industry experienced rapid development in both design and manufacturing two decades ago, becoming a “threat” to the US chip industry. The United States then imposed several rounds of additional tariffs on Japanese products, while granting preferences to South Korea to develop its semiconductor industry.

“Oppressing one country while supporting another is typical US practice,” Ma said.

Japan’s chip industry’s biggest loss was not profits, but the opportunity to build a comprehensive cutting-edge industrial chain, Ma said. “Japan has a number of high-tech products, but not complete industrial chain due to the activities of the United States,” he noted.

“Even if South Korea joins the US alliance, it will not be able to get newer technology from the US, but will only be seen as a tool to contain China,” Ma said.

“The United States will have a share of the Chinese market, which once belonged to South Korea, if Seoul bows to pressure from Washington,” said Wang Peng, a researcher at the Beijing Academy of Social Sciences.

Photo taken on Nov. 8, 2021 shows the booth of South Korea’s Amore Pacific at the 4th China International Import Expo (CIIE) in Shanghai, east China. Photo: Xinhua

A bigger picture

Experts said the boom in bilateral trade with China is another important reason for Yoon’s hesitation, as South Korea attaches more importance to the Chinese market, which is geographically closer than the United States. .

China has been South Korea’s largest trading partner for 18 consecutive years, and bilateral trade is about the same as South Korea’s with the United States, Japan and the EU combined.

In 2021, bilateral trade exceeded $360 billion, more than 60 times the level recorded 30 years ago when the two countries established diplomatic relations.

China’s Ministry of Commerce said on Thursday that China and South Korea have made substantial progress in the second phase of talks on the China-South Korea free trade agreement.

The two sides have held nine rounds of formal negotiations. They have conducted negotiations on high-level liberalization of trade in services and investment through a negative list model, and the negotiations have made substantial progress.

Since signing the China-South Korea FTA in 2015, the two sides have cut tariffs eight times and China has eliminated tariffs on more than 40 percent of goods imported from South Korea.

China and South Korea have achieved a high degree of complementarity over the past 30 years, and their industry and supply chains are deeply intertwined, Chinese Ambassador to South Korea Xing Haiming said Thursday during a meeting. a forum, focusing on industrial cooperation.

Market watchers said South Korea’s economy has been hit hard by the global supply chain crisis, and how to boost its economy is also an important program for the government. The government has put in place policies aimed at stabilizing the supply chain, which have achieved some results. However, the global supply chain situation has not seen fundamental improvement this year.

Moreover, the outbreak of the conflict between Russia and Ukraine put the South Korean economy to the test again. Additionally, a recent general strike in the South Korean freight sector has resulted in huge losses for the country’s industries and aggravated the supply chain crisis.

Although China’s semiconductor industry lags behind the United States in patents and South Korea in manufacturing, it hopes to leapfrog its rivals by adopting revolutionary new chip design techniques.

Bloomberg reported on Friday that China’s Semiconductor Manufacturing International Corp (SMIC) has likely advanced its production technology by two generations, defying U.S. sanctions meant to halt the rise of China’s biggest chipmaker.

The Shanghai-based manufacturer is shipping bitcoin mining semiconductors produced using 7-nanometer (nm) technology, industry watcher TechInsights wrote in a blog post on Tuesday. This is well ahead of SMIC’s established 14nm technology.

The export of 7nm chips is a big breakthrough for the country’s chip industry, which means its chip manufacturing has broken the U.S. blockade to some extent, Ma said. , China will embark on an increase in chips.