[Helpless Technology Leak] Korean Technology Flowing to China... Could Become a Pretext for US Trade Friction

US-China Hegemony Struggle Sparks Concerns Over Korean Technology Leakage Due to Government Oversight
Government Evaluates Approval for Mid-sized Firm MagnaChip Semiconductor's Sale to China
Exodus of Key Talent and Technology Calls for Government Vigilance and Strengthened Response

[Sejong=Asia Economy Reporter Kwon Haeyoung] "The leakage of core industrial technologies such as semiconductors to China is not only a technology security issue but now must be approached within the broader framework of the U.S.'s technology blockade against China." (Director General for Trade, Ministry of Trade, Industry and Energy)

Since the inauguration of the Joe Biden administration in the U.S., concerns have arisen that the leakage of industrial technology to China could potentially become a source of conflict between South Korea and the U.S. The U.S.-China trade war is escalating into a battle for technological supremacy, and the U.S. is accelerating efforts to exclude China from global supply chains, especially in advanced industries, making domestic responses increasingly important. If the issue of technology leakage escalates beyond damaging domestic industrial competitiveness to a question of the South Korean government's management capabilities, it could also provoke friction with the U.S.

According to the Ministry of Trade, Industry and Energy on the 5th, they are deliberating whether to approve the sale of MagnaChip Semiconductor, a mid-sized system semiconductor company, to China. They are currently reviewing whether the company holds any national core technologies.

This is in accordance with the national core technology overseas M&A reporting system introduced in 2012. This system requires institutions holding national core technologies developed with government R&D funding to obtain government approval when proceeding with foreign investment such as overseas M&A. Initially operated as a reporting system, it was changed to an approval system starting last year.

According to data submitted by the Ministry of Trade, Industry and Energy to Rep. Kwon Myungho of the People Power Party, since the system's introduction, the government has accepted and approved a total of six overseas M&A reports. From 2012 to 2019, there were two reports in the automobile sector, one in railways, and one in biotechnology, but last year alone, two overseas M&A cases in the electrical and electronics sector were approved.

MagnaChip is the first case this year subject to approval for overseas M&A involving national core technology. The company produces display driver ICs (DDI), which are core semiconductors that operate organic light-emitting diode (OLED) panels for TVs and smartphones. If the technology required for DDI chip design and production qualifies as national core technology, the sale will be blocked. Last month at the National Assembly, Hong Namki, Deputy Prime Minister and Minister of Economy and Finance, stated regarding MagnaChip, "It is judged that the company's semiconductor technology does not include the 30nm foundry manufacturing technology, which is designated as national core technology." At a recent confirmation hearing at the National Assembly, Moon Seungwook, the new Minister of Trade, Industry and Energy, said, "The expert committee is currently reviewing whether it qualifies as national core technology," adding, "We will examine it closely and take necessary measures if protection is required."

However, the industry's view of the MagnaChip sale process is filled with concerns. Some see it as a d?j? vu of 'Hydis.' In 2002, China's BOE acquired Hydis, which was the predecessor of SK Hynix's liquid crystal display (LCD) division and possessed world-class technology, absorbing all its technology and know-how. Using this as a foothold, BOE began LCD production in June 2003 and has since grown into the world's number one LCD company.

As China continues its blatant 'Korean technology copying,' including recruiting core talents and M&A in domestic semiconductors, secondary batteries, and displays, as well as illegal technology theft, there are calls for the government to respond with greater vigilance to the issue of technology leakage.

Professor Jung Ingyo of Inha University's Department of International Trade said, "Technology leakage to China, including the sale of semiconductor companies, is no longer just a private company issue in the context of U.S.-China conflict. Technology security can now be seen as a matter of our government's management capability, so we must carefully make policy decisions and respond thoroughly, considering the protection of our industrial competitiveness and changes in the international situation."

Japan and Taiwan, which are at odds with China, are raising the level of government responses to personnel and technology leakage. This is to prevent damage to national competitiveness and to align with the U.S., which is engaged in a technology war with China.

The Japanese government plans to establish a consultative body this year to discuss economic security with major economic organizations and companies and to have major corporations appoint executives responsible for economic security. Taiwan has decided to ban employment in mainland China to prevent semiconductor personnel leakage. It restricts job introductions and advertisements for China and imposes fines of up to 5 million New Taiwan dollars (approximately 200 million KRW) for violations.