Fierce 'Semiconductor Three Kingdoms'... Does Korea Have a Silk Pouch? [Reading Science]

[Asia Economy Reporter Kim Bong-su] The United States and China are engaged in a fierce global technology hegemony competition, particularly clashing sharply over semiconductors. South Korea is caught in the middle, resulting in a 'Korea-China-US' semiconductor tripartite struggle. What is the current score, what are the US and China ultimately aiming for, and how should we respond?

◇ China Approaching the US's Doorstep

According to the 'US-China Semiconductor Conflict and Implications' trend report published last month by the Ministry of Science and ICT, the US and China, competing for global technology supremacy, are locked in a life-or-death conflict over semiconductors, a core of advanced ICT.

China, based on its economic power that has caught up to the US's doorstep since fully implementing its reform and opening-up policy in the 1990s, has issued a strong challenge. As of last year, China's GDP was at 73.5% of the US's, and it is expected to surpass the US after 2030.

Based on this, China's scientific and technological capabilities are close to the US in key future growth sectors such as quantum, bio, and communications. In artificial intelligence (AI), from 2012 to 2021, China has outproduced the US in the number of papers and approached the US in citation counts, showing rapid growth both quantitatively and qualitatively. For example, China's facial recognition technology is world-class, and the Go AI 'Zhe' easily defeats the US's 'AlphaGo Zero.'

In quantum technology, China ranks second after the US in cumulative paper output and citation counts from 2010 to 2020. In semiconductors, China is dominant in manufacturing and production, expected to hold a 24% global market share by 2030. China has installed about 700,000 5G base stations, far surpassing the US's 50,000, and in genetic science, China ranks second after the US in cumulative papers related to CRISPR gene editing. China's manufacturing output reached $4,000 trillion in 2019, nearly double the US's $2,300 trillion. Its R&D investment scale has already reached 90% of the US's as of 2020, a dramatic increase from one-ninth in 2000.

However, the semiconductor sector remains a weakness. China's semiconductor imports in 2021 amounted to $468.6 billion, 1.8 times more than its crude oil imports ($255 billion). Its technology development level is also insufficient. Although China leads in patent output, it lags far behind the US, Europe, and Japan in advanced technologies, such as the number of 'triadic patents' registered with the US, Japanese, and European patent offices, and average citation counts, ranking similar to South Korea. Conscious of this, China is actively pursuing investment policies under the banner of semiconductor advancement. Among major semiconductor countries, China ranks first in government R&D support scale and proportion. As of 2019, government R&D support amounted to $5.5 billion, three times more than the US's $1.5 billion.

[Image source=Yonhap News]

◇ The US Counterattack

In response to China's pursuit, the US launched a counterattack with the CHIPS Act, which took effect in August this year. The aim is to rebuild the semiconductor production base within the US and strengthen advanced semiconductor manufacturing capabilities. A total of $54.2 billion (about 70 trillion KRW) is being allocated to support the domestic semiconductor industry, with conditions preventing beneficiary companies from establishing advanced semiconductor factories in China, North Korea, Iran, and other countries. Additionally, the US has formed the CHIPS 4 alliance with South Korea, Japan, and Taiwan to secure the global semiconductor supply chain.

The US is imposing export, investment, and financial sanctions to curb China's semiconductor self-reliance efforts. Companies such as Huawei, Fujian Jinhua Semiconductor, and HiSilicon have been added to the export control list, banning the export of semiconductor materials, components, equipment, and products containing US technology. Furthermore, through the Foreign Investment Risk Review Modernization Act (FIRMA) and the Committee on Foreign Investment in the United States (CFIUS), the US is blocking Chinese companies' semiconductor acquisitions. Direct and indirect investments in Chinese military-related companies are also prohibited.

On the 25th, at the world’s first GAA-based 3nm mass production shipment ceremony held at Samsung Electronics Hwaseong Campus in Hwaseong-si, Gyeonggi-do, Lee Chang-yang, Minister of Trade, Industry and Energy, and Kyung Kye-hyun, CEO of Samsung Electronics, along with other executives, participated in the ceremony. The 3nm process is the most advanced technology among semiconductor manufacturing processes, and GAA is also known as a next-generation core technology that enhances semiconductor efficiency through precise control. / Hwaseong ? Photo by Kim Hyun-min kimhyun81@

◇ China Bypasses with 'Human Wave Tactics'

With US sanctions blocking the introduction of advanced technology and equipment, China is pioneering bypass routes using its massive financial resources and mature technologies. This is reminiscent of the 'human wave tactics' devised by the Chinese People's Volunteer Army during the Korean War when they were overwhelmingly disadvantaged in equipment. China is massively expanding mid- to low-end semiconductor manufacturing plants focused on 7nm and above, which are not subject to sanctions as they are not advanced technologies. Chinese semiconductor company SMIC reportedly succeeded in the 7nm process last August and announced an $8.9 billion (about 11.7 trillion KRW) investment to build a 28nm semiconductor production plant in Shanghai.

China is also significantly increasing production bases for compound semiconductors and power semiconductors, which do not require advanced silicon semiconductor technology. From last year through 2024, China plans to establish 31 new production facilities for power semiconductors used in automobiles, smartphones, and electronic products, and has acquired a Dutch power semiconductor company and a British foundry company. China's status as the largest producer of key semiconductor materials such as aluminum, gallium, magnesium, and tungsten is also a major weapon.

China's ambitious semiconductor advancement is gradually showing results. Through 'Made in China 2025,' China has achieved remarkable progress in securing technologies for semiconductor design, foundry, and equipment, creating a self-sufficient semiconductor ecosystem. Furthermore, it aims to develop design technology and memory and compound semiconductors below 10nm. The number of semiconductor-related companies in China is a staggering 73,000, with 20,000 new companies established in 2020 alone. China is also finding various ways to overcome US sanctions. When the US banned exports of semiconductor design technology containing its intellectual property to China, China began research and development using the freely available open-source RISC-V Instruction Set Architecture (ISA). A representative example is the establishment of the Beijing Kaixin Institute last year to research RISC-V based CPU projects.

A semiconductor manufacturing plant of SMIC located in Shanghai, China. Photo by Bloomberg

◇ Long-term Strategies of the US and China and South Korea's Response

The US aims to regain the global market share No.1 through the CHIPS Act by enhancing domestic manufacturing capabilities and talent development, while suppressing China to minimize its self-sufficiency and maintaining the current technological gap of about 10 years. It is also analyzed that the US plans to use subsidies to prevent semiconductor companies from other countries, such as Samsung Electronics and Taiwan's TSMC, from upgrading technology in their Chinese factories. In response, China is aggressively investing in mid- to low-end semiconductor manufacturing facilities to increase its market share in power and home appliance semiconductors. It is also expected to focus more on securing independent technology and the compound semiconductor market by utilizing general-purpose semiconductor technology.

Amid this US-China semiconductor conflict and long-term strategies, how should South Korea respond? The report points out, "Although it may take time, it is necessary to nurture domestic semiconductor design and equipment industries and provide policy support for material independence," adding, "Long-term R&D support is needed to break away from the memory semiconductor-centric structure and enhance competitiveness in design, foundry, and semiconductor equipment industries. South Korea's memory-focused semiconductor industry must seek new solutions for sustainable growth."