[Peace&Chips] US Election Demands China Erasure... Korean Semiconductor Industry 'Dizzy'

South Korea's Semiconductor Industry on Alert Amid US Supply Chain Restructuring Intent
China Sanctions to Continue After Midterm Elections
Industry Reacts Seriously Despite Talks of Withdrawing from China
Private Sector Steps Back... Diplomatic and Policy Support Needed

Editor's NoteSemiconductors. We hear about them every day, but when it comes to explaining the concept, it's hard to find the words. They are called the rice of modern industry, so it's something you must know about, yet articles and books on semiconductors are often so difficult that people avoid them. But did you know that semiconductors are actually quite fascinating? Even a single semiconductor component hides the mechanisms of the entire industry and the interests of nations. Peace and Chips will spoon-feed you the hidden contexts and meanings of this somewhat uncomfortable semiconductor field. Just place your spoon and enjoy.

[Asia Economy Reporter Kim Pyeonghwa] Last week, as the U.S. midterm elections took place, the domestic industry watched closely. Since the U.S. is reorganizing supply chains with a focus on nationalism, they wanted to observe potential policy shifts depending on the election results. Especially in the semiconductor industry, where the business share in China is significant, there was keen interest in how the U.S. would direct its semiconductor sanctions against China. Observers suggest that the U.S.'s pressure on China will continue and may intensify at times. This has led to opinions that domestic semiconductor companies might need to reduce or withdraw their operations in China.

Both Samsung Electronics and SK Hynix have semiconductor factories in China. Samsung Electronics operates a NAND flash factory in Xi'an and a DRAM back-end process factory in Suzhou. SK Hynix has DRAM and NAND back-end process facilities in Wuxi and Chongqing, respectively. After acquiring Intel's NAND business, they also established a site in Dalian. The NAND and DRAM produced by Samsung Electronics and SK Hynix in China account for about 40% and 50% of their total production, respectively.

However, last month, the U.S. imposed export controls on advanced semiconductor equipment destined for China, triggering alarms for domestic companies. Since each piece of equipment within the regulation requires a license for entry into Chinese factories, business difficulties have increased. Fortunately, the regulation has been deferred for one year for Korean companies, providing some relief, but the uncertainty remains high as the situation beyond the next year is unclear. Last month, SK Hynix CEO Noh Jong-won commented, "If the one-year deferment is not extended and licenses must be obtained for each piece of equipment, the situation could become difficult," adding that "various scenarios such as selling fabs and equipment or bringing equipment into Korea are being considered."

However, industry insiders believe that withdrawing from the Chinese market would be an extremely exceptional case. They argue that actual withdrawal is unlikely. Some even assert, "Unless there is a war in China, such a possibility does not exist." The industry has invested heavily in China for purposes such as expanding production facilities, and given that China is the largest consumer of semiconductors and a neighboring country, it is impossible to ignore the advantages of the Chinese market. For example, according to data received by Kim Hoe-jae, a member of the National Assembly's Industry, Trade, Energy, Small and Medium Business Committee (Democratic Party), from the Ministry of Trade, Industry and Energy, Samsung Electronics invested $17.06 billion (approximately 22.5 trillion KRW) in China from 1997 to 2020. SK Hynix invested even more, pouring in $24.9 billion (approximately 32.8 trillion KRW).

Ultimately, diplomatic capabilities beyond individual industrial units are seen as the key to resolving these issues. It is advised to participate in the U.S.-led supply chain consortium Chip4 (Korea, U.S., Japan, Taiwan) while seeking a breakthrough through sufficient communication with China. There are concerns that China could impose sanctions on Korea using resources such as rare earth elements as leverage. Similar to Japan, which recently allocated a budget of 370 billion yen (approximately 3.5 trillion KRW) to achieve material self-reliance, Korea must also actively seek countermeasures. The recent visit of Thea Kendler, U.S. Deputy Assistant Secretary for Export Administration, who mentioned close communication with domestic companies regarding semiconductor equipment export controls, is a positive signal.