Will Korea get caught in net of US export restrictions aimed at curbing China’s chip sector?

Posted on : 2024-03-18 16:48 KST Modified on : 2024-03-18 16:48 KST
Overseas media have reported that South Korea has begun talks with the US regarding Seoul’s participation in export controls aimed at stopping the rise of China’s chip sector
US Commerce Secretary Gina Raimondo takes part in a ministers meeting on Nov. 14, 2023, for the Indo-Pacific Economic Framework for Prosperity, where she signs a supply chain agreement known as Pillar II agreed upon in May of that year. (Yonhap)
US Commerce Secretary Gina Raimondo takes part in a ministers meeting on Nov. 14, 2023, for the Indo-Pacific Economic Framework for Prosperity, where she signs a supply chain agreement known as Pillar II agreed upon in May of that year. (Yonhap)

The US is moving to technologically contain China by restricting its access to cutting-edge technology. The key behind this strategy is restricting exports of semiconductor manufacturing equipment (SME). To remain competitive in the semiconductor industry, manufacturers must maximize mass production while minimizing production defects. Washington is attempting to block the essential manufacturing equipment from entering China. Japan and the Netherlands are cooperating with these efforts, and overseas media is reporting that Germany and South Korea will join. 

Washington’s multinational semiconductor equipment export controls seem effective because of the nature of the industry’s value chain. The US accounts for most of the industry’s chip design and SME. Japan mainly controls materials and manufacturing equipment, while South Korea and Taiwan are responsible for manufacturing itself. 

China rules the back end — mainly packaging and testing — but lacks the technical prowess for design and manufacturing equipment. China’s imports of semiconductor manufacturing equipment amounted to US$25.3 billion in 2020, US$39.9 billion in 2021, and $28.8 billion in 2022 — indicating a high level of dependence on outside sources. 

Washington has determined that China’s reliance on such imports is the bottleneck of its semiconductor industry. In October 2022, the Biden administration announced export controls for logic chips with a “technology node” 16/14 nanometers or less, NAND memory integrated circuits with 128 layers or more, and DRAM integrated circuits using a production technology node of 18-nanometer half-pitch or less. In October 2023, the export controls were expanded to include SME. The new wave of controls focused on deep ultraviolet (DUV) lithography equipment, a key part of semiconductors’ micro-processing. The original controls only targeted extreme ultraviolet (EUV) lithography equipment. 

Overseas media have reported that South Korea has begun talks with the US regarding Seoul’s participation in such export controls. Responding to such reports, the South Korean government declared on Thursday, “Our participation in the semiconductor export controls has not been decided.” 

However, the government added, “Generally speaking, export controls require multi-party talks beyond the bilateral level, as stipulated in the Wassenaar Arrangement.” In short, Seoul has not dismissed the possibility of such talks. 

Domestic experts are advising that South Korea approaches the issue with caution. Although the export controls may delay the progress of China’s semiconductor development, they may also fan China’s desire for complete manufacturing independence. 

“China has such high internal demand for semiconductors that the export controls may just further their desire for technological independence,” said Kim Kyung-ki, a professor of electronic engineering at Daegu University. 

Last year, China announced plans to launch a state fund, under its China Integrated Circuit Industry Investment Fund (also known as the Big Fund), with the goal of raising an astronomical US$40 billion that will go towards domestic SME. 

According to a report on US semiconductor export controls released by the Korea Institute for International Economic Policy in November of last year, “The rise of China’s internal SME capacity presents more of a threat to South Korean SME firms, which have a closer competitive relationship with Chinese firms than semiconductors sectors in the US, the Netherlands, or Japan — countries that enjoy effective monopolies in their respective sectors.”

“Lam Research and Applied Materials, both US companies, recently derived around 40% of their revenue from exports to China, an increase from before,” said Cha Yong-ho, an analyst at eBest Investment and Securities. 

“The US is not exactly being strict in its enforcement of export controls when it comes to American SME companies,” Cha added. 

There are concerns about the US continuing to expand its monopoly over the international market while pushing through policies that will encourage a unilateral supply chain. 

“It’s undeniable that the export controls are delaying China’s ability to produce cutting-edge semiconductors,” said Kim Yang-paeng, a senior researcher for the Korea Institute for Industrial Economics and Trade.

“While Korean companies can currently sell to the Chinese market, there is a lot of hesitation, considering the situation with the US. In the long-term, the export controls may negatively impact the globalization of Korean firms,” Kim added.

By Lee Wan, staff reporter

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