South Korea’s decision to join the “Chip 4” alliance has yet to be finalized, and South Korea worries that joining the alliance will damage relations with China, especially at such a sensitive time. However, some analysts say that even if South Korea chooses to join, China will not be able to retaliate on a large scale.
The “Korea Times” analysis pointed out that it is because China is restricted by US chips and cannot produce high-end chips by itself, but at the same time it is the world’s largest chip consumer. China relies heavily on chips provided by South Korea, and it does not make sense to impose economic retaliation on South Korean chip companies.
China is still the world’s factory in the semiconductor industry, with Chinese manufacturing accounting for 70% and 81% of the world’s laptops and mobile phones, respectively. In 2021, China imported $350 billion in wafers to be processed into products, accounting for 13% of total imports.
China plans to invest $1.4 trillion in high-tech industries in 2025, with a goal of achieving a self-sufficiency rate of 70 percent. As China’s semiconductor industry focuses heavily on labor- and capital-intensive wafer fabrication, assembly, test and packaging, the ambitious annual target can only be achieved with the support of U.S. and South Korean chipmakers. U.S. restrictions on China’s high-end semiconductors have dealt a severe blow to China’s plans.
SMIC plays an important role in driving China’s semiconductor market, but the U.S. cuts off key equipment it needs to make advanced semiconductors. Another leading Chinese manufacturer, Yangtze Memory Technologies, faces the same problem. Washington plans to ban equipment for NAND chips from being shipped to China due to national security concerns.
Due to the complexity of the wafer supply chain, it is very important for China to develop advanced semiconductor manufacturing equipment (SME) to maintain self-sufficiency, but China does not have such technologies and tools, such as lithography machines. Developing this technology is very expensive and time-consuming.
Kim Young-Woo, head of research at SK Securities, said China might not advance its “leapfrog strategy” without South Korea’s help, and China needs at least South Korea’s support to keep its technology industry afloat.
China’s role in the semiconductor market remains important
However, even with the existence of the “chip quartet,” China’s role is still important. This is because, as mentioned above, China is the largest chip factory in the world.
An aide to former President Moon Jae-in said several U.S. industries have been affected by a tightening of the semiconductor supply chain, contributing in part to inflation in the U.S. economy. It’s too early for the U.S. to fully decouple from Beijing in the semiconductor industry, and any oversupply of chips would have a severe impact on U.S. corporate profits: “We shouldn’t underestimate the importance of China as it can play a key role in solving the inventory problem, China The impact is recognized by the countries of the Quartet.”
And given that China may still impose restrictions on other Korean industries, South Korea’s exports are highly dependent on China, and other sanctions will still have an impact on South Korea even if Beijing is unable to start in the semiconductor industry. The situation is similar to the THAAD issue in the era of former President Park Ji-hye. The “Korean Restriction Order” has hit South Korean companies.
As such, South Korea is looking to position its participation in the chip quartet to ensure South Korea can continue to work with Beijing, rather than excluding a particular country. South Korea is planning to comment on why China’s role is so important to U.S. corporate interests.
