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  3. /South Korea tries to reassure China on supply chain amid US pressure over exclusive ‘chip alliance’

South Korea tries to reassure China on supply chain amid US pressure over exclusive ‘chip alliance’

Economy / July 24, 2022 / DRPhillF / 0

Chip Image: VCG

South Korea faces a dilemma over whether or not to join the US-led “Chip4” semiconductor alliance, with President Yoon Seok-yeol calling for “active diplomacy” with China to ensure there is no misunderstanding over its potential participation, Yonhap News Agency reported. the news.

Yoon’s wisdom on the subject pointed to South Korea’s meticulous calculations of the gains, if any, versus losses from potential participation, as South Korea’s export-centric economy would be hit hard if it blindly joined the US technological throttling of China, South Korea’s largest. business partner, observers said.

If South Korea blindly followed the US, its chip exports would be hit hard, hurting the $40-50 billion annual chip trade with China, Han Xiaomin, general manager of Jiwei Insights in Beijing, told the Global Times on Friday. .

South Korea’s chip trade with other countries is about $150 billion annually, and chip trade with China accounts for about 30 percent.

Ma Jihua, a veteran technology analyst, told the Global Times on Friday that cooperation between China and South Korea in the field of chips is very close, almost inseparable.

Ma said South Korea is upstream in most areas, but now, some South Korean chip companies have a large number of manufacturers in China for production as well as research and development, and the chips used by some South Korean companies are also made in China.

SK Hynix announced in May its plans to build a new chip manufacturing base in Dalian, northeast China’s Liaoning province, to expand its business in China after acquiring US chip giant Intel’s assets in the region.

NAND flash memory chips made by Samsung Electronics’ Xi’an factory account for more than 40 percent of its NAND flash memory output, while 45 percent of SK Hynix’s total DRAM chip production is produced in Wuxi, east China’s Jiangsu Province, according to Southern. Korean media.

Samsung’s financial report for the first quarter of 2022 showed that the company’s net revenue in China amounted to 10.46 trillion won ($7.98 billion), or 13% of the total.

“The chip industries of South Korea and China have become intertwined in the past 20 years, and it is almost impossible to separate the two explicitly,” Ma said.

Workers make semiconductors at a company in Guiyang, southwest China's Guizhou Province.  Photo: cnsphoto

Workers make semiconductors at a company in Guiyang, southwest China’s Guizhou Province. Photo: cnsphoto

Who is behind?

In March, the United States proposed the idea of ​​”Tranche 4″ and sent invitations to Japan, South Korea and the Chinese island of Taiwan. But four months later, South Korea has not provided a clear answer.

According to South Korean media, without prior negotiations and coordination, the United States unilaterally informed South Korea that a meeting on the issue is scheduled for the end of August.

Adding to the pressure, US Treasury Secretary Janet Yellen appeared in Seoul on Tuesday, claiming to end the United States’ “unwarranted dependence” on rare earth elements, solar panels and other major commodities from China, according to Reuters.

Adhering to the “America First” idea, Ma said, would certainly be the biggest beneficiary of such an alliance, while Japan and South Korea would be the two victims, citing precedents in history.

The semiconductor industry in Japan experienced rapid development in terms of design and manufacture two decades ago, and has become a “threat” to the chip sector in the United States. Then the United States imposed several rounds of additional tariffs on Japanese products, giving preference to South Korea to develop the semiconductor industry.

“Suppressing one country while supporting another is a typical practice of the United States,” Ma said.

Ma said that Japan’s chip industry’s biggest loss was not profits, but the opportunity to build a complete advanced industry chain. “Japan has a number of high-tech products, but does not have a complete industrial chain due to the activities of the United States,” he noted.

“Even if South Korea joins the US alliance, it will not be able to get any newer technology from the US, but it will only be seen as a tool to contain China,” Ma said.

“The United States will get a portion of the Chinese market, which was once owned by South Korea, if Seoul succumbs to pressure from Washington,” said Wang Ping, a researcher with the Beijing Academy of Social Sciences.

Photo taken on November 8, 2021 shows South Korea's Amore Pacific booth at the Fourth China International Import Expo (CIIE) in Shanghai, eastern China.  Photo: Xinhua

Photo taken on November 8, 2021 shows South Korea’s Amore Pacific booth at the Fourth China International Import Expo (CIIE) in Shanghai, eastern China. Photo: Xinhua

bigger picture

Experts said the rise in bilateral trade with China is another important reason for Yun’s hesitation, as South Korea attaches more importance to the Chinese market, which is geographically closer than the United States.

China has been South Korea’s largest trading partner for 18 consecutive years, and bilateral trade is roughly the same as South Korea’s trade with the United States, Japan and the European Union combined.

In 2021, bilateral trade exceeded $360 billion, more than 60 times the level recorded 30 years ago when the two countries established diplomatic relations.

China’s Ministry of Commerce said Thursday that China and South Korea have made significant progress in the second phase of China-South Korea FTA talks.

The two sides held nine rounds of formal negotiations. They have negotiated a high-level liberalization of trade in services and investment through the negative list model, and the negotiations have made significant progress.

Since the signing of the China-South Korea Free Trade Agreement in 2015, the two sides have reduced tariffs eight times, and China has eliminated tariffs on more than 40 percent of imported goods from South Korea.

China and South Korea have achieved a high degree of integration over the past 30 years, and their industry and supply chains are deeply intertwined, Chinese Ambassador to South Korea Sheng Haiming said at a forum on Thursday, referring to industrial cooperation.

Market watchers said the South Korean economy has been hit hard by the global supply chain crisis, and how to boost its economy is also an important agenda for the government. The government introduced policies to stabilize the supply chain, which achieved certain results. However, the global supply chain situation has not seen any substantive improvement this year.

In addition, the outbreak of conflict between Russia and Ukraine has put the South Korean economy to another test. Also, the recent general strike in the shipping sector in South Korea has taken a heavy toll on the industries in the country and exacerbated the supply chain crisis.

Although China’s semiconductor industry lags behind the United States in terms of patents and South Korea hopes to industrialize, it hopes to outpace its competitors by adopting revolutionary new technologies for chip design.

Bloomberg reported Friday that SMIC has likely upgraded its production technology for two generations, defying US sanctions aimed at stemming the rise of China’s largest chip maker.

The Shanghai-based manufacturer is shipping a bitcoin-mining semiconductor produced using 7-nanometer technology, industry watchdog TechInsights wrote in a blog post on Tuesday. This is far ahead of the 14nm technology created by SMIC.

Ma said the export of 7nm chips represents a major advance for the country’s chip industry, which means its chip manufacturing has broken the US embargo to some extent. If chips can be mass-produced, China will proceed to increase chips.

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