{"id":2197964,"date":"2022-08-04T18:40:53","date_gmt":"2022-08-04T09:40:53","guid":{"rendered":"https:\/\/www.nknews.org\/pro\/?p=2197964"},"modified":"2023-04-05T16:11:47","modified_gmt":"2023-04-05T07:11:47","slug":"why-south-koreas-biggest-chipmakers-are-betting-big-on-us-over-china","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/08\/why-south-koreas-biggest-chipmakers-are-betting-big-on-us-over-china\/","title":{"rendered":"Why South Korea\u2019s biggest chipmakers are betting big on US over China"},"content":{"rendered":"

In a rare <\/span>video call<\/span><\/a> last week between U.S. President Joe Biden and SK Hynix chief Chey Tae-won, the South Korean business mogul pledged some $22 billion to expand high-tech investment in the U.S.<\/span><\/p>\n

\u201cThis is the big deal,\u201d Biden said, praising Chey for helping create thousands of American jobs in <\/span>semiconductors, pharmaceuticals, electric cars and energy storage. SK follows competitor Samsung\u2019s <\/span>$17 billion investment<\/span><\/a> in Texas to build an advanced chip factory there.\u00a0<\/span><\/p>\n

\u201cThese kinds of technology investments used to go to China,\u201d Biden added.<\/span><\/p>\n

The string of investments were not just major economic gains for Americans but also a promising development for the Biden administration, which has asked Seoul to join its exclusive semiconductor coalition with Japan and Taiwan to form the so-called Chip 4 alliance.\u00a0<\/span><\/p>\n

While the South Korean government has largely embraced the idea, it has been mindful of the reaction in Beijing, which the Washington-led initiative is designed to isolate. China is South Korea\u2019s biggest export market and production hub, where over 40% of Samsung and SK\u2019s chips are made.\u00a0<\/span><\/p>\n

Amid reports that the U.S. requested Seoul decide on joining Chip 4 by the end of August, foreign minister Park Jin <\/span>denied<\/span><\/a> there was a deadline on Monday, and insisted the network is not designed to counter China, while ICT minister Lee Jong-ho said Seoul will <\/span>weigh the cost and benefits<\/span><\/a> of membership.<\/span><\/p>\n

But South Korea\u2019s largest chipmakers appear to have already decided that the U.S. is the future with long-term, multibillion-dollar deals.\u00a0<\/span><\/p>\n

\u201cThey started to recognize that it is more crucial to join the U.S.-led global chip production chain, even though they lose some Chinese clients in the long run,\u201d Kim Sei-wan, professor of economics at Ewha Womans University, told <\/span>Korea Pro<\/span><\/i>.<\/span><\/p>\n

With further geopolitical and economic uncertainties ahead, South Korea\u2019s IT giants have already started to cut their losses in the Chinese market, while signing onto Washington\u2019s <\/span>\u201cfriend-shoring\u201d policy<\/span><\/a>.<\/span><\/p>\n

\"\"

President Biden at a virtual meeting with SK Hynix chief Chey Tae-won<\/span>, July 2022 | Image: The White House<\/p><\/div>\n

WRITING ON THE WALL<\/b><\/p>\n

While embracing cooperation with China on supply chains and R&D to sustain <\/span>economic growth<\/span><\/a> on the back of semiconductors, South Korea is <\/span>aware of the risks<\/span><\/a> that accompany overreliance on the Chinese market. These were demonstrated in 2016-2017, when China applied arbitrary trade controls in retaliation to Seoul\u2019s support for a U.S.-led missile defense system, costing South Koreans <\/span>billions in GDP<\/span><\/a> and thousands of jobs.\u00a0<\/span><\/p>\n

Since then, <\/span>major tech firms<\/span><\/a> from around the world appear to be exiting from or reducing their engagement with the Chinese market. No doubt <\/span>regulatory crackdowns<\/span><\/a>, heavily <\/span>subsidized local rivals<\/span><\/a>, growing <\/span>labor costs<\/span><\/a> and China\u2019s <\/span>draconian anti-COVID-19 policies<\/span><\/a> have affected these decisions.<\/span><\/p>\n

But more than anything, \u201cthe writing was on the wall\u201d for South Korean chipmakers when Beijing announced its <\/span>five-year plan<\/span><\/a> to reach 70% self-sufficiency in all sectors of chip production by 2025, according to JR Reagan, CEO of ideaXplorer, a tech consultancy firm based in South Korea.<\/span><\/p>\n

W<\/span>ith <\/span>$1.4 trillion<\/span><\/a> devoted to the cause<\/span>, the Chinese government has been handing out <\/span>generous state funds to domestic companies to build billion-dollar plants and <\/span>bankrolling<\/span><\/a> thousands of new semiconductor firms and R&D projects each year with subsidies and <\/span>below-market loans<\/span>.<\/span><\/p>\n

\u201cWith its 2025 year plan, China is shutting them out anyway. So it\u2019s just downsizing their <\/span>operations, just like a lot of other Korean and European businesses in China,\u201d Reagan told <\/span>Korea Pro<\/span><\/i>.<\/span><\/p>\n

Samsung first moved to <\/span>wind down<\/span><\/a> its China operations in 2018, as the company\u2019s smartphone sales fell from first to twelfth place in the Chinese market in <\/span>just five years<\/span><\/a>. It shuttered three smartphone plants in Shenzhen, Tianjin and Huizhou by 2019, leaving just three factories in China, including two semiconductor plants where <\/span>production has declined<\/span><\/a> amid the pandemic.\u00a0<\/span><\/p>\n

The Korean tech giant is also reducing headcounts, with current operations in China employing 70% fewer people than in 2013, according to <\/span>company records<\/span><\/a>.<\/span><\/p>\n

For its part, SK Hynix was more bullish on the Chinese market before the pandemic, but it too appears to have hit a wall just three years after opening a massive DRAM plant in early 2019 and <\/span>acquiring Intel\u2019s NAND chip business<\/span><\/a> in Dalian for $9 billion a year later. But neither investment has apparently <\/span>panned out<\/span><\/a> in the wake of <\/span>COVID-19<\/span><\/a> and <\/span>U.S. pressure<\/span><\/a> to curb vital chip materials and equipment from entering the Chinese market<\/span><\/p>\n

The $280 billion <\/span>CHIPS and Science Act<\/span><\/a> that just passed Congress certainly provides a major carrot for foreign chipmakers. Samsung has announced <\/span>multibillion-dollar investment <\/span><\/a>schemes into the <\/span>U.S. market<\/span><\/a> since late last year and SK announced in May it would build a $1 billion R&D center for artificial intelligence and NAND chips in the U.S. as well.<\/span><\/p>\n

\"\"

The SK Group logo on a building, Feb. 2022 | Image: SK Group<\/p><\/div>\n

VALUABLE ECONOMIC PARTNERSHIP<\/b><\/p>\n

At this juncture, South Korea\u2019s government and private sector both seem to be in favor of joining Chip 4. As chipmaking stretches across various parts of the world, from lithography and etching to packaging, worries over Chinese economic retaliation are outweighed by the fear of missing out on a global network of supplies and production.<\/span><\/p>\n

\u201cThe U.S. leads in chip design and possesses a large number of IPs and original technologies. Countries that don\u2019t participate in the chip alliance could find themselves losing out,\u201d Kim of Ewha Womans University said.<\/span>\u00a0<\/span><\/p>\n

While <\/span>South Korea<\/span> dominates<\/span><\/a> the global market in areas such as memory, materials and wafer fabrication, it would be vastly more difficult to reach these heights without core materials produced by Japan and high-end equipment from the U.S., Kim explained. <\/span>\u201cChina knows this, making it unlikely it would retaliate strongly.\u201d<\/span><\/p>\n

Last month, the head of the National Assembly\u2019s committee on semiconductors Yang Hyang-ja <\/span>expressed support<\/span><\/a> for the alliance, indicating that the Yoon Suk-yeol administration is leaning toward joining the initiative. The Samsung Electronics executive-turned-lawmaker described the U.S. as a \u201cfirst-class semiconductor powerhouse,\u201d with South Korea, Taiwan, Japan, Europe and China being its \u201ctenants.”\u00a0<\/span><\/p>\n

As geopolitical tensions continue, supply chains are likely to “bifurcate into a blue supply chain of U.S., Europe and the West, and red supply chains coming from China and the rest,\u201d according to Reagan.<\/span><\/p>\n

\u201cKorea seems to be choosing the blue side of this equation to build its technological ecosystem,\u201d he said. \u201cMoney\u2019s already pouring into the U.S. and it looks like Seoul will join this chip alliance.\u201d<\/span><\/p>\n

Edited by Arius Derr<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Domestic Politics<\/span><\/a>Inter-Korean & Foreign Relations<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

In a rare video call last week between U.S. President Joe Biden and SK Hynix chief Chey Tae-won, the South Korean business mogul pledged some $22 billion to expand high-tech investment in the U.S. \u201cThis is the big deal,\u201d Biden said, praising Chey for helping create thousands of American jobs in semiconductors, pharmaceuticals, electric cars […]<\/p>\n","protected":false},"author":3665,"featured_media":2197983,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[21],"tags":[24,27,28],"yoast_head":"\nWhy South Korea\u2019s biggest chipmakers are betting big on US over China - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2022\/08\/why-south-koreas-biggest-chipmakers-are-betting-big-on-us-over-china\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why South Korea\u2019s biggest chipmakers are betting big on US over China - 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