A plan to limit the number of advanced chips made by South Korean companies in China is under consideration by the United States. It is likely that the move will have a negative effect on South Korean technology giants such as Samsung and SK Hynix, which have large investments in China.
According to a Reuters report, Alan Estevez, the undersecretary of the United States Commerce Department for Industry and Security, said that Washington is likely to add a cap to the number of chips that will be manufactured in China by South Korean companies. This comment was made by Estevez, who supervises the Chinese trade restrictions, during an event in Washington, hosted by the Center for Strategic and International Studies.
There have been a number of investments made by South Korea in semiconductor foundries in China, including:
It is estimated that there is a total market value of $70 billion worth of memory chips produced in South Korea every year. As one of the world’s largest semiconductor producers, Samsung Electronics and SK Hynix have invested billions of dollars in key manufacturing facilities as part of their expansion plans in China, the South Korean semiconductor economy is primarily driven by two of the world’s largest semiconductor producers.
It is important to understand that Samsung Electronics has two main production facilities in China. One of them is located in Xi’an, where Samsung manufactures NAND (flash memory), while the other one is located in Suzhou, where Samsung manufactures DRAM (dynamic random access memory). Apart from these facilities, Samsung has also established three advanced R&D centers in China, which is more than it has in its country of origin, and this is more than it has in any other country of the world. With a capacity of 15,3%, Samsung Xi’an covers 42.5% of its global capacity for NAND production and 42.5% of its total NAND production. In the first phase of the investment, the tech giant will spend an initial $7 billion on the production facility, making it the largest overseas investment the company has ever made.
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It is important to note that, SK Hynix does not have any R&D centers in China, but the company has built its production facilities for DRAM and NAND memory chips in Wuxi, Chongqing, and Dalian despite the fact that it doesn’t have any R&D centers here. There are more than 40% of all the DRAM chips manufactured in the company’s Wuxi factory. As well as these two tech companies that have established their bases in China, there are many other South Korean fabless semiconductor firms and startups that are establishing themselves there as well.
In what ways does South Korea find itself in a dilemma?
The Chinese market is the largest market for semiconductor companies in South Korea at the moment. It has been estimated that mainland China and Hong Kong account for more than 60% of the country’s semiconductor exports, according to data from the Korea International Trade Association. South Korea, however, has found itself in a difficult situation because of the ongoing US-China trade war.
The South Korean economy will take a downturn if a chip production cap is placed on South Korean companies in China. The companies will face severe losses and the South Korean economy will suffer a severe hit. There have been no official discussions between South Korea and the United States on setting a limit for technology and production levels between South Korea and the United States to date, according to South Korea’s Minister of Industry.
Further, he explained that both South Korea and the US have agreed to not let the sanctions and policies affect the current and future investments of Korean companies in China in the event that sanctions are imposed. The US Export Restrictions were lifted for Samsung Electronics and SK Hynix in October of last year, allowing these two companies to continue exporting to the country. Currently, the country is planning to enter into a dialogue with the Americans in order to extend the reprieve.
