China close to US semiconductor sanctions…”Korea will cooperate in supply” unilateral announcement

China, which has launched a counterattack against U.S. semiconductor sanctions, is trying to hold on to South Korea.

According to China’s Ministry of Commerce on July 27, Ahn Deok-geun, head of the trade negotiations department at the Ministry of Trade, Industry and Energy, and Wang Wentao, China’s vice minister of commerce, met on the sidelines of the Asia-Pacific Economic Cooperation (APEC) trade ministers’ meeting in Detroit, U.S., the previous day and held bilateral talks. The high-level economic dialogue between the two countries comes at a time when relations between China and South Korea have deteriorated in recent months, as Beijing has reacted to South Korean President Yoon Seok-yul’s comments on Taiwan. In a press release issued shortly after the meeting, China’s Ministry of Commerce unilaterally claimed that “the two countries agreed to strengthen cooperation in the semiconductor supply chain.”

Ahn Duk-geun (L), head of the Trade Negotiations Division of South Korea’s Ministry of Trade, Industry and Energy, shakes hands with Chinese Vice Minister of Commerce Wang Wentao before their meeting at the WBC Hotel in Detroit, U.S., on Sept. 26 (local time)./Ministry of Trade, Industry and Energy

“Under the strategic leadership of the two leaders, China-ROK economic and trade relations have deepened and developed,” Wang said during the meeting, adding that China’s high-level opening-up to the outside world will provide new opportunities for countries around the world, including South Korea. “China is willing to work with South Korea to deepen bilateral trade and investment cooperation, as well as safeguard industrial chain and supply chain stability.” The Chinese Ministry of Commerce went on to say, “The two sides agreed to strengthen dialog and cooperation in the areas of semiconductor industrial chain and supply chain.”

However, South Korea’s Ministry of Trade, Industry and Energy (MOTIE) did not mention semiconductors in its press release after the meeting. “They discussed ways to develop bilateral economic cooperation based on mutual respect,” the ministry said, adding, “Ahn requested the Chinese side’s attention and support to facilitate trade and stabilize the supply and demand of key raw materials and components, and asked for cooperation to create a predictable business environment for Korean invested companies in China.” The South Korean side said they discussed a wide range of supply chain cooperation, including minerals, raw materials, and components, rather than specific sectors. Ahn’s emphasis on “bilateral cooperation based on mutual respect” and “a predictable business environment for Korean invested companies” could also be interpreted as an expression of dissatisfaction with the business conditions in China following the THAAD retaliation.

People leave the building of Micron’s China headquarters in Shanghai, China.

China’s announcement of “strengthening bilateral semiconductor cooperation” without sufficient prior consultation comes at a time when South Korea desperately needs China to fight back against U.S. sanctions on semiconductors. On Nov. 21, China announced sanctions on U.S. memory chipmaker Micron, citing cybersecurity risks at the company. The idea is that China will stop purchasing Micron products for its information infrastructure, including data, transportation, and finance, to hurt the United States. Last year alone, Micron generated KRW 4 trillion in sales in China, or 11% of its total revenue. The U.S.-China semiconductor war has been characterized by the U.S. unilaterally pushing back against China with the “Chip 4” (South Korea, the U.S., Japan, and Taiwan)메이저사이트 and the “Semiconductor Support Act,” but now China is fighting back in earnest.

The problem is that the cooperation of Korean semiconductor companies is essential for China’s counterattack to succeed. China, which accounts for 24% of the world’s semiconductor consumption, has to source NAND flash from Chinese companies such as YMTC (Changjiang Memory) and D-RAM from South Korea’s Samsung Electronics and SK Hynix. South Korean companies will also need to ensure a smooth supply of advanced memory to China over the next few years to allow time for China’s D-RAM memory leaders, such as CXMT, to raise their technology levels. For now, the global memory semiconductor market is “oversupplied,” minimizing the impact of Micron’s exit on China’s supply chain, but over time, reliance on Korean-made chips will only increase.

With Japan and other Western countries actively participating in the U.S. sanctions on mass-market semiconductors, China cannot afford to lose South Korea. Currently, the global semiconductor industry is dominated by the “big four” of Korea, Japan, Taiwan, and Europe, while China seems to be isolated. In particular, Taiwan, a powerhouse in the foundry (semiconductor contract manufacturing) sector, and semiconductor equipment powerhouses Japan and the Netherlands are rapidly forming a new semiconductor supply chain in partnership with the United States. The U.S. government announced sanctions last October that effectively prohibit U.S. companies from exporting advanced semiconductor equipment to Chinese semiconductor producers, and in January called on Japan and the Netherlands to join them in controlling exports of mass-market semiconductor equipment. In the process, South Korea, which has a large semiconductor production base in China, has become an active target for China as it is forced to walk a tightrope between the US and China.

China’s dialog with South Korea was also prompted by voices in the U.S. Congress on the 23rd of this month calling for “Korean semiconductor companies not to fill Micron’s shoes in China.” As the U.S. Commerce Department continued to pressure South Korea to stand by its side after the announcement of China’s sanctions, China also sent a message to South Korea through Wang Wentao.

The U.S.-China semiconductor war is expected to be a long-term war, so domestic semiconductor companies cannot line up with a specific country. This is because if they make a unilateral decision to side with the US or China, they could suffer huge losses. In China, Samsung Electronics produces 40 percent of NAND Flash, and SK Hynix produces 40 percent of D-RAM and 20 percent of NAND Flash. These large-scale production lines are difficult to replace in a short period of time. Some analysts believe that as the US-China semiconductor war intensifies, the production base in China becomes a shield for Samsung and SK Hynix to ensure their sales in China. It is argued that Samsung-SK Hynix filling the Micron void in China is good for the U.S. because it slows down China’s progress toward semiconductor independence.