Dissuading from Investment
The industry ministry of South Korea put a quick brake to South Korean semiconductor and display companies’ advancement into China. This is because there is concern about technology leaks can lead to weakened high-tech industry competitiveness. This means that the government takes into consideration Chinese retaliation against South Korea over its deployment of the THAAD System and the creation of jobs.
Baek Woon-kyu, minister of trade, industry and energy, made a remark to recommend South Korean semiconductor and display companies to reconsider making a foray into the Chinese market in a meeting with their representatives at Kensington Hotel in Yeouido, Seoul on September 18, The meeting was attended by key industry leaders including Kwon Oh-hyun, vice chairman of Samsung Electronics, Park Sung-wook, vice chairman of SK Hynix and Han Sang-beom, vice chairman of LG Display.
Ministry Baek recommended Samsung Electronics to review its plan on the expansion of the Chinese plant in Xian in a meeting behind closed doors that lasted for about an hour. "It is fine to build plants at current sites in Pyongtaek among others in South Korea. Do you have to build or expand your plant in Xian, China?” minister Baek said. “Didn’t you watch Lotte retaliated and withdraw from China because of the THAAD System? South Korean semiconductor companies have not fallen victim to Chinese retaliation. But if Chinese semiconductor companies catch up with South Korean semiconductor companies, they will suffer from Chinese retaliation as Lotte did.” Vice chairman Kwon Oh-hyun was said to have avoided answering immediately.
Samsung Electronics announced in August that the company will build two 3D NAND flash factories by investing 7.8 trillion won (US$7.0 billion) in Xian, Shanxi Province of China over the next three years. The global semiconductor giant signed an MOU on the construction of a plant with Shanxi Province. SK Hynix also announced a plan to invest in DRAM expansion in Wuxi, China.
As minister Baek expressed a negative viewpoint about South Korean companies’ making a foray into China, there is growing concern that it may interrupt not only their investment but also sales strategies in China. This is because the government can make nonconformity judgments at the approval committee.
Technologies on DRAMs, NAND flashes, and organic light emitting diode (OLED) displays are designated as core national technologies. National key technologies in which R&D funds are invested must be approved by the government in accordance with the Act on the Prevention and Protection of Industrial Technology Leaks when products based on the technologies are exported. If you do not receive the approval of technology, you will not be able to use the technology to produce products abroad. Samsung Electronics’s 3D NAND flashes were reported to the South Korean government only when the company built the first line of its Xian Chinese plant because the government did not invest R&D funds in them. Experts say that because of the convergence of various essential element technologies in semiconductor manufacturing, matters to be reported can be changed to items to be approved according to interpretation. If interpretation comes out for approval, there is no choice but to bring a halt to building a new factory in China.
A red flag was raised for LG Display planning to build an 8th-generation OLED display panel factory in Guangzhou, China. LG Display has been discussing its entry into China with the South Korean government since early this year. However, discussions were put off due to a combination of South Korea’s political situation for impeachment and China's expansion of retaliation against South Korea over its deployment of the THAAD System. There is growing concern that the timing of sales may be missed if the plan is further delayed.
"LG Display's investment in the factory in China entered a review process for approval last month," said an official of the South Korean display industry. “I understand that minister Baek gave an order to set up a separate subcommittee and review the plan from scratch on the grounds that the Industrial Technology Protection Committee in the display sector is not professional.”
"LCDs entered China. Will China finally overtake South Korea in the LCD sector?” minister Baek told reporters in the meeting on the day. China is investing heavily in semiconductors and is approaching the field of OLED, threatening South Korea.”
“Even though their goal is exploring local markets in China, technology is leading through local Chinese partners," minister Baek said, showing his negative view on investment in China in the official event.