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Korean Semiconductor Industry Faces a Huge Loss in Exports to China
Running Into Unexpected Snag
Korean Semiconductor Industry Faces a Huge Loss in Exports to China
  • By Cho Jin-young
  • March 28, 2018, 01:15
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China has offered to increase the percentage of semiconductor chips it buys from American sources, replacing offerings from South Korea and Taiwan.
China has offered to increase the percentage of semiconductor chips it buys from American sources, replacing offerings from South Korea and Taiwan.

 

The combined share of Samsung Electronics Co. and SK Hynix Co. in the global DRAM and NAND flash markets stood at 74.7 percent and 49.1 percent, respectively, as of the fourth quarter last year. The two companies also accounted for more than 20 percent of the nation’s exports. However, the semiconductor industry has ran into an unexpected snag. According to multiple foreign reports, China has offered to increase the percentage of semiconductor chips it buys from American sources, replacing offerings from South Korea and Taiwan.

Last year, China imported US$46.3 billion (49.73 trillion won) worth of South Korean memory chips, which accounted for 52.3 percent of the country’s overall imports. The figure increased a whopping 51.3 percent due to a growing demand of memory chips for the Fourth Industrial Revolution. On the other hand, the United States sold US$640 million (687.36 billion won) worth of semiconductors to China last year. It was only 1.3 percent of South Korea’s sales. Calculating an arithmetic mean, South Korea will lose 2.5 trillion won (US$2.33 billion) of exports when China replaces 5 percent of South Korean memory chips with Americans’ and 5 trillion won (US$4.66 billion) with 10 percent.

However, market experts say it will have a limited ripple effect because South Korea is currently the biggest supplier in the market. Even when China wants to get more supply from U.S.-based Micron Technology Inc., it is hard to order more due to lack of facilities. The U.S. firm will not be able to make an investment immediately because it usually takes two to three years to produce. An executive from the industry said, “Micron will afford to supply more when the excess supply market comes one or two years later. But, there will be still problems because South Korea will have a price decision right until then.” 

Je Hyun-jung, a researcher at the Korea International Trade Association, said, “The problem is that the U.S. government is making a move to retrain even the memory chip industry after U.S. firms filed a complaint, though they are goods free of duty but not subject to anti-dumping duties. There is no way for South Korean companies to deal with it.”

On the same day, the U.S. government said the Chinese government has a critical mind that it excessively supports semiconductor firms, according to the New York Times. In short, memory chips can become a new battlefield for trade conflicts.