U.S.-China Conflict over Hong Kong May Affect Chip Exports to China

As the conflict between the United States and China has spread to Hong Kong, Korean semiconductor companies are facing repercussions.

Samsung Electronics and SK Hynix are paying keen attention to future developments as the United States is threatening to deprive Hong Kong of its special status.

Hong Kong is one of the four major importers of Korean semiconductors. In 2019, US$22.287 billion worth of Korean semiconductors were exported to Hong Kong, with more than 90 percent of them re-exported to China. Most Chinese smartphone makers including Huawei, Oppo, and Vivo are major customers of Korean memory semiconductor supplied via Hong Kong.


Korean semiconductor companies have long relied on the indirect export route because of convenience in transactions and tax benefits.

Semiconductor prices are sensitive to demand and supply, so they are traded based on U.S. dollars, which are relatively stable. However, the Chinese Foreign Exchange Control Act compels companies to obtain approval from the Chinese government if trade volume hits more than US$50,000, which is a burden to exporters and importers. Due to this reason, the semiconductor spot market has developed in Hong Kong, where U.S. dollars can be used in trade. Hong Kong also has better air transportation infrastructure than Shenzhen or Guangzhou, which have high demand for semiconductors. Korean semiconductors are thus shipped to Hong Kong by air and then are sold throughout China by Chinese dealers through Shenzhen, an IT industry hub.

Not only the convenience in settlement but also Chinese customers’ will to lower unit prices of semiconductors have made Hong Kong a semiconductor trade hub. In China, value-added taxes are more burdensome than tariffs. For Chinese companies, refunds of value added taxes are quickly made, but it is not so for foreign companies. If tax refunds are delayed or not made, it will affect prices, increasing cost burdens on Chinese importers. If Chinese dealers receive semiconductors in Hong Kong, they can take them to mainland China through their own networks and reduce value-added taxes.

However, if the United States imposes sanctions on Hong Kong, changes will be inevitably made in the current export system. Korean semiconductor companies such as Samsung Electronics and SK Hynix are looking for ways to ensure that supply is not disrupted. "If the Hong Kong sanctions become a reality, we can use a direct export route to China without passing through Hong Kong," a semiconductor industry insider said. "If we change the supply method, logistics costs may increase, but we expect that there will be no disruption in supply."

The semiconductor industry is very concerned that direct exports could lead to stronger U.S. surveillance. With Samsung Electronics and SK Hynix under pressure to invest in both the United States and China, the growing volume of direct exports to China could add to political burden rather than economic burden.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution