Publisher's Note
The South Korean government is supposed to decide whether to join the ‘Chip 4 alliance’ by the end of this month. The idea proposed by the United States is to build a stable supply chain in the semiconductor industry by utilizing the United States’ chip design capabilities and core technologies, South Korea’s and Taiwan’s manufacturing capabilities and Japan’s strength in materials, components and equipment. The alliance is intended to curb the growth of the Chinese semiconductor industry.
Debate on the matter is intensifying in South Korea with the deadline approaching, and this is because the deadline means having to choose between the technology of the United States and the market of China. According to some experts, South Korea’s participation in the alliance will lead to China’s retaliation as in the previous case of THAAD deployment in South Korea. At present, more than 60 percent of South Korea’s semiconductor exports go to China and Hong Kong, and Samsung Electronics and SK Hynix are running plants in China. On the other hand, Taiwan and Japan are not dependent on the Chinese semiconductor market and have no reason to hesitate to join the alliance. This is why China is putting pressure only on South Korea.
The Global Times of the Communist Party of China wrote in its recent editorial that China is the most important market for South Korean semiconductor companies, and severing relations with the market is something like a commercial suicide. The Chinese government is also expressing its discontent.
South Korea’s strategic ambiguity is reaching the end of its life. Its manufacturing activities in the sector are impossible without U.S. source technologies. If the United States opts to control the activities with its patented technologies, the consequences will be dire indeed.
It is true that South Korea may have to face China’s retaliation by siding with the United States. However, what is necessary is a more thorough reality check. Samsung Electronics’ share in the Chinese smartphone market has dropped from more than 20 percent to close to 0 percent for 10 years. The local market share of Hyundai Motor Co., which has done business in China for two decades, was 0.8 percent in June this year. The Chinese EV battery market is being dominated by local companies such as CATL and BYD, leaving no chance to Korean battery makers. The same is likely to occur in the Chinese semiconductor market.
The United States is increasingly curbing China’s semiconductor sector and China is struggling to stand alone there. The pressure on South Korean semiconductor companies doing business in China is of no good at all. China cannot produce its IT products without U.S., South Korean and Japanese memory chips. For this to continue, South Korea needs to stay way ahead of China in terms of memory and non-memory chip technologies. Joining the alliance is the most effective way to do so and the South Korean government has to remember this in making its decision.