Tech war: relief as South Korean semiconductor giants dodge 'worst-case scenario' in US proposal on chip output
South Korea's two major semiconductor chip makers may get some relief from the United States' proposed changes to the Chips and Science Act aimed at curbing investment in China, allowing Korean firms some wiggle room in production, analysts have said.
Korean manufacturers had avoided the "worst-case scenario" of stopping all production expansion and innovation in China, said Kim Yang-paeng, an analyst at the Korea Institute for Industrial Economics and Trade.
"However, the future of Korea-invested facilities in China still remains uncertain, depending on how the US deals with China in the future," he told This Week in Asia.
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Under the new proposal that the US Department of Commerce announced on Tuesday, recipients of funding under the US' Chips and Science Act will be banned from expanding chip production in China or other "countries of concern" by more than 5 per cent for the next 10 years.
The proposed "guardrails" are in place to ensure that technology and innovation funded by the Act are not used for "malign purposes by adversarial countries such as China, Russia, Iran and North Korea against the United States or its allies and partners", the department said.
The US passed the US$52.7 billion chip manufacturing and research funding legislation in July, which provides US$13.7 billion for R&D and US$39 billion for manufacturing subsidies.
"Having analysed the impact on our industry, it is judged that there will be little disruptions to the operation of our manufacturing facilities in China," said Choi Sang-mok, South Korea's senior presidential secretary for economic affairs.
Production gains from technological innovations would be allowed, enabling manufacturers to produce more chips without increasing the production of semiconductor wafers, Choi said.
Korean companies would therefore be able to "maintain or partially expand and upgrade technologies" in China, said the South Korean trade ministry.
South Korea's Samsung Electronics and SK Hynix, both with production plants in China, are reviewing the details of the proposed rules.
Samsung has reportedly invested 33 trillion won (US$25.6 billion) in its semiconductor factories in China while SK Hynix has put in 35 trillion won (US$27 billion).
Samsung produces 40 per cent of its global output of NAND flash memory chips at its plants in Xi'an in China's northwest Shaanxi province, while SK Hynix's plants in Wuxi, Jiangsu province, account for half of its global production of DRAM memory chips. This makes it difficult for them to fold up businesses there under any geopolitical pressure, according to local media.
The US in October granted Samsung and SK Hynix a one-year waiver from sweeping export controls that limited chip makers from supplying their China facilities with advanced technology.
"From now on, the [US] government is required to have the waiver extended continuously so that Korean firms will be able to upgrade production procedures," said electronics professor Kim Yong-suk at South Korea's Sungkyunkwan University.
The most important aspect in semiconductor manufacturing is not merely improvements in yields but also the introduction of leading-edge equipment to keep up with the competition, said Kim from the Korea Institute for Industrial Economics and Trade.
"Both Democrats and Republicans appear on the same page on clipping China's wings but the level of punitive measures against China may change, depending on who becomes the next US president," he said.
This article originally appeared on the South China Morning Post (SCMP).
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