U.S. Technology Suppression Against China and Korean Semiconductor Industry Policy Adjustment (Part 1)

Based on the layout of comprehensive strategic competition with China, the United States has adopted a series of measures in the semiconductor field. In the context of the US's comprehensive upgrading of China's technology suppression, South Korea intends to join the chip quadrilateral alliance (Chips 4) in order to ensure the development and safety of its chip industry, and has significantly adjusted its industrial policy to deal with risk changes in the external environment. The deep integration of the semiconductor industry in China and South Korea, and the measures taken by South Korea to maintain economic security, will inevitably affect the direction of the restructuring of the semiconductor industry chain. It deserves deep attention.

Competition Situation of Sino-US Semiconductor Industry

At present, the global semiconductor powerhouses are engaged in increasingly fierce competition around ensuring the safety of their own industrial development and competing for dominance. According to the 2021 "Industry Status" report of the American Semiconductor Industry Association, the semiconductor industry chain includes three major sectors: the upper, middle and lower sectors: the upstream sector based on scientific research, of which electronic design automation and core intellectual property rights account for 3% of the value chain, and the United States accounts for 3% of the value chain. 74%, mainland China only accounts for 4%, which is the biggest shortcoming in mainland China. Logic chips account for 30% of the value chain, including 67% in the United States and 5% in mainland China; DAO (digital-to-analog conversion, analog chips and others) account for 17% of the value chain, including 37% in the United States and 7% in mainland China; storage chips It accounts for 9% of the value chain, including 29% in the United States and 4% in mainland China; semiconductor manufacturing accounts for 12% of the value chain, including 41% in the United States and 2% in mainland China. The United States has an absolute advantage in this link. The basic material is the mid-stream sector, which requires extremely high capital investment. Among them, semiconductor materials account for 5% of the value chain, 11% of which is owned by the United States, and 16% in mainland China; wafer manufacturing accounts for 19% of the value chain, of which 12% is in the United States and 16% in mainland China. China is slightly ahead. The downstream is the packaging and testing link, which requires both investment and labor, accounting for 6% of the value chain, of which the United States accounts for 2%, and mainland China 38%. China has an absolute advantage.

Therefore, the competition between China and the United States in the semiconductor field mainly focuses on the dominance of the first sector of the industrial chain. Among them, the competition in the production of logic chips is the most intense. From the perspective of chip manufacturing precision, in the field of chip production above 45nm, China accounted for 23%, and the United States accounted for 9%; in the field of 28-45nm, China accounted for 19%, and the United States accounted for 6%; in the field of 10-22nm, China accounted for 3%, and the United States accounted for 3%. 43%; Taiwan, China accounted for 92% in the field below 10nm, and South Korea 8%. Therefore, the United States' main measures to suppress China's semiconductor industry focus on prohibiting South Korea and Taiwan from providing low-nano-level chip foundry to mainland Chinese companies, and at the same time attracting South Korean and Taiwanese companies to invest in the United States to set up factories to make up for the US's chip production. insufficient.

In recent years, China has developed the semiconductor industry with a "national system". China's chip production capacity and output value have been rapidly improved. In the first four months of 2022, China's chip imports fell by 11.4% year-on-year, and the self-sufficiency rate of semiconductors has gradually increased. America is under pressure. In order to prevent China from obtaining external technical support, in March 2022, the United States proposed the idea of a four-party chip alliance, intending to create a division of labor in East Asia where "Japan is responsible for the supply of semiconductor materials and equipment, and South Korea and Taiwan are responsible for chip manufacturing." The mainland is restricted in the industrial links with low added value. In this context, South Korea's choice is particularly important. If South Korea agrees to join the chip quartet, the United States will further gain the ability to freely flow production factors in the lagging region, strengthen control over China's semiconductor technology, and worsen the international supply chain environment China faces.

South Korea's motivation for joining the chip "Quadruple Alliance"

The reason why South Korea decided to join the chip quartet and adjust its semiconductor industry policy is that its domestic semiconductor industry has relatively large shortcomings and defects. The Korean semiconductor industry rose in the 1990s, benefiting from the industrial transfer from the United States and Japan. After decades of development, it has formed a relatively leading industrial system and has become the economic pillar of South Korea. However, the Korean economy is highly dependent on the international market and the international industrial chain. In recent years, the global semiconductor industry has faced a series of external crises such as the deterioration of the trade and investment environment, the imbalance of supply and demand structure, and the interference of non-market factors, which have profoundly affected the economic security of South Korea. In addition to the deterioration of the external economic environment, the development of the Korean semiconductor industry is also constrained by many factors such as excessive dependence on foreign countries, insufficient professional talents, and insufficient competitive advantages.

South Korea is an export-oriented economy. The raw materials, parts, production equipment, production technology and other elements required for semiconductor production are highly dependent on external supply, and product sales are mainly oriented to the international market. Judging from the degree of dependence on foreign raw materials, the current localization rate of Korean semiconductor raw materials and parts is about 45%, and the localization rate of semiconductor equipment is only 20%. As a labor-intensive industry, it lacks the first-mover advantage obtained by signing technology transfer licenses with leading international manufacturers like Japan. Therefore, South Korea is still restricted by the United States, Japan and other countries in terms of key materials, key equipment, and core production technology; from the perspective of the sales market, Korean semiconductor products mainly rely on the demand of the international industrial chain. About 60% of South Korea's semiconductor exports in 2022 will depend on demand from China (including Hong Kong). As the United States intensifies its pressure on China's technology, South Korea's pressure on chip exports to China has surged.

At present, the global competition for talents is intensifying. In the absence of a national overall plan and guarantee plan, South Korea's traditional talent training methods and talent attraction policies will threaten its status as a semiconductor powerhouse. According to data from the Korea Semiconductor Industry Association, the number of semiconductor research and development (R&D) personnel in South Korea in 2019 was 110,000, with an average growth rate of only 1% over the past five years. Compared with 220,000 in China and 140,000 in Japan, it is at a low level. The Korean Ministry of Industry, Trade and Resources pointed out that the Korean semiconductor business community needs to recruit about 1,500 new employees every year, but currently only 650 new employees meet the conditions, less than half of the expected number.

The advantages of South Korea's semiconductor industry are mainly concentrated in the field of memory chips, which account for about 95% of the global market share. However, in recent years, global memory chip prices have continued to decline, and South Korea’s semiconductor export profits have dropped sharply. Facing more intense competition in existing technologies, South Korea’s competitive disadvantages have gradually emerged. However, South Korea’s research and development momentum in other types of chips is insufficient, and it lacks the advantages of original technology. It is relatively backward in emerging fields such as AI chips, vehicle chips, and biochips that are in high demand in the international market. Therefore, South Korea agreed to join the chip quartet alliance. In addition to making up for the shortcomings of the Korean semiconductor industry, gaining competitive advantages in other fields is also an important reason.

South Korea is afraid of potential technological suppression by the United States. The report of the Korea Institute of Industrial Economics and Trade and the Korea Institute of Information and Communication Policy believes that under the current general trend of differentiation and reconstruction of the global semiconductor industry chain, it is in the long-term interests of South Korea to strengthen cooperation with the US-centered global semiconductor technology alliance. The United States owns most of the core semiconductor technologies such as semiconductor design, intellectual property rights, and equipment manufacturing. In the era of Industry 4.0, information technology is accelerating industrial transformation. If there is a breakdown in relations with the United States, the foundation of the Korean semiconductor industry will be shaken. Joining the technology alliance can strengthen the technical partnership with countries and regions such as the United States, Europe, Japan and Taiwan, and occupy a place in the process of differentiation and transfer of the global semiconductor industry chain.

For Korean companies, joining the chip quartet will enable Korean semiconductor companies to gain a competitive advantage in the future. There is no doubt that the United States is a giant in semiconductor design and equipment, but it is also facing problems such as manufacturing outsourcing and industrial hollowing out. In recent years, with the gradual technologicalization of chip foundries and the increase in added value, the United States has begun to encourage the localization of chips. Production. In July 2022, the U.S. Senate passed the "Chip and Science Act", attracting major semiconductor companies around the world to invest in the United States. The bill stipulates that companies that build semiconductor factories in the United States in the future will receive a 25% tax break. This means that large-scale investment in the United States by South Korean companies can not only obtain admission tickets to enter the US market, but also enjoy a large number of tax incentives to increase production profits, and also buy time for enterprises to develop new technologies, so that enterprises can realize "R&D-production-sales" "A virtuous circle.

South Korea's entry into the chip quartet is fearful of China's opposition. However, some research institutions in South Korea believe that China will not easily retaliate economically against South Korea in the context of US chip sanctions and export controls. In recent years, in order to curb China's development, the United States has imposed severe suppression and sanctions on China's relatively weak semiconductor industry. Including preventing China from obtaining key items such as semiconductor manufacturing equipment and advanced process chips; obstructing overseas acquisitions of Chinese companies; restricting Chinese students and scientific researchers from studying and exchanging in the United States, and suppressing China's semiconductor talent development. U.S. sanctions have made it more difficult for China to obtain technological exchanges from the outside to develop its chip industry. At the same time, the semiconductor industries of China and South Korea are highly interdependent. China's annual semiconductor import scale is 350 billion US dollars, and nearly one-fifth of semiconductor imports come from South Korea. There is a large space for complementarity in semiconductor design, materials, equipment and other links between China and South Korea. South Korea believes that in the context of the US imposing severe sanctions on China, in the face of Japan and Europe, which have already reached a consensus with the US on "blocking Chinese chips", and TSMC, which relies heavily on US companies and Japanese companies in terms of manufacturing equipment and design software, South Korea seems to be the only country that China can fight for. China needs to strengthen technical cooperation with South Korea to ensure the normal development of its semiconductor industry. Therefore, China is less likely to take economic retaliation against South Korea for joining the quartet. As a result, the South Korean government hesitated at first, but the tendency to join in the later period became increasingly obvious. (Author: Yang Yanlong is a full-time researcher at the Institute of International Studies, Shandong University; Cui Yingjia is a research assistant at the School of Northeast Asia, Shandong University)