[INTERVIEW] 'Beijing can't retaliate against Seoul for Chip 4'

Yang Hyang-ja, an independent lawmaker who is also chairperson of the Special Parliamentary Committee on semiconductors, responds to questions during a recent interview with The Korea Times at her office at the National Assembly in Seoul. Korea Times photo by Choi Won-suk

Parliamentary chip committee chief says Korea's participation in US-led semiconductor alliance is inevitable

By Kim Yoo-chul

Just a few days before the preliminary meeting of a U.S.-led group of major semiconductor manufacturers that includes Taiwan, South Korea and Japan, the chairwoman of a special parliamentary committee on semiconductors said China cannot retaliate against South Korea for joining the group, widely known as the Chip 4.

Despite China's repeated complaints and expressions of dissatisfaction against the U.S.' drive to set up the Chip 4 alliance, which Beijing views as a plot by Washington to exclude China from the global semiconductor supply chains, South Korea confirmed its plans to attend the meeting, set for some time in early September.

The main purpose of the preliminary meeting is to help partner countries of the alliance decide key topics to be developed and even navigate collective action plans to counter possible chip-related issues, senior government officials said by telephone.

Naturally, the top point of concern is whether China will take any retaliatory actions against South Korean chip duo ― Samsung Electronics and SK hynix ― after South Korea announces its official participation in the alliance. Years ago, China hit back with economic retaliation after South Korea decided to deploy a U.S. anti-missile battery system, known as THAAD. At that time, despite China's denial that it ordered government agencies both directly and indirectly to embargo South Korean goods and services, the South's businesses in China suffered immensely.

But according to the head of the Semiconductor Industry Special Committee of the National Assembly, China is not in a position to directly hit South Korean companies, there, with sizable retaliatory measures even after an official launch of Chip 4 given Beijing's desperation to maintain the momentum of its chip self-sufficiency drive.

"In semiconductors, China has a huge reliance on South Korea as mainland China and Hong Kong accounted for 60 percent of South Korea's semiconductor exports last year. This illustrates China's dependency on South Korea for semiconductors. Under this situation, if China tries to limit the quantity of semiconductor imports from South Korea, then that could create a crippling impact for China and leave the country to suffer from severe chip shortages," Yang Hyang-ja, the chief of a parliamentary committee on semiconductors, said in a recent interview with The Korea Times at her office at the National Assembly in Seoul. "China can't hit back with economic sanctions against South Korea as it did earlier at the time of Seoul's decision to deploy Washington's missile defense systems."

China is South Korea's top trade partner and the No. 1 market for South Korea's $69 billion memory chip exports in 2021, data from the Korea International Trade Association (KITA) showed.

Samsung Electronics and SK operate massive semiconductor facilities in several Chinese cities including Xi'an, Wu'xi and Dalian.

"Because using advanced manufacturing technology is required for high-level computing chips that rapidly process large amounts of data in things from servers to mobile devices, South Korea has to inform China that it's vital for the use of U.S. equipment to make sure that Seoul will remain as a stable semiconductor supplier to China in the future," she said.

China plans to invest $1.4 trillion in high-tech industries by 2025 with the country aiming to achieve a 70 percent semiconductor self-sufficiency rate by then. But Chinese chip manufacturers are highly focused on minimally profitable labor- and capital-intensive wafer manufacturing, assembly, testing and packaging. This means that Samsung and SK's stable semiconductor production there is necessary even as the U.S. locks its crosshairs on China's tech sector.

Semiconductor chips are seen on a computer's circuit board in this illustration picture taken Feb. 25, 2022. Reuters-Yonhap

Additionally, investors underestimate latest claims by SMIC, a major Chinese chip company, for the commercially available advanced "7-nanometer" chips as doubts persist about how much money and time the company is set to spend in terms of producing them stably and efficiently.

SMIC is hoping to trail TSMC and Samsung in the race for "5-nanometer" chips. However, another problem is that Washington's moves to block exports of extreme ultraviolet (EUV) machines to Beijing would delay the process of yield improvement (defect rate). EUV is the mainstay for making chips with the 7-nanometer or below-that-level process.

Yang, a Samsung Electronics executive-turned-lawmaker, said as the White House was enlisting its democratic allies in its concerted efforts to rebuild U.S. manufacturing capacity in the advanced high-tech sector, the South Korean government is asked to navigate specifics in forecasting where the semiconductor industry will be headed over the next decades and decide what needs to be done based on "that road map."

"Amid the intensifying battle for supremacy in the global tech sector, both the United States and China are on the offensive against each other. Besides the recent Chip 4 issue, South Korea would be fated to rewrite the country's positioning statements every time the country may face issues that require political decisions. Therefore, the country needs to level up the national industrial structure with assistance from the Assembly and the government," Yang said.

Chip 4: inevitable choice for Seoul

South Korea's official participation in the Chip 4 alliance is inevitable in terms of building and maintaining chip supply chain resilience, according to the parliamentary committee chief.

"Because it's impossible to build a single semiconductor line without U.S. equipment and related patents, it's an inevitable choice for Seoul to participate in Chip 4," Yang responded, adding the alliance will help South Korea strengthen partnership with the United States, further, in the technology sector.

In this photo released by the Taiwan Presidential Office, U.S. House Speaker Nancy Pelosi, left, and Taiwanese President Tsai Ing-wen wave during a meeting in Taipei, Taiwan, Aug. 3, 2022. AP-Yonhap

South Korea has strengths in manufacturing. But the United States is the global leader in terms of handling an entire ecosystem from parts to manufacturing, while Japan is the leader in necessary materials supply. Taiwan is home to TSMC, the king of the foundry business as it supplies profitable custom chips for Apple, Qualcomm and NVIDIA.

U.S. Congress recently passed the CHIPS and Science Act of 2022. The Act includes $52 billion in incentives in addition to an investment tax credit for chip manufacturing with but recipients of the federal assistance will have to enter an agreement preventing them from upgrading facilities in China for the next decade.

Yang said President Yoon Suk-yeol's foreign affairs teams will have to persuade their Chinese counterparts to ensure that Seoul's participation in Chip 4 will be a "plus factor" in terms of helping China achieve its pursuit of chip independence.

"South Korea's participation in Chip 4 isn't aimed at countering China by siding with the United States. It should be viewed as a thoughtful and considerate process. Chances are low for the United States, Japan and Taiwan to defend China's interests. However, South Korea is positioned to speak out on why China's role does matter in building and maintaining semiconductor supply chain resilience," said Yang. "China understands that U.S. technology and equipment are vital to create greater self-sufficiency in the semiconductor industry. If South Korea fails to join into the Chip 4 alliance, then this won't be beneficial for China's technology industry, at all."

Chinese Foreign Minister Wang Yi softened his rhetoric regarding Seoul's participation of Chip 4 as he said "the decision to participate in the preliminary meeting was purely and entirely based on (South Korea's) national interests and was not meant to exclude or target any specific country. Earlier, Wang had severely criticized the United States for "politicizing the economy, weaponizing standards and undermining the stability of global production and supply chains."

Yang, who accepted an offer from the ruling People Power Party (PPP) in June this year to lead the special parliamentary committee on semiconductors, said Washington's initiative to decouple China from Western economies has a motivation to prevent Beijing from weaponizing AI and batteries, widely seen as the next-generation industries.

"Washington officials have intentions to impose sanctions in battery and AI industries through Chip 4. Because semiconductors are the basis and axis of next-generation industries, the United States wants to establish standards with its allies to pioneer next-generation industries," Yang said. "In the worst-case scenario, China would only have lagging industries that may be left behind forever and the country could even become a country, which only exports labor-intensive cheap products."